<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1997
REGISTRATION NO. [333- ]
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PHC, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
MASSACHUSETTS 8069 04-2601571
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
200 LAKE STREET
SUITE 102
PEABODY, MA 01960
(508) 536-2777
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
200 LAKE STREET
SUITE 102
PEABODY, MA 01960
(508) 536-2777
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
BRUCE A. SHEAR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PHC, INC.
200 LAKE STREET
SUITE 102
PEABODY, MA 01960
(508) 536-2777
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
ROSLYN G. DAUM, ESQ.
CHOATE, HALL & STEWART
EXCHANGE PLACE
53 STATE STREET
BOSTON, MASSACHUSETTS 02109
(617) 248-5000
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.
___________________
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, CHECK THE FOLLOWING BOX. |X|
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<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
TITLE OF EACH CLASS OF SECURITIES AMOUNT
TO BE REGISTERED TO BE PROPOSED PROPOSED
REGISTERED MAXIMUM MAXIMUM
(1) OFFERING AGGREGATE AMOUNT OF
PRICE OFFERING REGISTRATION
PER PRICE (2) FEE
SHARE
(2)
Class A Common Stock 2,130,000 $3.75 $7,987,500 $2,420
(1) Pursuant to Rule 416, there are also being registered such additional
shares of Class A Common Stock as may become issuable upon the conversion of the
Debentures, the Infinity/Seacrest Warrants, the Alpine Warrant and the Barrow
Street Warrant.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of up to 2,130,000 shares
of Class A Common Stock of PHC, Inc., a Massachusetts corporation (the
"Company"), for sale by the holders thereof (the "Selling Security Holders").
1,562,500 of the shares of Class A Common Stock offered pursuant to this
Prospectus are issuable upon the conversion of the Company's 7% Convertible
Debentures due December 31, 1998 in aggregate principal amount of $3,125,000
(the "Debentures") assuming a conversion price of $2.00 per share. 150,000
shares of Class A Common Stock offered pursuant to this Prospectus are issuable
upon the exercise of two warrants, one for 90,000 shares and the other for
60,000 shares, issued by the Company to Infinity Investors Ltd. and Seacrest
Capital Limited, respectively (the "Infinity/Seacrest Warrants"). 25,000 shares
of the Class A Common Stock offered pursuant to this Prospectus are issuable
upon the exercise of a warrant issued by the Company to Alpine Capital Partners
(the "Alpine Warrant"). 3,000 shares of the Class A Common Stock offered
pursuant to this Prospectus are issuable upon the exercise of a warrant issued
by the Company to Barrow Street Research, Inc. (the "Barrow Street Warrant").
160,000 shares of the Class A Common Stock offered pursuant to this Prospectus
are issuable upon the exercise of a warrant issued by the Company to C.C.R.I.
Corporation (the "CCRI Warrant"). 229,500 shares of the Class A Common Stock
offered pursuant to this Prospectus were issued by the Company in connection
with certain business acquisitions (the "Acquisition Shares"). The Debentures,
the Infinity/Seacrest Warrants, the Alpine Warrant, the Barrow Street Warrant,
the CCRI Warrant and the Acquisition Shares were issued by the Company in
transactions exempt from registration under the Securities Act of 1933, as
amended (the "Act"), and applicable state securities laws.
<PAGE>
42
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
================================================================================
================================================================================
SUBJECT TO COMPLETION, DATED APRIL 15, 1997
================================================================================
PROSPECTUS
2,130,000 SHARES OF CLASS A COMMON STOCK OF
PHC, INC.
PIONEER HEALTHCARE -- REGISTERED TRADEMARK
This Prospectus relates to the public offering that may be made from time to
time of up to 2,130,000 shares of the Class A Common Stock, par value $.01 per
share (the "Class A Common Stock") of PHC, Inc., a Massachusetts corporation
(the "Company"), by, or for the accounts of, the holders thereof (the "Selling
Security Holders"). See "Selling Security Holders."
1,562,500 of the shares of Class A Common Stock offered pursuant to this
Prospectus are issuable upon the conversion of the Company's 7% Convertible
Debentures due December 31, 1998 in the aggregate principal amount of $3,125,000
(the "Debentures") assuming a conversion price of $2.00 per share. 150,000
shares of the Class A Common Stock offered pursuant to this Prospectus are
issuable upon the exercise of two warrants one for 90,000 shares and the other
for 60,000 shares, issued by the Company to Infinity Investors Ltd. and Seacrest
Capital Limited, respectively (the "Infinity/Seacrest Warrants"). 25,000 shares
of the Class A Common Stock offered pursuant to this Prospectus are issuable
upon the exercise of a warrant issued by the Company to Alpine Capital Partners
(the "Alpine Warrant"). 3,000 shares of the Class A Common Stock offered
pursuant to this Prospectus are issuable upon the exercise of a warrant issued
by the Company to Barrow Street Research, Inc. (the "Barrow Street Warrant").
160,000 shares of the Class A Common Stock offered pursuant to this Prospectus
are issuable upon the exercise of a warrant issued by the Company to C.C.R.I.
Corporation (the "CCRI Warrant"). 229,500 shares of the Class A Common Stock
offered pursuant to this Prospectus were issued by the Company in connection
with certain business acquisitions (the "Acquisition Shares"). The Debentures,
the Alpine Warrant, the Barrow Street Warrant, the CCRI Warrant and the
Acquisition Shares were issued by the Company in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Act"), and
applicable state securities laws.
The shares offered pursuant to this Prospectus may be sold from time to time
by the Selling Security Holders or their transferees. No underwriting
arrangements have been entered into by the Selling Security Holders as of the
date hereof. The distribution of the shares offered pursuant to this Prospectus
by the Selling Security Holders may be effected in one or more transactions that
may take place in the over-the-counter market, including ordinary broker's
transactions, privately negotiated transactions, or through sales to one or more
dealers for resale of such shares as principals, at prevailing market prices at
the time of sale, prices related to such prevailing market prices, or negotiated
prices. Underwriting discounts and usual and customary or specifically
negotiated brokerage fees or commissions will be paid by the Selling Security
Holders in connection with sales of such shares. See "Plan of Distribution."
The Company will not receive any proceeds from the sale of the shares offered
pursuant to this Prospectus. By agreement with the Selling Security Holders, the
Company will pay all of the expenses incident to the registration of such shares
under the Act (other than agent's or underwriter's commissions and discounts),
estimated to be approximately $71,000.
The Selling Security Holders, and any broker-dealers, agents, or underwriters
through whom the shares offered pursuant to this Prospectus are sold, may be
deemed "underwriters" within the meaning of the Act with respect to securities
offered by them, and any profits realized or commissions received by them may be
deemed underwriting compensation.
The Class A Common Stock and the Company's Class B Common Stock, par value
$.01 per share (the "Class B Common Stock"), are similar in all respects except
that holders of Class B Common Stock have five votes per share and holders of
Class A Common Stock have one vote per share on all matters on which
stockholders may vote and that 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 of the remaining members of the
Board of Directors. Subject to certain limitations, each share of the 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.
See "Description of Securities." The Company also has outstanding a class of
nonvoting Class C Common Stock, par value $.01 per share (the "Class C Common
Stock;" the Class A Common Stock, the Class B Common Stock and the Class C
Common Stock are sometimes collectively referred to herein as the "Common
Stock.") Except as otherwise required by law, the Class C Common Stock has no
voting rights. The Class C Common Stock will automatically convert into shares
of Class B Common Stock if certain earnings targets are achieved by the Company.
If such earnings targets are not achieved, the Class C Common Stock will
automatically be canceled and retired. The Company does not expect the earning
targets to be achieved. See "Description of Securities." As of the date of this
Prospectus, and without giving effect to the exercise of any options or
warrants, the holders of Class A Common Stock own approximately 73.97% of the
outstanding common stock and hold approximately 41.98% of the total voting
power, and the holders of Class B Common Stock and Class C Common Stock together
own approximately 26.02% of the outstanding Common Stock and hold approximately
58.01% of the total voting power. Bruce A. Shear, the President and Chief
Executive Officer and a Director of the Company owns approximately 18.90% of the
outstanding Common Stock and holds approximately 53.32% of the total voting
power. If the Class C Common Stock is converted into Class B Common Stock the
total voting power of the holders of the Class A Common Stock will decrease to
36.24%, and the total voting power of the holders of the Class B Common Stock
will increase to approximately 63.75% and the total voting power of Bruce A.
Shear will increase to approximately 56.74%.
The Class A Common Stock is traded on the Nasdaq SmallCap Market under the
symbol PIHC. On April 10, 1997, the closing bid price of the Class A Common
Stock was $3.75.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
PRICE TO PUBLIC PROCEEDS TO SELLING
(1) STOCKHOLDERS (1)
Per Share.................. $3.75 $3.75
Total................... $7,987,500 $7,987,500
(1) Estimated on the basis of the average of the bid and asked prices of the
Class A Common Stock on April 10, 1997, as reported on the Nasdaq SmallCap
Market.
THE DATE OF THIS PROSPECTUS IS APRIL 15, 1997
The Company intends to furnish its stockholders and holders of rights
exercisable for publicly traded securities of the Company with annual reports
containing audited financial statements and such other periodic reports as the
Company may from time to time deem appropriate or as may be required by law.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act") with respect to the securities
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the securities offered
hereby, reference is hereby made to the Registration Statement, and the exhibits
and schedules thereto which may be inspected without charge at the public
reference facilities maintained at the principal office of the Commission at 450
Fifth Street, N.W., Room 1024, Washington D.C. 20549 and at the Commission's
regional offices at 7 World Trade Center, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained upon written request
from the public reference section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Reference is made to the copies of
any contracts or other documents filed as exhibits to the Registration
Statement.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can be
obtained at rrescribed rates from the Commission at such address. Such reports,
proxy statements and other information can also be inspected at the Commission's
regional offices at 7 World Trade Center, New York, New York, 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
A copy of the Company's Annual report on Form 10-KSB, as filed with the
Commission, is available upon request, without charge, by writing to PHC, Inc.,
200 Lake Street, Suite 102, Peabody, Massachusetts 01960, Attention:
Bruce A. Shear.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE
NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS DOES NOT GIVE EFFECT TO THE
EXERCISE OF (I) SHARES ISSUABLE UPON CONVERSION OF THE DEBENTURES, (II) SHARES
ISSUABLE UPON EXERCISE OF THE INFINITY/SEACREST WARRANTS; (III) SHARES ISSUABLE
UPON EXERCISE OF THE ALPINE WARRANT, (IV) SHARES ISSUABLE UPON EXERCISE OF THE
BARROW STREET WARRANT, (V) SHARES ISSUABLE UPON EXERCISE OF THE WARRANTS ISSUED
IN CONNECTION WITH THE COMPANY'S FEBRUARY 1996 PRIVATE PLACEMENT, (VI) THE
WARRANTS ISSUED TO CERTAIN PERSONS IN LIEU OF FEES FOR INVESTOR RELATION
SERVICES, (VII) THE COMPANY'S REDEEMABLE CLASS A WARRANTS (THE "IPO WARRANTS")
ISSUED IN CONNECTION WITH THE COMPANY'S INITIAL PUBLIC OFFERING ("IPO") IN MARCH
1994, (VIII) THE UNIT PURCHASE OPTION ("UNIT PURCHASE OPTION") GRANTED TO THE
UNDERWRITER AND ITS DESIGNEES IN CONNECTION WITH THE IPO, (IX) THOSE WARRANTS
ISSUED IN CONNECTION WITH A BRIDGE FINANCING BY THE COMPANY, COMPLETED IN
OCTOBER 1993 ("BRIDGE WARRANTS") THAT REMAIN UNEXERCISED, (X) WARRANTS ISSUED TO
FORMER HOLDERS OF BRIDGE WARRANTS, (XI) OPTIONS GRANTED OR RESERVED FOR ISSUANCE
UNDER THE COMPANY'S 1993 STOCK PURCHASE AND OPTION PLAN (THE "STOCK PLAN"),
(XII) OPTIONS GRANTED OR RESERVED FOR ISSUANCE UNDER THE COMPANY'S 1995 EMPLOYEE
STOCK PURCHASE PLAN (THE "STOCK PURCHASE PLAN"), (XIII) OPTIONS GRANTED OR
RESERVED FOR ISSUANCE UNDER THE COMPANY'S 1995 NON-EMPLOYEE DIRECTOR STOCK
OPTION PLAN (THE "NON-EMPLOYEE DIRECTOR PLAN"), (XIV) SHARES ISSUABLE TO THE
FORMER OWNERS OF BEHAVIORAL STRESS CENTERS, INC. AND PIONEER COUNSELING OF
VIRGINIA, INC. IN THE EVENT THAT CERTAIN EARNING TARGETS ARE ACHIEVED AND (XV)
SHARES ISSUABLE UPON THE EXERCISE OF THE CCRI WARRANT.
THE COMPANY
PHC, Inc. (the "Company") is a national health care company specializing in
the treatment of substance abuse, which includes alcohol and drug dependency and
related disorders, and in the provision of psychiatric services and long-term
care. The Company currently operates three substance abuse treatment facilities:
Highland Ridge Hospital, located in Salt Lake City, Utah, ("Highland Ridge");
Mount Regis Center, located in Salem, Virginia, near Roanoke ("Mount Regis");
and Good Hope Center, located in West Greenwich, Rhode Island ("Good Hope").
Until August 16, 1994, the Company operated Marin Grove, a substance abuse
treatment facility in California ("Marin Grove"). The Company operates six
psychiatric facilities: Harbor Oaks Hospital ("Harbor Oaks"), a 64-bed
psychiatric hospital located in New Baltimore, Michigan; Harmony Healthcare
("Harmony Healthcare"), a provider of outpatient behavioral health services in
Las Vegas, Nevada; Total Concept EAP ("Total Concept"), a provider of outpatient
behavioral health services in Shawnee Mission, Kansas; BSC-NY, Inc. ("BSC")
which provides management and administrative services to psychotherapy and
psychological practices in the greater New York City metropolitan area; North
Point-Pioneer, Inc. ("NPP") which operates five outpatient behavioral health
centers under the name Pioneer Counseling Center in the greater Detroit
metropolitan area, and Pioneer Counseling of Virginia, Inc. ("PCV"), an 80%
owned subsidiary providing outpatient services through a physicians' practice in
Roanoke, Virginia. The Company also operates a subacute long-term care facility,
Franvale Nursing and Rehabilitation Center ("Franvale"), in Braintree,
Massachusetts.
The Company's substance abuse facilities provide specialized treatment
services to patients who typically have poor recovery prognoses and who are
prone to relapse. These services are offered in small specialty care and
subacute facilities (i.e., facilities designed to provide care to individuals
who no longer require hospital care but who require some medical care), which
permits the Company to provide its clients with efficient and customized
treatment without the significant costs associated with the management and
operation of general acute care hospitals. The Company tailors these programs
and services to "safety-sensitive" industries and concentrates its marketing
efforts on the transportation, oil and gas exploration, heavy equipment,
manufacturing, law enforcement, gaming, and health services industries.
Harbor Oaks provides psychiatric care to children, adolescents and adults. The
Company draws patients from the local population and uses the facility as a
mental health resource to complement its substance abuse facilities. Harmony
Healthcare and Total Concept provide psychiatric treatment for adults,
adolescents and children with a concentration in the gaming industry. BSC is a
manager of psychological service providers with contracts at over 35 long-term
care facilities. 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. NPP provides outpatient psychiatric
treatment for adults, adolescents and children in the Metropolitan Detroit area.
PCV is a physicians' practice specializing in the treatment of addictive
behavior in adults, adolescents and children in the Roanoke Valley, Virginia
area.
Franvale provides traditional geriatric care services as well as specialized
subacute services. The facility provides care to the high acuity segment
(patients requiring a significant amount of medical care) of the geriatric
population and to younger patients who require skilled nursing care for longer
terms than typically associated with a general acute care hospital. The
Company's long-term care services are offered in a larger, more traditional
setting than the Company's substance abuse facilities, enabling the Company to
take advantage of economies of scale to provide cost-effective treatment
alternatives. The Company markets its long-term care to hospitals, insurers and
managed care providers, in addition to marketing directly to prospective
residents and their families.
The Company's strategy of providing services to particular markets has
resulted in customized, outcome-oriented programs, which the Company believes
produce overall cost savings to the patient or client organization. The
substance abuse facilities provide treatment services designed to prevent
relapse. Such services, while potentially more costly on a per patient stay
basis, often result in long-term health care cost savings to insurers, patients
and patients' families. The goal of the Company's psychiatric treatment programs
is to provide care at the lowest level of intensity appropriate for the patient
in an integrated delivery system that includes inpatient and outpatient
treatment opportunities. The integrated nature of the Company's psychiatric
programs, which generally involves the same caregivers supervising different
treatment modalities, provides for efficient care delivery and the avoidance of
repeat procedures and diagnostic and therapeutic errors. The Company's long-term
care facility achieves its cost containment objective by providing care to high
acuity patients in a setting that produces positive outcomes through the use of
tailored services. The specific skilled services that are provided are similar
to those offered in acute care hospitals without the added overhead cost.
The Company was organized as a Delaware corporation in 1976 under the name
American International Health Services, Inc. In 1980, the Company merged into an
inactive publicly held Massachusetts corporation and was the surviving
corporation in the merger. The Company changed its name to "PHC, Inc." as of
November 24, 1992. The Company is based in Massachusetts and is unaffiliated
with an inactive Minnesota corporation of the same name. The Company does
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 operates as a holding company, providing
administrative, legal and programmatic support to its subsidiaries. The Company
plans to expand its operations through the acquisition or establishment of
additional substance abuse and psychiatric treatment facilities.
Unless the context otherwise requires, references in this Prospectus to
"Pioneer" and the "Company" mean PHC, Inc. and its subsidiaries. The Company's
executive offices are located at 200 Lake Street, Suite 102, Peabody,
Massachusetts 01960 and its telephone number is (508) 536-2777.
<PAGE>
THE OFFERING
Securities Offered:...........2,130,000 shares of Class A Common Stock. See
"Description of Securities."
Securities Outstanding:
Class A Common Stock 2,646,884
Class B Common Stock 731,348
Class C Common Stock 199,816
Preferred Stock 0
NASDAQ Symbol Common Stock: PIHC
Use of Proceeds The Company will not receive any proceeds from the sale of
securities in this offering.
Risk Factors An investment in these securities involves a high degree of risk.
Prospective purchasers should carefully review the factors set forth under "Risk
Factors."
<PAGE>
SUMMARY OF CONSOLIDATED FINANCIAL DATA
Six Months Ended Year Ended June 30,
December 31,
1996 1995 1996 1995
Statements of $ $ $ $
Operations Data:
Revenue............... $12,660,995 $9,469,880 $21,802,758 $16,536,618
Operating expenses.... 12,057,196 9,300,949 21,845,592 15,621,449
Income (loss) from 603,799 168,931 (42,834) 915,169
operations............
Other expense......... 473,917 378,330 754,072 405,390
Income (loss) before 77,741 (209,399) (585,315) 268,671
extraordinary item
Extraordinary item.... - - - -
Net income (loss)..... 77,741 (209,399) (585,315) 268,671
Net income (loss) per
share:
Before extraordinary $ $0.03 $(0.09) (.22) 0.11
item..................
Extraordinary item.. - - - -
Net income (loss) $0.03 $(0.09) (.22) 0.11
As of December 31, 1996
Balance Sheet Data:
Total assets...................... $26,157,471
Working capital................... $8,495,564
Long-term obligations............. $12,630,461
Stockholder's equity.............. $7,183,401
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative in nature and
involves a high degree of risk. In addition to the other information in this
Prospectus, the following risk factors should be considered carefully in
evaluating whether to invest in the securities offered hereby.
NEGATIVE CASH FLOW; NEED FOR ADDITIONAL FINANCING; SIGNIFICANT AND
INCREASING AMOUNTS OF ACCOUNTS RECEIVABLE. The Company generated a loss of
$585,315 during fiscal year 1996 and income of $268,671 during fiscal year 1995.
The Company generated a loss of $209,399 during the six months ended December
31, 1995 and income of $77,741 during the six months ended December 31, 1996.
There can be no assurance that the Company will not incur additional losses in
the future. As a result of significant losses in prior years, as of December 31,
1996, the Company had an accumulated deficit of $1,552,581. The Company
experienced a significant increase in accounts receivable from $7,525,106, as of
December 31, 1995, to $10,529,186 as of December 31, 1996. Primarily as a result
of the increase in accounts receivable, the Company has had negative cash flow
from operations in recent periods. Although the Company has entered into
accounts receivable funding facilities with LINC Finance Corporation VIII and
Healthcare Financial Partners-Funding II, L.P. ("HCFP") and mortgage financing
for its Harbor Oaks property (see the Consolidated Financial Statements and
notes related thereto included herein), there can be no assurance that the
Company will be able to obtain any additional required financing on terms
acceptable to the Company. The Company intends to expand its operations through
the acquisition or establishment of additional facilities, and may seek to
obtain additional financing from various sources including banks. The inability
to obtain needed financing could have a material adverse effect on the Company's
financial condition, operations and business prospects and there can be no
assurance that the Company will be able to attain or maintain profitability in
the future. See Consolidated Financial Statements and notes related thereto
included herein.
LACK OF ACCESS TO CAPITAL TO ACHIEVE ACQUISITION STRATEGY. The Company's plan
to acquire additional facilities in the future is highly dependent upon its
access to capital, of which there can be no assurance. See "Negative Cash Flow;
Need for Additional Financing; Significant and Increasing Amounts of Accounts
Receivable." If the Company is unable to secure the necessary access to capital
it will be unable to acquire additional facilities which, in turn, will limit
the Company's growth.
REIMBURSEMENT BY THIRD-PARTY PAYORS; SIGNIFICANT AND INCREASING ACCOUNTS
RECEIVABLE; CONCENTRATION OF A RECEIVABLE; CHANGE IN SERVICE MIX. Payment for
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 the
Medicaid programs; payment for psychiatric services is provided by private
insurance carriers, managed care organizations and the Medicare and the Medicaid
programs. Changes in the sources of the Company's revenues could significantly
alter the profitability of the Company's operations. 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 addition, the Company experiences greater delays in the
collection of amounts reimbursable by the Medicare and the 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 and psychiatric to long-term care could have a material adverse
effect on the Company as would an increase in the percentage of the Company's
patients who are insured by Medicare or Medicaid. In addition, cost containment
pressures from private insurers and the Medicare and the Medicaid programs have
begun to restrict the amount that the Company can charge for its services. If a
substantial number of private insurers and managed care organizations were to
adopt more restrictive reimbursement schedules and if such schedules did not
permit the Company to profitably provide substance abuse treatment and long-term
and subacute health care, the Company's business would be materially adversely
affected. In addition, 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 governmental payors.
The Company had substantial receivables from Medicaid and Medicare of
approximately $3,217,600 at December 31, 1996, which would constitute a
concentration of credit risk should these agencies defer or be unable to make
reimbursement payments as due.
A number of substance abuse facilities in the New England area have closed in
recent years, purportedly in part because certain managed care organizations are
no longer willing to pay for inpatient treatment beyond five or ten days, making
it difficult for such facilities to remain in operation. The Company has
marketed, and intends to continue marketing, its services to managed care
organizations and insurance companies that are willing to reimburse the Company
for longer lengths of stay, particularly with respect to those patients with
severe substance abuse addictions. However, 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.
Reimbursement for substance abuse and psychiatric treatment from private
insurers is largely dependent on the Company's ability to substantiate the
medical necessity of treatment in accordance with varying requirements of
different insurance companies. The process of substantiating a claim often takes
up to four months and, as a result, the Company experiences significant delays
in the collection of amounts reimbursable by third-party payors which adversely
affects the Company's working capital condition. The Company's accounts
receivable (net of allowance for bad debts) were $10,529,186 at December 31,
1996, compared with $8,866,065 at June 30, 1996. Those changes are due primarily
to an increase in patient census in connection with acquisitions and an increase
in the number of beds available at Franvale due to completion of construction.
If the Company's expansion plans are successful, the Company will be required to
seek payment from a larger number of payors and the amount of the Company's
accounts receivable will likely increase. Although the Company believes it
maintains an adequate allowance for doubtful accounts, if the amount of
receivables which eventually become uncollectible exceeds such allowance, the
Company could be materially adversely affected. In addition, any decrease in the
Company's ability to collect its accounts receivable or any further delay in the
collection of accounts receivable would have a material adverse effect on the
Company. See the Consolidated Financial Statements and notes related thereto
included herein.
As a general rule, the Company attempts not to accept patients who do not
have either insurance coverage or adequate financial resources to pay for
treatment. Each of the Company's substance abuse facilities does, however,
provide treatment free of charge to a small number of patients each year who are
unable to pay for treatment but who meet certain clinical criteria and who are
believed by the Company to have the requisite degree of motivation for treatment
to be successful. In addition, the Company provides follow-up treatment free of
charge to relapse patients who satisfy certain criteria. Most of the Company's
psychiatric patients are either covered by insurance or pay at least a portion
of treatment costs. The number of patient days attributable to all patients who
receive treatment free of charge in any given fiscal year is in the Company's
discretion and has been less than 5%.
Private insurers, managed care organizations and, to a lesser extent,
Medicaid and Medicare, are beginning to carve-out specific services, including
mental health and substance abuse services, and establish small, specialized
networks of providers for such services. Continued growth in the use of
carve-out systems could materially adversely affect the Company to the extent
the Company is not selected to participate in such smaller specialized networks.
RISKS OF GOVERNMENTAL ACTION RELATING TO DEFICIENCIES. 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, which fines continue to accrue. If the Company does not appeal the
imposition of the fines and the deficiency notice, the penalties could be
reduced by 35%. 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 must still be readmitted to the Franvale facility from a hospital only
after a case by case review by the Department of Public Health. The Company is
obligated to notify the attending physician of each resident of Franvale who was
found to have received substandard care of the deficiency notice and is
obligated also to notify the Massachusetts board which licenses the
administrator of Franvale. HCFA has informed the Company that it will publish a
notice of inpending termination in the Boston Globe not later than April 14,
1997, unless Franvale has been found to be in substantial compliance by that
date.
The Company has replaced the management team at Franvale and is attempting
to bring the facility into substantial compliance at the earliest possible date,
including by expenditure of significant sums for staffing and programmatic
improvements. However, if the Franvale facility is not in substantial compliance
before April 30, 1997, Franvale may be unable to admit new patients, continue to
be subject to a case by case review of readmissions, continue to incur
significant civil penalties, lose its certification under the Medicare and
Medicaid programs, which would materially affect the number of residents at the
facility and would call into question its ability to operate, and could lose its
licensure altogether. The Company anticipates that the State will resurvey the
facility on April 16, 1997.
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 continue to accrue, and the expenses that
have been incurred by the Company in an attempt to cure the cited deficiencies,
the Company anticipates a material adverse effect on its financial results for
the quarter ended March 31, 1997 with the possibility of continued adverse
financial impacts in future quarters.
ACQUISITION STRATEGIES AND EXPANSION RISKS. The Company's strategy is to
acquire businesses that will contribute to overall profitability within a short
period of time after the acquisition. The Company may also make acquisitions in
areas that will further support the integrated delivery system in markets that
the Company currently services. 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
the acquired facilities will be profitable. The ability of the Company to
acquire and develop additional facilities will depend on a number of factors
beyond the control of the Company, including the availability of financing, the
ability of the Company to obtain necessary permits, licenses and approvals as
well as the employment of appropriate personnel to manage and staff the acquired
facilities. The failure of the Company to implement its acquisition strategy
could have a material adverse effect on the Company's financial performance.
Moreover, the attendant risks of expansion could also have a material adverse
effect on the Company's business. Start-up facilities could operate at a loss
for a substantial period of time following acquisition. The operating losses and
negative cash flow associated with start-up acquisitions could have a material
adverse effect on the profitability of the Company unless and until such
facilities are fully integrated with the Company's other operations and become
profitable.
VARIABLE PATIENT CENSUS. The Company's patient census with respect to its
substance abuse facilities decreased from 66% to 63% occupancy from fiscal year
1995 to fiscal year 1996 based on available beds. The patient census at the
Company's long-term care facility declined from 92.7% to 87.1% from fiscal year
1995 to fiscal year 1996. The patient census at the Company's psychiatric
facilities increased from 52.2 % to 64.4 % from fiscal year 1995 to fiscal year
1996. There can be no assurance that occupancy rates will continue at those
levels. Similarly, there can be no assurance that the Company will be able to
fill the beds which have been added at its long-term care facility or that the
patient census, which had declined during construction, will reach maximum
capacity now that construction has been completed. Furthermore, there can be no
assurance that the Company will be able to maintain sufficient capacity
utilization or pricing in the future to ensure profitability.
BLIND POOL/ACQUISITION PROGRAM. The Company's acquisition program is directed
by Bruce A. Shear, a Director and the President and Chief Executive Officer of
the Company, in conjunction with other members of the Company's Board of
Directors. As consideration for any acquisition, in addition to the payment of
cash (if any), the Company may issue notes, common stock, preferred stock or
other securities. Key employees of acquired companies may become employees of
the Company and may hold management positions in the Company. The Company does
not intend to seek stockholder approval for any such acquisitions unless
required by applicable law or regulations. Accordingly, investors will be
substantially dependent upon the business judgment of management in making such
acquisitions. The Company intends to engage in a program to seek acquisitions in
business areas related or complementary to the present business of the Company
and currently plans to acquire one or more substance abuse facilities,
psychiatric facilities and/or long-term care facilities. There can be no
assurance that the Company will be able to attract management to operate any
additional facilities or, if the Company cannot attract such management, that
the Company's current management will be able to devote a sufficient amount of
time to managing any additional facilities.
SEASONALITY AND FLUCTUATION IN QUARTERLY RESULTS. The Company experiences and
expects to continue to experience a decline in revenue in its fiscal quarters
ending December 31 primarily due to a seasonality decline in revenue from the
Company's substance abuse facilities during this period.
REGULATION. The Company and the health care industry are subject to extensive
federal, state and local regulation with respect to licensure and conduct of
operations at existing facilities, construction of new facilities, acquisition
of existing facilities, the addition of new services, compliance with physical
plant safety and land use requirements, implementation of certain capital
expenditures and reimbursement for services rendered. Health care facilities,
including those operated by the Company, are subject to periodic inspections by
governmental authorities to ensure compliance with licensure standards and to
permit continued participation in third-party payor reimbursement programs,
including the Medicare and the Medicaid programs, where applicable. Although, to
the best of the Company's knowledge, all of the Company's existing facilities
are currently in compliance with all material governmental requirements with the
exception of the Franvale facility, which is in the process of correcting
deficiencies (see "Risk Factors"), there can be no assurance that the Company
will be able to obtain new licenses to effect its acquisition strategy or
maintain its existing licenses and reimbursement program participation
approvals. In addition, the Company is experiencing limitations on its ability
to admit patients to its Franvale facility as a result of non-compliance
issues. See "Risk of Governmental Action Relating to Deficiencies." It is not
possible to accurately predict the content or impact of future legislation and
regulations affecting the health care industry. The Company's ability to develop
or acquire new facilities is dependent upon its ability to secure requisite
certificates or determinations of need, licenses, permits and reimbursement
program participation approvals. If the Company is unable to obtain required
licenses and approvals for new projects, or if its existing licenses or
approvals are restricted, rescinded or revoked, its growth would be limited and
its business would be materially adversely affected.
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. Currently,
Congress and the President contemplate plans to reduce Medicare spending-growth
cuts within the next ten years. Preliminary indications suggest that, in
addition to increased costs to beneficiaries, the plan would attempt to impose a
disproportionate share of the burdens of reform upon health care providers.
Additionally, proposed congressional spending reductions for the Medicaid
program, possibly 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. The Commonwealth of Massachusetts has already implemented a
mental health/substance abuse managed care program for its Medicaid population,
which, in general, has increased administrative oversight and reduced revenues
for mental health/substance abuse providers. 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.
UNPREDICTABILITY OF BSC FINANCIAL STATEMENTS. BSC maintained its financial
records on a cash basis. There are no audited financial statements with respect
to BSC for any historical period. The Company's ability to predict the future
financial performance of BSC is diminished because of the lack of audited
financial information.
NON-COMPLIANCE WITH REPORTING OBLIGATIONS. The Company was unable to
provide audited financial statements in connection with its acquisition of BSC
as required by Item 7 of Form 8-K and, accordingly, is currently not in
compliance with its reporting obligations under the Exchange Act. As a result of
its failure to file audited financial statements of BSC as required, the Company
will be unable to file any registration statements under the Securities Act of
1933 with respect to the offer or sale of securities by the Company for its own
account until it has filed financial statements which include the operations of
BSC covering a period of at least two years. In addition, until at least
February 1, 1998, the Company is precluded from filing any registration
statement covering the offer and sale (or resale) of shares of the Company for
its own account or for others using Form SB-3, which is a short form, less
costly registration statement than Form SB-1 or SB-2. As a result, the Company's
ability to raise funds for its operations or for acquisitions in the public
capital markets has been impaired, which could have a material adverse effect on
its operations and acquisition program.
PRIOR SECURITIES ACT VIOLATIONS. On November 9, 1984, the Company entered a
plea of guilty with the United States District Court for the District of
Massachusetts to a one count Information (the "Information") charging the
Company with filing a false or misleading registration statement in connection
with a proposed public offering of stock in the Company in 1981. In its
Information, the United States Attorney charged that the Company falsely omitted
to disclose in the registration statement that Maurice Shear, Bruce A. Shear's
father, was a controlling person of the Company, and that Maurice Shear had
prior criminal convictions not involving the Company. The Information also
charged the Company with falsely stating and omitting to state other material
facts, including that Maurice Shear, Steven Shear (Bruce A. Shear's brother) and
Bruce A. Shear had provided $50,000 to the proposed underwriter of the Company's
public offering, F.L. Putnam, so that Putnam would undertake the offering of
securities. Bruce A. Shear was a director and the President of the Company at
the time the registration statement was filed. The Company was sentenced with a
fine of $10,000 and was placed on probation for a period of three years. As a
condition to probation, the Company agreed, for a minimum of three years, to
nominate to its Board of Directors a majority of persons independent of the
Company and of the Shear family, to cause the Board of Directors to meet no less
than six times a year, and to compensate reasonably the independent directors.
The Company withdrew the registration statement and the proposed public offering
was not consummated. The Company has continued to maintain a Board of Directors
comprised of a majority of independent directors. Maurice Shear does not
currently own any outstanding shares of the Common Stock of the Company,
however, his wife, Gertrude Shear, owns 14,460 shares of the Company's Class A
Common Stock, 298 shares of the Company's Class B Common Stock and 9,946 shares
of the Company's Class C Common Stock. In addition, Mrs. Shear is the
beneficiary of the Shear Trusts which, pursuant to the terms of a settlement
agreement entered into by the Shear Trusts in partial settlement of certain
litigation brought by Bruce A. Shear's mother against a former trustee of the
Shear Trusts, own an aggregate of 72,453 shares of the Company's Class A and
Class C Common Stock or 2.8% of the Company's outstanding Common Stock.
Maurice Shear previously had pleaded guilty to an indictment charging him
with securities fraud and mail fraud in connection with the registration
statement referred to above and a fraudulent scheme to control trading in the
Company's Common Stock between 1979 and 1981.
CONTROL OF THE COMPANY BY BRUCE A. SHEAR. The holders of the Company's Class
B Common Stock are entitled to five votes per share on any matter requiring
stockholder action, and the holders of the Class A Common Stock are entitled to
one vote per share, except with respect to the election of directors. The
holders of the Class A Common Stock are entitled to elect two members to the
Company's five-member Board of Directors and the holders of the Class B Common
Stock are entitled to elect the remaining directors. Assuming no exercise of any
options or warrants and no conversion of any debentures, the holders of the
Class B Common Stock and Class C Common Stock beneficially own 26% of the
Company's Common Stock, but have 58% of the total voting power. Bruce A. Shear
and his affiliates own and control 18.9% of the Common Stock, but hold 53.3% of
the total voting power. If the Company's Class C Common Stock is converted into
Class B Common Stock, the total voting power held by the holders of the Class B
Common Stock will increase to 63.8%. As a result of this ownership, Bruce A.
Shear and his affiliates will be able to control all matters requiring approval
of the stockholders, including the election of a majority of the directors.
DEPENDENCE UPON ATTRACTION AND RETENTION OF KEY PERSONNEL; POTENTIAL STAFFING
SHORTAGES. The Company is highly dependent on the principal members of its
management and professional staff, particularly Bruce A. Shear, the Company's
President and Chief Executive Officer, Robert H. Boswell, the Company's
Executive Vice President and the other members of the Company's management.
Although the Company has obtained key man insurance in the amount of $1,000,000
on the life of Mr. Shear, the loss of any key person would have a material
adverse effect on the Company's business. In addition, the Company's success
will depend, in large part, on its ability to attract and retain highly
qualified personnel, particularly skilled health care personnel. The Company
faces competition for such personnel from governmental agencies, health care
providers and other companies. The Company has not to date experienced
substantial difficulty in hiring appropriate personnel to staff its facilities.
However, if there were a shortage of trained health care personnel in the
geographic markets in which the Company conducts or proposes to conduct its
business, such shortages could increase the Company's operating costs and limit
its expansion opportunities. There can be no assurance that the Company will be
successful in hiring or retaining the personnel it requires for continued
growth. Similarly, if the Company acquires additional facilities, there can be
no assurance that it will be able to attract management to operate such
facilities or, if it cannot attract such management, that the Company's current
management will be able to devote a sufficient amount of time to managing such
additional facilities.
COMPETITION. The health care business is highly competitive and subject to
excess capacity. The Company's competitors include both not-for-profit and
for-profit hospitals, health care companies specializing in substance abuse,
psychiatric services and subacute services and nursing home chains, many of
which have substantially greater resources than the Company.
RELIANCE ON KEY CLIENTS. The Company has entered into relationships with
large employers, health care institutions and labor unions to provide treatment
for psychiatric disorders, chemical dependency and substance abuse in
conjunction with employer-sponsored employee assistance programs. The employees
of such institutions may be referred to the Company for treatment, the cost of
which is reimbursed on a per diem or per capita basis. Although none of these
large employers, health care institutions or labor unions accounts for 10% or
more of the Company's consolidated revenues, 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.
ENVIRONMENTAL MATTERS. As a result of an environmental site assessment
conducted by the Company in connection with its acquisition of the assets of
Franvale, the Company learned that the presence of fuel oil and certain other
contaminants had been detected on the site in Braintree, Massachusetts upon
which Franvale is located. On July 23, 1993, the Company received a letter from
the Massachusetts Department of Environmental Protection ("DEP") advising that
the Franvale site would be included in the August 1993 Transition List of
Confirmed Disposal Sites as a "Location to be Investigated." The Company has
submitted evidence of the site clean-up to a Licensed Site Professional ("LSP"),
an independent expert licensed by the DEP to coordinate site assessment and
clean-up activities. The LSP has investigated conditions at the site and
rendered an opinion to the Company that the site clean-up has brought the site
into compliance with the Massachusetts Contingency Plan ("MCP"), and that the
site presents no significant risk to health, safety, public welfare or the
environment. Notwithstanding the foregoing, under the MCP, the DEP retains the
right to audit the clean-up activities at the site and the work and conclusions
of the LSP, without cause, for a period of five years, and with cause, for an
indefinite period.
There are three underground storage tanks on the property on which Good Hope
is located. Although this property is leased, the Company assumed responsibility
for compliance with registration requirements and applicable state and local
laws as of July 31, 1994. The Company has indemnified the landlord for
liabilities relating to the tanks resulting from acts or omissions by the
Company. The tanks are registered with the Rhode Island Department of
Environmental Management.
LITIGATION. On or about December 31, 1993, the Company received a notice from
Pioneer Health Care, Inc., a Massachusetts non-profit corporation, claiming that
the Company's use of its PIONEER HEALTHCARE trademark infringes certain rights
of Pioneer Health Care, Inc., under applicable law, and demanding that the
Company cease and desist from any further use of the PIONEER HEALTHCARE mark and
cancel its federal registration of the mark with the United States Patent and
Trademark Office ("PTO"). By letter dated March 17, 1994, the Company declined
to accede to these demands. On May 25, 1994, Pioneer Health Care, Inc., filed a
petition with the PTO seeking to cancel the Company's registration of the
PIONEER HEALTHCARE mark. On December 9, 1994, the Company filed a civil action
in federal court seeking a declaratory adjudication of its rights to continue to
use, and maintain the federal registration of, the PIONEER HEALTHCARE mark. On
or about February 10, 1995, the PTO suspended the cancellation proceeding
initiated by Pioneer Health Care, Inc. pending the adjudication of the Company's
civil action. That civil action remains pending before the federal court. It is
possible that an adverse decision will result in money damages which could have
a material adverse effect on the Company. If the Company were required to
discontinue using the PIONEER HEALTHCARE mark, the costs involved could have an
adverse effect on the Company's financial performance.
POTENTIAL DILUTION RESULTING FROM THE CONVERSION OF THE DEBENTURES ISSUED TO
SELLING SECURITY HOLDERS. The number of shares of Class A Common Stock into
which the Debentures are convertible depends upon the price of Class A Common
Stock on the date of conversion. The conversion price is equal to 98% of the
average closing bid price of the Class A Common Stock as reported by NASDAQ for
the 5 trading days immediately preceding the date of conversion. This percentage
drops 2% per month on the first day of each 30 day period following April 15,
1997 during which the Company does not have a Registration Statement declared
effective by the Securities and Exchange Commission covering such shares. For
the purposes of this Prospectus, the number of shares of Class A Common Stock
into which the debenture is convertible has been determined by assuming a
conversion price of $2.00. However, if the price of the Class A Stock declines,
the Company will be obligated to issue significantly more shares which could
result in significant dilution to the Company's current stockholders.
POSSIBLE NASDAQ DELISTING. The Company has been informally advised by the
staff of Nasdaq that an issuance of stock by the Company at a significant
discount to market would likely result in a review by Nasdaq of the Company's
continued listing. From time to time the company does issue stock at a discount
to market. Although the Company believes that the pricing of the securities
issued by the Company at a discount to market from time to time is not
significant enough to result in a Nasdaq review of the Company's listing, there
can be no assurance that Nasdaq will not conduct such a review, or otherwise
take action to delist the Class A Common Stock. The Company would oppose such
action through all reasonable administrative and judicial means.
Although the Company's Class A Common Stock is listed on Nasdaq, there can be
no assurance that the Company will meet the criteria for continued listing of
securities on Nasdaq. These continued listing criteria include that (i) the
Company maintain at least $2,000,000 in total assets and $1,000,000 in capital
and surplus, (ii) the minimum bid price of the Class A Common Stock be $1.00 per
share or the market value of the freely tradeable Class A Common Stock ("public
float") be at least $1,000,000 and the value of its capital and surplus be at
least $2,000,000, (iii) there be at least 100,000 shares in the Company's public
float with a market value of at least $200,000, (iv) there be at least two
active market makers in the Class A Common Stock and (v) the Company's Stock be
held by at least 300 holders.
Furthermore, Nasdaq's Board of Directors has recently voted to revise the
listing standards for the SmallCap Market. Such proposed changes would require
that (i) for two of the last three years, the Company must maintain at least
$2,000,000 in net tangible assets, or at least $35,000,000 in market
capitalization, or at least 500,000 shares in the Company's public float with a
market value of at least $1,000,000. The criteria relating to bid price, market
makers and shareholders would not be changed by this proposal. Currently, the
Company meets these new criteria, but there can be no assurances that it will
continue to meet such criteria.
If the Company becomes unable to meet such criteria and is delisted from
Nasdaq, trading, if any, in the Class A Common Stock would thereafter be
conducted in the over-the-counter market in the so-called "pink sheets" or, if
then available, on the National Association of Securities Dealers Inc.'s
"Electronic Bulletin Board." As a result, an investor would likely find it more
difficult to dispose of, or to obtain accurate quotations as to the value of,
the Company's securities.
RISK OF LOW-PRICED STOCKS; POSSIBLE EFFECT OF "PENNY STOCK" RULES ON
LIQUIDITY FOR THE COMPANY'S SECURITIES. If the Company's securities were
delisted from Nasdaq, they may become subject to Rule 15g-9 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which imposes additional
sales practice requirements on broker-dealers which sell such securities to
persons other than established customers and "accredited investors" (generally,
individuals with a net worth in excess of $1,000,000 or annual incomes exceeding
$200,000 or $300,000 together with their spouses). For transactions covered by
this Rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, such Rule may affect the ability of broker-dealers
to sell the Company's securities and may affect the ability of purchasers in
this offering to sell any of the securities acquired hereby in the secondary
market.
The Commission has adopted regulations which define a "penny stock" to be any
equity security that has a market price (as therein defined) of less than $5.00
per share or with an exercise price of less than $5.00 per share, subject to
certain exceptions. As of April 10, 1997 the closing price of the Company's
stock as reported on Nasdaq was $3.75. For any transaction involving a penny
stock, unless exempt, the rules require delivery, prior to any transaction in a
penny stock, of a disclosure schedule prepared by the Commission relating to the
penny stock market. Disclosure is also required to be made about sales
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock held
in the account and information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on the Nasdaq National Market
System, are otherwise listed on Nasdaq and have certain price and volume
information provided on a current and continuing basis, or if the Company meets
certain minimum net tangible assets or average revenue criteria. While the
Company currently meets these criteria, there can be no assurance that the
Company's securities will continue to qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, the Company would remain subject to Section 15(b)(6) of the
Exchange Act, which gives the Commission the authority to prohibit any person
that is engaged in unlawful conduct while participating in a distribution of
penny stock from associating with a broker-dealer or participating in a
distribution of penny stock, if the Commission finds that such a restriction
would be in the public interest.
If the Company's securities were subject to the rules on penny stocks, the
market liquidity for the Company's securities would be materially adversely
affected.
DIVIDENDS. The Company has not paid any cash dividends since its inception
and, while there are currently no restrictions on the Company's ability to pay
dividends, the Company does not anticipate paying cash dividends in the
foreseeable future.
POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK. The Company's
Restated Articles of Organization authorize the issuance of 1,000,000 shares of
Preferred Stock on terms which may be fixed by the Company's Board of Directors
without further stockholder action. The terms of any series of Preferred Stock,
which may include priority claims to assets and dividends and special voting
rights, could adversely affect the rights of holders of the Common Stock. The
issuance of the Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions, financing transactions and other
corporate transactions, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, capital
stock of the Company. The Company has no present plans to issue shares of
Preferred Stock.
THIN FLOAT. The average weekly trading volume of the Company's Class A Common
Stock for the period from January 1, 1997 to March 31, 1997 was 103,875 shares.
There can be no assurance that the weekly trading volume will not remain at the
same level or decline. As a result of the thin float in the Company's stock, a
small number of transactions can result in significant swings in the market
price of the Company's stock, and it may be difficult for stockholders to
dispose of the Company's stock in a timely way at a desirable market price.
SIGNIFICANT FUTURE CHARGES TO NET INCOME. The Company's Class C Common Stock
will automatically be converted into Class B Common Stock if the Company
achieves certain earnings targets. If such conversion occurs, the Company will
concurrently record a charge to its earnings equal to the product obtained by
multiplying the number of shares converted by the then fair market value of the
converted shares. The conversion will not affect the total shareholder's equity
of the Company, but may have a subsequent adverse effect on the market price for
the Company's securities. The Company does not expect the earnings targets to be
achieved.
<PAGE>
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 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.
MARKET FOR COMMON STOCK
The following table sets forth, for the periods indicated, the high and low
sale prices of the Company's Class A Common Stock, as reported on the Nasdaq
SmallCap Market.
1995 HIGH LOW
- ---- ---- ---
First Quarter....................... $ 6 3/4 $ 6
Second Quarter...................... $ 6 1/2 $ 6
Third Quarter....................... $ 6 1/4 $ 5 1/8
Fourth Quarter...................... $ 7 3/8 $ 5 1/8
1996
- ----
First Quarter....................... $ 7 3/4 $ 6 1/2
Second Quarter...................... $ 7 3/8 $ 5 1/2
Third Quarter....................... $ 9 5/8 $ 5 1/4
Fourth Quarter...................... $ 9 3/4 $ 7
1997
- ----
First Quarter....................... $ 9 5/8 $ 6 1/2
Second Quarter...................... $ 7 1/8 $ 4 5/8
Third Quarter ...................... $ 5 5/8 $ 1 3/4
Fourth Quarter (through April 10, 1997)$ 3 3/4 $ 2 1/8
On April 10, 1997, the last reported sale price of the Class A Common Stock
on the Nasdaq SmallCap Market was $3.75. As of March 31, 1997, there were 73
holders of record of the Company's Class A Common Stock, 325 holders of record
of the Company's Class B Common Stock and 342 holders of record of the Company's
Class C Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the securities
offered hereby.
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996. This table should be read in conjunction with the
Consolidated Financial Statements and related notes appearing elsewhere in this
Prospectus.
AS OF
DECEMBER 31,
1996
ACTUAL
Short-term debt......................................... $1,269,849
Long-term debt.......................................... 12,630,461
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares
authorized; --
no shares issued..................................
Class A Common Stock; $.01 par value; 10,000,000
shares authorized; 24,936
2,493,552 shares issued (1)
Class B Common Stock, $.01 par value; 2,000,000
shares authorized; 790,628 7,906
shares issued.....................................
Class C Common Stock, $.01 par value; 200,000 shares
authorized; 1,998
199,816 shares issued.............................
Additional paid-in capital.......................... 8,764,408
Notes receivable related to purchase of 31,000 shares
of Class A Common Stock.............................. (63,266)
Accumulated deficit................................. (1,552,581)
-----------
Total stockholders' equity.......................... (7,183,401)
-----------
Total capitalization.................................... $21,083,711
===========
- ------------------------------
(1) Does not include: (i) 1,657,821 shares reserved for issuance upon
exercise of the IPO Warrants; (ii) 146,078 shares included in the
Units which may be sold pursuant to the Unit Purchase Option and
146,078 shares reserved for issuance upon the exercise of the Warrants
included in the Unit Purchase Option; (iii) 162,375 shares which may
be issued upon the exercise of outstanding stock options; (iv) 167,625
shares which may be issued upon the exercise of options available for
grant under the Company's Stock Plans; or (v) up to 4,814 shares
included in the Bridge Units which may be sold pursuant to the Bridge
Warrants; (vi) up to 38,510 shares reserved for issuance upon the
exercise of the Warrants included in the Bridge Units; and (vii) up to
703,125 shares reserved for issuance upon the exercise of the Private
Placement Warrants; (viii) 1,562,500 shares which may be issued upon
the conversion of the Company's 7% Convertible Debentures due December
31, 1998 in the aggregate principal amount of $3,125,000 assuming a
conversion price of $2.00 per share; (ix) 150,000 shares which may be
issued upon the exercise of two warrants, one for 90,000 shares and
one for 60,000 shares, issued to Infinity Investors, Ltd. and Seacrest
Capital Limited, respectively; (x) 25,000 shares issuable upon the
exercise of a warrant issued to Alpine Capital Partners; (xi) 3,000
shares issuable upon the exercise of a warrant issued to Barrow Street
Research, Inc.; or (xii) up to 160,000 shares issuable upon the
exercise of a warrant issued to CCRI, Corporation See "Management --
Stock Plan," "Certain Transactions," "Description of Securities" and
"Underwriting."
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of the
two years ended June 30, 1996 and 1995 have been derived from the Company's
consolidated financial statements, which have been audited by Richard A. Eisner
& Company, LLP, independent auditors, as of June 30, 1996 and June 30, 1995. The
financial data for the six months ended December 31, 1996 and 1995 are derived
from unaudited financial statements. The unaudited financial statements include
all adjustments, consisting only of normal recurring accruals, which the Company
considers necessary for a fair presentation of the information presented.
Results of operations for the six months ended December 31, 1996 may not be
indicative of results of operations for the full fiscal year. The selected
consolidated financial data should be read in conjunction with the Consolidated
Financial Statements and the notes thereto and other financial information
appearing elsewhere in this Prospectus.
Six Months Ended Year Ended June 30,
December 31,
1996 1995 1996 1995
Statements of $ $ $ $
Operations Data:
Revenue................ $12,660,995 $9,469,880 $21,802,758 $16,536,618
Operating expenses..... 12,057,196 9,300,949 21,845,592 15,621,449
Income (loss) from
operations............. 603,799 168,931 (42,834) 915,169
Other expense.......... 473,917 378,330 754,072 405,390
Income (loss) before
extraordinary item..... 77,741 (209,399) (585,315) 268,671
Extraordinary item..... - - - -
Net income (loss)...... 77,741 (209,399) (585,315) 268,671
Net income (loss) per
share:
Before $ .03 $ (.09) $ (.22) $ .11
extraordinary item.....
Extraordinary item. - - - -
Net income (loss) $ .03 (.09) $ (.22) $ .11
As of December 31, 1996
Balance Sheet Data:
Total assets...................... $26,157,471
Working capital................... $8,495,564
Long-term obligations............. $12,630,461
Stockholders's equity.............. $7,183,401
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the six months ended December 31, 1995 and 1996
and for the two years ended June 30, 1996. It should be read in conjunction with
the Consolidated Financial Statements of the Company and related Notes appearing
elsewhere in this Prospectus.
OVERVIEW
The Company presently provides health care services through several substance
abuse treatment centers, a 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 greatly as a percentage of total revenue but 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.
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1996
Net patient care revenue increased 30.8% to $12,257,060 for the six months
ended December 31, 1996 from $9,368,635 for the six months ended December 31,
1995. This increase in revenue is due primarily to the acquisition of Pioneer
Counseling Centers in September, 1996, the inclusion of six full months of
operations of Harmony Healthcare and an increased census at the long-term care
facility as a result of an increase in available beds.
Net patient care revenue for the psychiatric and substance abuse facilities
increased to $9,032,686 for the six months ended December 31, 1996 from
$7,001,929 for the same period in 1995. This increase in revenue is due
primarily to the newly acquired psychiatric treatment facilities in Nevada,
Kansas and Michigan. This does not include the management fees of $120,060
payable to BSC from the management services agreement with a physicians'
practice. Net patient care revenue for the long-term care facility increased to
$3,211,066 for the six months ended December 31, 1996 from $2,366,706 for the
same period in 1995 due to an increase in net revenue per patient day and the
number of available and occupied beds.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1996
The Company experienced a loss for fiscal year ended June 30, 1996 primarily
as a result of the increased expenses related to the Franvale expansion. Census
levels at Franvale did not increase as soon as anticipated to cover the fixed
costs involved in the expanded facility. Marketing efforts have begun to produce
expected patient census and mix. Occupancy at Franvale for the six months ended
December 31, 1996 was at 93.8% as compared to 87.1% for the fiscal year ended
June 30, 1996.
Also contributing to the loss in fiscal 1996 was a decline in referrals from
the Department of Child, Youth and Family Services ("DCYF") to Good Hope
pursuant to a contract funded by the State of Rhode Island. This created a sharp
decline in adolescent census. The Company is currently reviewing its operations
at Good Hope and in connection with such review has closed two outpatient
centers, eliminated several positions, combined certain programs and added new
management. The new management team is focusing on reducing expenses and
increasing revenue. In addition, Good Hope has established new contracts which
the Company believes will increase both its adolescent and adult censuses.
Net operating revenue from all facilities increased 32% to $21,802,758 for
the year ended June 30, 1996 from $16,536,618 for the year ended June 30, 1995.
Net patient care revenue for the psychiatric hospital, Harbor Oaks Hospital, was
$6,218,410 for the fiscal year ended June 30, 1996 compared to $3,204,857 for
June 30, 1995. Net patient care revenue at the Company's substance abuse
treatment centers increased 2.49% to $9,155,595 for the year ended June 30, 1996
from $8,932,864 over the same period in the prior year. Net patient revenue at
the Company's long-term care facility increased to $5,043,922 for fiscal 1996
from $4,180,471 in fiscal 1995 which is attributable to the increase in census
resulting from the addition of 37 available beds.
Total patient care expenses for all facilities increased 29.8% to
$12,004,383 for the year ended June 30, 1996 from $9,248,317 for the year ended
June 30, 1995. Patient care expenses for the psychiatric hospital, Harbor Oaks,
were $3,098,664 for the fiscal year ended June 30, 1996 compared to $1,941,528
for fiscal year ended June 30, 1995. Patient care expenses at the Company's
substance abuse treatment centers decreased to $4,350,423 from $4,453,212 for
the same period in the prior year (approximately 2.3%). Patient care expenses at
the Company's long-term care facility increased to $4,029,572 for fiscal 1996
from $2,884,425 in fiscal 1995 (approximately 39.7%). The percentage increase in
patient care expenses at the long-term care facility is due to a number of
factors, including, but not limited to: increased census and acuity of patient
mix, fixed cost increases, interest, and salaries related to the addition of the
new beds. The census increase related to the new beds took longer than
anticipated creating a loss for the fiscal year ended June, 1996. Census is now
at the expected level and rate increases have been implemented effective
September 1, 1996 to offset the higher costs.
LIQUIDITY AND CAPITAL RESOURCES
During the third fiscal quarter of 1996, the Company completed a private
placement of 493,700 shares of Class A Common Stock with Warrants to purchase
additional shares of Class A Common Stock at $4.00 a share. This resulted in net
proceeds to the Company of approximately $1,524,800.
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 1996, 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.
Prior to 1992, the Company's primary lender was a bank which failed in May
1992 and was taken over by the FDIC. During fiscal 1994 the Company negotiated
the repayment of this debt resulting in a reduction in the amount due of
approximately $400,000. Of the total negotiated amount to be paid, $1,100,000
was paid in fiscal 1994 and $497,500 was paid in fiscal 1996 out of the proceeds
received from HUD financing relating to construction at the Company's long-term
care facility.
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 net of allowance for bad debts increased 45% to approximately $9,606,000 at
June 30, 1996 from approximately $6,621,000 at June 30, 1995. The increase in
accounts receivable is net of the sale of certain receivables to LINC Finance
Corporation VIII (LINC). Without this sale, the June 30, 1996 and June 30, 1995
ending accounts receivable balance would have been approximately $796,000 and
$774,000 higher respectively and would have reflected an increase of
approximately 41%. This significant increase in receivables is primarily due to
an increase in revenues from new acquisitions and increased beds at Franvale.
The Company continues to closely monitor its accounts receivable balances and
implement procedures to manage this receivables growth and keep it consistent
with growth in revenues.
During the fiscal year ended 1995, PHC of Rhode Island, Inc. and LINC
entered into Sale and Purchase Agreements, pursuant to which LINC will provide
funding of up to $950,000 to this subsidiary. Also, during the fiscal year ended
1995, PHC of Virginia, Inc. entered into an agreement with LINC on the same
terms. There can be no assurance that the other subsidiaries will enter into
similar agreements or satisfy the conditions necessary to receive funding if
pursued.
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, 1996 the Company had approximately $293,000 in cash and cash
equivalents, working capital of approximately $4,871,000 and a working capital
ratio of approximately 1.9 to 1. Management believes that the Company has
adequate cash resources to fund operations for the foreseeable future. However,
the Company is currently seeking bank lending relationships to insure that the
Company will have the necessary capital to fund expansion of its existing
businesses in the future and to pursue acquisition opportunities as they arise.
BUSINESS
INTRODUCTION
PHC, Inc. (the "Company") is a national health care company specializing in
behavioral healthcare which consists of treating substance abuse, including
alcohol and drug dependency and related disorders, and providing psychiatric
sub-acute and long-term care. The Company currently operates three substance
abuse treatment facilities: Highland Ridge Hospital, located in Salt Lake City,
Utah, ("Highland Ridge"); Mount Regis Center, located in Salem, Virginia, near
Roanoke ("Mount Regis"); and Good Hope Center, located in West Greenwich, Rhode
Island ("Good Hope"). Until August 16, 1994, the Company operated Marin Grove, a
substance abuse treatment facility in California ("Marin Grove"). The Company
operates six psychiatric facilities: Harbor Oaks Hospital ("Harbor Oaks"), a
64-bed psychiatric hospital located in New Baltimore, Michigan; Harmony
Healthcare ("Harmony Healthcare"), a provider of outpatient behavioral health
services in Las Vegas, Nevada; Total Concept EAP ("Total Concept"), a provider
of outpatient behavioral health services in Shawnee Mission, Kansas; BSC-NY,
Inc. ("BSC") which provides management and administrative services to
psychotherapy and psychological practices in the greater New York City
metropolitan area; North Point-Pioneer, Inc. ("NPP") which operates five
outpatient behavioral health centers under the name Pioneer Counseling Center in
the greater Detroit metropolitan area, and Pioneer Counseling of Virginia, Inc.
("PCV"), an 80% owned subsidiary providing outpatient services through a
physicians' practice in Roanoke, Virginia. The Company also operates a subacute
long-term care facility, Franvale Nursing and Rehabilitation Center
("Franvale"), in Braintree, Massachusetts.
The Company's substance abuse facilities provide specialized treatment
services to patients who typically have poor recovery prognoses and who are
prone to relapse. These services are offered in small specialty care and
subacute facilities (i.e., facilities designed to provide care to individuals
who no longer require hospital care but who require some medical care), which
permits the Company to provide its clients with efficient and customized
treatment without the significant costs associated with the management and
operation of general acute care hospitals. The Company tailors these programs
and services to "safety-sensitive" industries and concentrates its marketing
efforts on the transportation, oil and gas exploration, heavy equipment,
manufacturing, law enforcement, gaming and health services industries.
Harbor Oaks provides psychiatric care to children, adolescents and adults.
The Company draws patients from the local population and uses the facility as a
mental health resource to complement its substance abuse facilities. Harmony
Healthcare and Total Concept provide psychiatric treatment for adults,
adolescents and children with a concentration in the gaming and railroad
industries. BSC is a manager of psychological service providers with contracts
at over 35 long-term care facilities. 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. NPP provides outpatient
psychiatric treatment for adults, adolescents and children in the Metropolitan
Detroit area. PCV is a physicians' practice specializing in the treatment of
addictive behavior in adults, adolescents and children in the Roanoke Valley,
Virginia area.
Franvale, the Company's long-term care facility, provides traditional
geriatric care services as well as specialized subacute services. The facility
provides care to the high acuity segment (patients requiring a significant
amount of medical care) of the geriatric population and to younger patients who
require skilled nursing care for longer terms than typically associated with a
general acute care hospital. The Company's long-term care services are offered
in a larger, more traditional setting than the Company's substance abuse
facilities, enabling the Company to take advantage of economies of scale to
provide cost-effective treatment alternatives. The Company markets its long-term
care to hospitals, insurers and managed care providers, in addition to marketing
directly to prospective residents and their families.
The Company's strategy of providing services to particular markets has
resulted in customized, outcome-oriented programs, which the Company believes
produce overall cost savings to the patient or client organization. The
substance abuse facilities provide treatment services designed to prevent
relapse. Such services, while potentially more costly on a per patient stay
basis, often result in long-term health care cost savings to insurers, patients
and patients' families. The goal of the Company's psychiatric treatment programs
is to provide care at the lowest level of intensity appropriate for the patient
in an integrated delivery system that includes inpatient and outpatient
treatment. The integrated nature of the Company's psychiatric program, which
generally involves the same caregivers supervising different treatment
modalities, provides for efficient care delivery and the avoidance of repeat
procedures and diagnostic and therapeutic errors. The Company's long-term care
facility achieves its cost containment objective by providing care to high
acuity patients in a setting that produces positive outcomes through the use of
tailored services. The specific skilled services that are provided are similar
to those offered in acute care hospitals without the added overhead cost.
The Company was organized as a Delaware corporation in 1976 under the name
American International Health Services, Inc. In 1980, the Company merged into an
inactive publicly held Massachusetts corporation and was the surviving
corporation in the merger. The Company changed its name to "PHC, Inc." as of
November 24, 1992. The Company is based in Massachusetts and is unaffiliated
with an inactive Minnesota corporation of the same name. The Company does
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 operates as a holding company, providing
administrative, legal and programmatic support to its subsidiaries.
The Company plans to expand its operations through the acquisition or
establishment of additional inpatient and outpatient substance abuse, long-term
care and psychiatric treatment facilities.
FACILITIES, PROGRAMS AND PROPERTIES
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 also leases a small
amount of nearby space in the same building, part of which is subleased. The
Company believes that this facility will be adequate to satisfy its needs for
the foreseeable future.
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 substance abuse, greater societal
willingness to acknowledge the underlying problems as treatable illnesses,
improved health insurance coverage for addictive disorders and substance abuse
and governmental regulation which requires certain employers to provide
information to employees about, among other things, available drug counseling
and employee assistance programs.
To contain costs associated with behavioral health issues, in the 1980's
many private payors instituted managed care programs for reimbursement, which
include pre-admission certification, case management or utilization review and
limits on financial coverage or length of stay. These cost containment measures
have encouraged outpatient care for behavioral problems, resulting in a
shortening of the length of stay and revenue per day in inpatient substance
abuse facilities. The Company believes that it has addressed these cost
containment measures by specializing in treating relapse-prone patients with
poor prognoses who have failed in other treatment settings. These patients
require longer lengths of stay and come from a wide geographic area. The Company
continues to develop alternatives to inpatient care including partial day and
evening programs in addition to onsite and offsite outpatient programs.
The Company believes that because of the apparent unmet need for certain
intense clinical and medical services, its strategy has been successful despite
national trends towards outpatient treatment, shorter inpatient stays and
rigorous scrutiny by managed care organizations.
The Company has been able to secure insurance reimbursement for longer-term
inpatient treatment as a result of its success with poor prognosis patients. The
Company's three substance abuse facilities work together to refer patients to
the center that best meets the patient's clinical and medical needs. Each
facility caters to a slightly different patient population. Highland Ridge in
Utah specializes in providing services to high-risk, relapse-prone chronic
alcoholics and drug addicts. Mount Regis in Virginia specializes in the
treatment of minority groups and dual diagnosis patients (those suffering from
both substance abuse and psychiatric disorders). Good Hope Center concentrates
on providing services to insurers, managed care networks and health maintenance
organizations for both adults and adolescents. The Company's clinicians often
work directly with managers of employee assistance programs to select the best
treatment facility possible for their clients.
Each of the Company's facilities operates a case management program for each
patient. This includes a clinical and financial evaluation of a patient's
circumstances to determine the most cost-effective modality of care from among
outpatient treatment, detoxification, inpatient, day care, specialized relapse
treatment and others. In addition to any care provided at one of the Company's
facilities, the case management program for each patient includes aftercare.
Aftercare may be provided through the outpatient services provided by a
facility. Alternatively, the Company may arrange for outpatient aftercare, as
well as family and mental health services, through its numerous affiliations
with clinicians located across the country once the patient is discharged.
As a general rule, the Company attempts not to accept patients who do not
have either insurance coverage or adequate financial resources to pay for
treatment. Each of the Company's substance abuse facilities does, however,
provide treatment free of charge to a small number of patients each year who are
unable to pay for treatment but who meet certain clinical criteria and who are
believed by the Company to have the requisite degree of motivation for treatment
to be successful. In addition, the Company provides follow-up treatment free of
charge to relapse patients who satisfy certain criteria. The number of patient
days attributable to all patients who receive treatment free of charge in any
given fiscal year is less than 5%.
The Company believes that it has benefited from an increased awareness of the
need to make substance abuse treatment services accessible to the nation's
workforce. For example, subchapter D of the Anti-Drug Abuse Act of 1988
(commonly known as The Drug Free Workplace Act) (the "Drug Free Workplace Act"),
requires employers who are Federal contractors or Federal grant recipients to
establish drug free awareness programs to inform employees about available drug
counseling, rehabilitation and employee assistance programs and the consequences
of drug abuse violations. In response to the Drug Free Workplace Act, many
companies, including many major national corporations and transportation
companies, have adopted policies that provide for treatment options prior to
termination of employment.
Although the Company does not provide federally approved mandated drug
testing, the Company treats employees who have been referred to the Company as a
result of compliance with the Drug Free Workplace Act, particularly from
companies that are part of the gaming industry as well as safety sensitive
industries such as railroads, airlines, trucking firms, oil and gas exploration
companies, heavy equipment companies, manufacturing companies and health
services.
HIGHLAND RIDGE
Highland Ridge is a 34-bed alcohol and drug treatment hospital which the
Company has been operating since 1984. It is the oldest free-standing substance
abuse hospital in Utah. Highland Ridge is accredited by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO") and is licensed by the Utah
Department of Health. Highland Ridge is recognized nationally for its excellence
in treating substance abuse disorders.
The patient population of Highland Ridge typically is between the ages of 18
and 70. Approximately 21% of the clients are female and 11% are minority group
members. Approximately 60% of Highland Ridge's patients reside in Utah and
surrounding western 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 and other corporations.
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, individual and group counseling, family therapy, psychological
assessment, psychiatric support, stress management, dietary planning, vocational
counseling and pastoral support. Highland Ridge also offers extensive aftercare
assistance at programs strategically located in areas of client concentration
throughout the United States. Highland Ridge maintains a comprehensive array of
professional affiliations to meet the needs of discharged patients and other
individuals not admitted to the hospital for treatment.
Highland Ridge was the first private for-profit hospital in the State of Utah
to address specifically the special needs of chemically dependent women.
Approximately 80 women have been treated at no charge since the program's
inception in 1988. In addition, Highland Ridge has contracted with Salt Lake
County to provide medical detoxification services for women. The hospital also
operates a specialized continuing care support group to address the unique needs
of women and minorities with an emphasis on the needs of Native Americans.
Highland Ridge periodically conducts or participates in research projects.
Highland Ridge was the site of a recent research project conducted by the
University of Utah Medical School. The research explored the relationship
between individual motivation and treatment outcomes. The research was regulated
and reviewed by the Human Subjects Review Board of the University of Utah and
was subject to federal standards that delineated 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.
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
its fourteenth year of a fifteen-year lease, which 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 CENTER
Mount Regis is a 25-bed, free-standing alcohol and drug treatment center
located in Salem, Virginia, near Roanoke. The business, which was acquired in
1987, is the oldest program of its kind in the Roanoke Valley. Mount Regis is
accredited by the JCAHO, and licensed by the Department of Mental Health, Mental
Retardation and Substance Abuse Services of the Commonwealth of Virginia.
Mount Regis' patient population typically ranges in age from 18 to 70. In the
June 30, 1996 fiscal year, approximately 36% of Mount Regis' clients were
minority group members and 19% were females. Approximately 101 women have been
treated in an inpatient setting at no charge since the program's inception. The
programs at Mount Regis are designed to be sensitive to the 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.
Mount Regis also operates a free-standing outpatient clinic in Roanoke called
Changes ("Changes"). 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 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 and is subject to
a mortgage in the approximate amount of $500,000. Changes is currently located
in a leased 1,500 square foot office in Roanoke, Virginia, but will be relocated
to the PCV facility in the near future. The Company believes that these premises
are adequate for its current and anticipated needs.
GOOD HOPE CENTER
On March 16, 1994, the Company completed the purchase of the operating assets
of Good Hope, a 49-bed substance abuse treatment facility located in West
Greenwich, Rhode Island, together with related outpatient programs. In addition
to the West Greenwich facility, Good Hope has a satellite location in North
Smithfield, Rhode Island. The West Greenwich facility is located on an
approximately 70-acre site three hours from New York City and one hour from
Boston. Good Hope has both adult and adolescent programs which are located in
separate buildings. Outpatient and day treatment programs are also located at
this site. The satellite site operates both outpatient and day treatment
substance abuse programs.
Good Hope concentrates on providing services to insurers, managed care
networks and health maintenance organizations (HMO's). Good Hope provides the
same quality of individualized treatment provided by the Company's other
facilities by working closely with the managed care staff. The Company
recognizes that not all clients are in need of, nor are appropriate recipients
of, acute care alcohol and drug treatment services. Good Hope also utilizes its
outpatient programs to provide a continuum of care to local patients. The day
treatment license permits treatment of substance abuse, which encompasses
primary diagnoses of both alcohol abuse and drug abuse.
Good Hope's substance abuse treatment program for adolescents has filled a
need of the Company's other facilities for a reliable referral for adolescents.
Most of the patients treated at Good Hope are from the New England area and
approximately 30% are minorities.
Good Hope 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
stabilize the patient census.
The Company leases the West Greenwich property. The lease runs for twenty
years and is currently in its fourth year. The rent is $13,000 through June,
1997 at which time the landlord has agreed to renegotiate the terms. 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. The West Greenwich facility consists of three buildings, containing a
total of approximately 25,000 square feet, located on an approximately 70-acre
parcel of land.
The Company has leased the North Smithfield satellite location for a three
year term ending October 31, 1998 and pays $1,700 per month. The North
Smithfield location consists of approximately 2,180 square feet. The Company
believes that these premises are adequate for its current and anticipated needs.
OPERATING STATISTICS
The following table reflects selected financial and statistical
information for the operating companies offering substance abuse treatment:
Six Months
ended Year Ended June 30,
December 31,
1996 1996 1995
Net patient service revenues........... $4,046,618 $10,307,262 $8,894,976
PDS2 Revenues(1)....................... $263,875 $233,164 $128,157
Net revenues per patient day(2)........ $401 $380 $397
Average occupancy rate(3).............. 60% 63% 66%
Total number of licensed beds at end
of period......................... 108 108 108
- --------------
(1) PDS2 is Pioneer Development and Support Services located in the Company's
Highland Ridge facility in Salt Lake City, Utah. It provides clinical support,
referrals, management and professional services for a number of the Company's
national contracts.
(2) Net revenues per patient day is net patient service revenues divided by
total patient days.
(3) 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. The
total beds available include only 47 days for Marin Grove in 1995 due to its
closing. In calculating average occupancy rates, the total number of patient
days includes patient days attributed to scholarship patients as well as patient
days attributed to relapse patients for whom treatment is provided by the
Company without charge. In each of the fiscal years ended June 30, 1995 and 1996
and the six months ended December 31, 1996, these patient days accounted for
less than 5% of the total number of patient days for the same period.
<PAGE>
PSYCHIATRIC FACILITIES
INTRODUCTION
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
main 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.
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 and do not accept any patients who
require physical or chemical restraints or pose a risk of violence or harm to
other patients.
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 has a term of two years
commencing on July 25, 1995. 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. Under this contract,
Harbor Oaks must pay New Life a minimum of $52,500 per month. In addition,
Harbor Oaks must pay New Life a fixed fee of $7,500 per month for each patient
whose treatment is covered by a federally funded program.
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, located in Las Vegas, Nevada, provides outpatient
psychiatric care to children, adolescents and adults in the local area. Harmony
also operates employee assistance programs for railroads, health care 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 consists of five psychiatric clinics in Michigan. The clinics provide
outpatient psychiatric and substance abuse treatment to children, adolescents
and adults operating under the name Pioneer Counseling Center. The five clinics
are located in close proximity to the Harbor Oaks facility which provides 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 provides outpatient psychiatric services to adults, adolescents and
children through a physicians' practice in Roanoke, Virginia. 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.
PSYCHIATRIC FACILITIES
The Company owns or leases premises for each of its psychiatric facilities.
The Company believes that all of these premises are adequate for its current and
anticipated needs.
The Company owns the building in which Harbor Oaks operates, which is a
single story brick and wood frame structure comprising approximately 32,000
square feet situated on an approximately three acre site. The Company has a
$1,100,000 mortgage on this property.
PCV has entered into a Purchase and Sale Agreement for the purchase of an
approximately 7,500 square foot building in Salem, Virginia. PCV anticipates
that the closing will occur not later than the end of April, 1997. The building
will be subject to a mortgage in the approximate amount of $540,000.
Harmony, Total Concept, NPP and BSC each lease their premises. The Company
believes that each of these premises is leased at fair market value and could be
replaced without significant time or expense if necessary.
<PAGE>
OPERATING STATISTICS
The following table reflects selected financial and statistical
information for Harbor Oaks and all outpatient facilities.
Six Months Year Ended
Ended June 30,
December 31,
1996 1996 1995
Inpatient
Net patient service revenues $2,808,695 $ 5,296,874 $ 2,755,642
Net revenues per patient $ 612 $ 548 $ 533
day(1)
Average occupancy rate(2) 71.2% 64.4% 52.2%
Total number of licensed beds
at end of period 64 64 64
Source of Revenues:
Private(3) 78.0% 75.5% 63.6%
Government(4) 22.0% 24.5% 36.4%
Partial Hospitalization
Net patient service revenues $ 373,380 $ 921,537 $ 449,215
Net revenues per patient $ 298 $ 261 $ 176
day(1)
Outpatient
Net Revenues:
Individual $ 1,460,651 $ 648,302
Contract $ 343,342 $ 503,365
Sources of revenues:
Private 99% 89%
Government 1% 11%
(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. Government total for 1996 reflects increase
in higher acuity Medicare patients and Medicaid patients.
LONG-TERM CARE FACILITY
INDUSTRY BACKGROUND
The fastest growing market in the health care industry is the segment which
provides services for people 65 years of age and older. Demographers predict
that this segment of the population will increase dramatically in the next 20
years. The Company believes that there is a current shortage of long-term care
facilities which provide subacute and skilled nursing care and that such
shortage will be exacerbated by this population trend.
FRANVALE
The Company owns and operates a 128-bed, multi-level, long-term care facility
in Braintree, Massachusetts. For the fiscal year ended June 30, 1996, Franvale
operated at 87.1% of capacity.
In September, 1994, the Company received approval from the Commonwealth of
Massachusetts for a 25-bed addition to the Franvale facility. Under a one-time
regulatory exemption, the Company added an additional 12 beds to Franvale, for a
total of 37 new beds, and renovated the existing facility during the 1995 and
1996 fiscal years. To finance this addition and renovation, the Company applied
for and received Section 232 Mortgage Financing in an amount of $6,822,700 from
HUD. Approximately $2.9 million of that amount was used for the new construction
and renovation, which began September 13, 1994, and approximately $2,327,230 was
used to repay all indebtedness, plus accrued interest, relating to Franvale,
including $497,500 of indebtedness owing to the FDIC. The construction was
completed in September 1995. The Company began operation of the new addition on
September 29, 1995. The final amount of the mortgage was $6,822,700 as
determined by the HUD process of cost certification on July 9, 1996. The monthly
debt service is approximately $54,000.
The refinancing described in the preceding paragraph was accomplished through
guarantees provided by the U.S. Department of Housing and Urban Development
under Section 232 of The National Housing Act. A non-recourse loan in the amount
of $6,822,700 was provided by Charles River Mortgage Company of Boston,
Massachusetts in return for a promissory note and mortgage of the Company in the
same amount. This amount was adjusted after HUD's final cost certification
process completed in July, 1996. The annual interest is 9.25% and the note is
payable over a forty-year period commencing January 1, 1996. Pre-payment is
allowed with penalty from October 1, 2000 through October 1, 2005, with no
penalty after October 1, 2005. All pre-existing debt relating to Franvale was
paid by the Company out of the proceeds of the refinancing; $497,500 was paid to
the Federal Deposit Insurance Company, $1,823,839 was paid to CMS Capital
Ventures, Inc. and $5,888 was paid to Trans National Leasing.
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, which fines continue to accrue. If the Company
does not appeal the imposition of the fines and the deficiency notice, the
penalties could be reduced by 35%. 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 must still be readmitted to the Franvale facility from a hospital only
after a case by case review by the Department of Public Health. The Company is
obligated to notify the attending physician of each resident of Franvale who was
found to have received substandard care of the deficiency notice and is
obligated also to notify the Massachusetts board which licenses the
administrator of Franvale. HCFA has informed the Company that it will publish a
notice of inpending termination in the Boston Globe not later than April 14,
1997, unless Franvale has been found to be in substantial compliance by that
date.
The Company has replaced the management team at Franvale and is attempting
to bring the facility into substantial compliance at the earliest possible date,
including by expenditure of significant sums for staffing and programmatic
improvements. After further review, the Company engaged Oasis Management Company
("Oasis") on November 1, 1996 to provide management services to Franvale. The
Company is negotiating a contract with Oasis which has not yet been finalized.
The Company currently pays Oasis $6,250 per month for its services. 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. However, if the Franvale facility is not in substantial compliance
before April 30, 1997, Franvale may be unable to admit new patients, continue to
be subject to a case by case review of readmissions, continue to incur
significant civil penalties, lose its certification under the Medicare and
Medicaid programs, which would materially affect the number of residents at the
facility and would call into question its ability to operate, and could lose its
licensure altogether. The Company anticipates that the State will resurvey the
facility on April 16, 1997.
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 continue to accrue, and the expenses that
have been incurred by the Company in an attempt to cure the cited deficiencies,
the Company anticipates a material adverse effect on its financial results for
the quarter ended March 31, 1997 with the possibility of continued adverse
financial impacts in future quarters.
The Company is confident that the deficiencies at Franvale have been
corrected, as evidenced by the second plan of correction that has been submitted
to the Department of Public Health. On April 8, 1997, Franvale submitted a
statement of allegation of substantial compliance with the Department of Public
Health and anticipates that resurveyance of Franvale by the Department will
occur shortly. If Franvale is not found to be in substantial compliance by the
Department of Public Health as a result of the such resurvey, the Company
intends to appeal the decision.
OPERATING STATISTICS
The following table reflects selected financial and statistical information
for Franvale:
Six Months ended Year ended June 30,
December 31,
1996 1996 1995
Net patient service revenues ...... $3,211,066 $5,043,922 $4,180,471
Net revenues per patient .......... $ 136 $ 137 $ 135
day(1)
Average occupancy rate(2) ......... 93.8% 87.1% 92.7%
Total number of licensed beds
at end of period.................. 128 128 91
Source of revenues:
Private(3) ..................... 18% 8% 8%
Government(4) .................. 82% 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.
MARKETING
Each of the Company's substance abuse facilities conducts its own marketing
efforts. Mount Regis has two individuals on staff who are responsible for the
marketing of that facility's services. Highland Ridge has three individuals on
staff, and Good Hope has two individuals on staff who are dedicated to marketing
the services of those facilities. Each of the Company's psychiatric facilities
conducts its own marketing efforts both locally and nationally. Harbor Oaks has
three individuals on staff and Harmony Healthcare has two individuals on staff
who are dedicated to marketing the services of those facilities. Total Concept,
BSC and PCV each have an individual on staff whose duties include clinical,
administrative and marketing responsibilities. NPP's marketing efforts are run
by the Harbor Oaks staff. Franvale, the Company's long-term care facility, also
conducts its own local and national/regional marketing and has one individual on
staff dedicated to marketing. The Company's national marketing efforts are
coordinated by its National Marketing Director who reports to the Company's
Executive Vice President.
The Company has been successful in securing a number of national accounts
with a variety of corporations including: Boyd Gaming, Canadian Rail, Conrail,
CSX, Hard Rock, the IUE, MCC, MGM, The Mirage, Station Casinos, Union Pacific
Railroad, Union Pacific Railroad Hospital Association, VBH, and others.
The Company markets its substance abuse, inpatient psychiatric and outpatient
mental health services both locally and nationally. With respect to substance
abuse and psychiatric care, the Company intends to continue its marketing
strategy focusing on referral resources in safety sensitive industries, such as
transportation, oil and gas exploration, heavy machinery and equipment,
manufacturing and health services. The Company has also seen significant growth
in the gaming industry both in Nevada and nationally.
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, 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.
The Company's inpatient services are complimented 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. They make
it possible for the Company to offer 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's marketing efforts for long-term care facilities will continue
to emphasize the specialized, transitional, sub-acute services provided by
Franvale. The Franvale facility provides care to patients who no longer require
higher, more costly, acute care provided in intensive care settings at
hospitals, but still require nursing intervention and use of a significant
amount of auxiliary medical services including intravenous rehabilitation,
respiratory and integral therapies. The Company believes that acute care
hospitals seek to transfer certain patients who have entered recuperative
periods, but who are not yet well enough to be cared for at home, to facilities
which offer the type of intensive care available at Franvale. The Company
believes that such patients represent a large market, but one which currently is
underserved. The Company hopes to continue its relationship with existing acute
care hospitals for transitional patients and to develop other networks with
health care providers to increase its census, particularly of higher paying
private pay and long-term care insured patients.
GROWTH STRATEGY
The Company plans to acquire businesses that will contribute to overall
profitability within a short period of time after the acquisition. The Company
may also make acquisitions in areas that will further support the integrated
delivery system in markets that it currently services.
The Company has established certain criteria to be applied in pursuing growth
opportunities. Ideally, substance abuse and psychiatric acquisition targets
would be easily accessible to transportation, would be relatively small and
located in areas perceived by the Company to be generally underserved by the
services the Company would provide.
Long-term care facilities generally serve patients within a limited
geographical area. The Company's initial acquisition focus in the long-term care
market will be in New England. The company anticipates that in evaluating
acquisition candidates in the long-term care market, it will concentrate on
facilities that are configured to provide the specialized, subacute services
which are provided at Franvale.
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 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 25-mile radius from
its Franvale facility. 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 and psychiatric 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 facilities. Most of the Company's psychiatric patients either have
insurance or pay at least a portion of treatment costs. Free treatment provided
each year amounts to less than 5% of the Company's total patient days.
Each contract is negotiated separately, taking into account the insurance
coverage provided to employees and members, and, depending on such coverage, may
provide for differing amounts of compensation to the Company for different
subsets of employees and members. 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 any additional ancillary services provided to them by the
Company.
QUALITY ASSURANCE AND UTILIZATION REVIEW
The Company has established comprehensive quality assurance programs at all
of its facilities. These 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. To this end, the Company's inpatient facilities are accredited by
the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO") and
the Company's outpatient facilities comply with the standards of National
Commission Quality Assurance ("NCQA") although the facilities are not NCQA
certified. The Company's professional staff, including physicians, social
workers, psychologists, nurses, dietitians, therapists and counselors, must meet
the minimal requirements of licensure related to their specific discipline, in
addition to each facility's own internal quality assurance criteria. 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.
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 likely
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. DoN's 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 DoN's 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, the existence of 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 review of patient utilization and
inspection of standards of patient care. The Company will attempt to ensure that
its facilities are operated in compliance with all such standards and
conditions. To the extent these standards are not met, however, the license of a
facility could be restricted, suspended or revoked, or a facility could be
decertified from the Medicare or Medicaid programs.
MEDICARE REIMBURSEMENT
Currently, the Company's substance abuse facilities do not receive
reimbursement under the Medicare program for services rendered. The Franvale and
Harbor Oaks facilities do, however, rely upon such reimbursement as presumably
will other long-term care and psychiatric facilities which may be acquired or
established by the Company. The Medicare program reimburses long-term care
facilities for routine operating costs, capital costs and ancillary costs.
Routine operating costs are subject to a routine cost limitation set for each
location. Such routine cost limitations are not applicable for the first three
years of the facility's operations. Owing to its high acuity patient population,
Franvale has received an exception to this routine cost limit for calendar years
1993, 1994, 1995 and 1996. Capital costs include interest expenses, property
taxes, lease payments and depreciation expense. Interest and depreciation are
calculated based upon the original owner's historical cost (plus the cost of
subsequent capital improvements) when changes in ownership have occurred or
occur after July 1984. Ancillary costs are reimbursed at actual cost to Medicare
beneficiaries based on prescribed cost allocation principles.
On December 13, 1989, the Catastrophic Care Act of 1988 (the "Catastrophic
Care Act") was repealed. Prior to the effective date of the Catastrophic Care
Act, federal law provided, as a precondition to Medicare coverage of skilled
nursing facility services, that the Medicare beneficiary must have been an
inpatient in an acute care hospital for at least three days preceding admission
to the nursing facility, with such admission occurring within thirty days after
discharge from the acute care hospital. Because the Catastrophic Care Act has
been repealed, that precondition to Medicare coverage of skilled nursing
facility services has been reinstated. However, the Catastrophic Care Act's
expanded definition of skilled care, which increased beneficiaries' access to
skilled nursing services, has been retained.
The Medicare program generally reimburses psychiatric facilities pursuant to
its prospective payment system ("PPS"), in which each facility receives an
interim payment of its allowable costs during the year which is later adjusted
to reflect actual allowable direct and indirect costs of services based upon the
submission of a cost report at the end of each year. However, current Medicare
payment policies allow certain psychiatric service providers an exemption from
PPS. In order for a facility to be eligible for exemption from PPS, the facility
must comply with numerous organizational and operational requirements.
PPS-exempt providers are cost reimbursed, receiving the lower of reasonable
costs or reasonable charges. The Medicare program fiscal intermediary pays a per
diem rate based upon prior year costs, which may be retroactively adjusted upon
the submission of annual cost reports.
The Harbor Oaks facility is currently PPS-exempt. The amount of its
cost-based reimbursement may be limited by the Tax Equity and Fiscal
Responsibility Act of 1982 ("TEFRA") and regulations promulgated thereunder.
Generally, TEFRA limits the amount of reimbursement a facility may receive to a
target amount per discharge, adjusted annually for inflation. This target amount
is based upon a facility's reasonable Medicare operating cost divided by
Medicare discharges, plus a per diem allowance for capital costs, during its
base year of operations. It is not possible to predict the ability of Harbor
Oaks to remain PPS-exempt or to anticipate the impact of TEFRA upon the
reimbursement received by Harbor Oaks in future periods.
In order to receive Medicare reimbursement, each participating facility must
meet the applicable conditions of participation set forth by the federal
government relating to the type of facility, its equipment, its personnel and
its standards of medical care, as well as compliance with all state and local
laws and regulations. In addition, Medicare regulations generally require that
entry into such facilities be through physician referral. The Company must offer
services to Medicare recipients on a non-discriminatory basis and may not
preferentially accept private pay or commercially insured patients.
MEDICAID REIMBURSEMENT
Currently, the Company's substance abuse facilities do not receive
reimbursement under any state Medicaid program. The Franvale and Harbor Oaks
facilities do, however, rely upon Medicaid reimbursement, as presumably will
other long-term care facilities which may be acquired or established by the
Company. A portion of Medicaid costs are paid by states under the Medicaid
program and the federal matching payments are not made unless the state's
portion is made. Accordingly, the timely receipt of Medicaid payments by a
facility may be affected by the financial condition of the relevant state.
Harbor Oaks, the Company's psychiatric facility, is a participant in the
Medicaid program administered by the State of Michigan. The great majority of
patients reimbursed under this program are adolescents. Harbor Oaks receives
reimbursement from the State of Michigan Medicaid program on a per diem basis,
inclusive of ancillary costs. The rate is determined by the state and is
adjusted annually based on cost reports filed by the Company.
The Franvale facility participates in the Medicaid program administered by
the Commonwealth of Massachusetts. 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, the
ordering, arranging, or providing of covered services, items or equipment.
Violations of these provisions may result in civil and criminal penalties and/or
exclusion from participation in the Medicare, Medicaid and other
government-sponsored programs. 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. Failure to fall within a safe harbor does not
constitute a per se 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 March 15, 1997 the Company had 522 employees, of which 18 (17 full
time) were employed through the Company's headquarters, 67 (44 full time) at
Highland Ridge, 41 (29 full time) at Mount Regis, 51 (25 full time) at Good
Hope, 140 (97 full time) at Franvale, 143 (91 full time) at Harbor Oaks, 14 (13
full time) at Harmony Healthcare, 5 (2 full time) at Total Concept, 6 (5 full
time) at BSC, 34 (22 full time) at NPP and 3 (3 full time) at PCV. Of the
Company's 522 employees, 382 are leased from Allied Resource Management of
Florida, Inc. ("ARMFCO"), a wholly owned subsidiary of HRC ARMCO, Inc. (formerly
known as Alliance Employee Leasing Corporation), a national employee leasing
firm.
The Company has elected to lease a substantial portion of its employees to
provide more favorable employee health benefits at lower cost than would be
available to the Company as a single employer and to eliminate certain
administrative tasks which otherwise would be imposed on the management of the
Company. The Company does not lease employees for its long-term care facility.
The arrangements with ARMFCO are implemented through separate leases with the
Company relating to each facility, other than Franvale, and are terminable by
either party on 30 days' written notice. The agreements with ARMFCO provide that
for all leased employees, ARMFCO will administer payroll (including withholding
of state and federal payroll taxes), provide for compliance with workers'
compensation laws, including procurement of workers' compensation insurance and
administering claims, and procure and provide designated employee benefits. The
Company retains the right to reject the services of any leased employee and
ARMFCO has the right to increase its fees at any time upon thirty days' written
notice or immediately upon any increase in payroll taxes, workers' compensation
insurance premiums or the cost of employee benefits provided to the leased
employees.
The Company believes that it has been successful in attracting skilled and
experienced personnel; competition for such employees is intense, however, and
there can be no assurance that the Company will be able to attract and retain
necessary qualified employees in the future. None of the Company's employees are
covered by a collective bargaining agreement. The Company believes that its
relationships with its employees are good.
INSURANCE
Each of the Company's facilities maintains separate professional liability
insurance policies. Mount Regis, Harbor Oaks, Harmony Healthcare, Total Concept,
NPP and BSC 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 identical amounts. The Company's long-term care facility maintains
general and professional liability coverage of $2,000,000, with a limit of
$1,000,000 per claim and an aggregate of $5,000,000 excess coverage. PCV's two
doctors are currently covered by their own malpractice policies. The Company
plans to obtain separate insurance for PCV as soon as its facility is purchased.
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.
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 the 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.
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 litigation has been suspended pending the outcome of the proceedings
described above.
On or about November 25, 1996, the Company was named as a defendant in a
complaint filed by Bentley Associates, L.P. in the Supreme Court of the State
of New York (Civil Action No. 605870/96). The complaint arises out of an
alleged breach of contract between Bentley Associates, L.P. and Behavioral
Stress Center, Inc. for unpaid advisory fees. The complaint seeks
compensatory damages and other equitable relief. The Company has meritorious
defenses. On January 15, 1997, the Company filed a motion to dismiss which
is currently pending before the court. The Company does not believe that an
adverse decision would have a material adverse effect on the Company.
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company are as follows:
NAME AGE POSITION
Bruce A. Shear.................... 42 Director, President and Chief
Executive Officer
Robert H. Boswell................. 48 Executive Vice President
Gerald M. Perlow, M.D. (1)(2) 58 Director and Clerk
Donald E. Robar (1)(2)............ 59 Director and Treasurer
Paula C. Wurts.................... 48 Controller, Assistant Clerk and
Assistant Treasurer
Howard W. Phillips................ 66 Director
William F. Grieco................. 43 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. The Compensation Committee reviews and sets executive compensation.
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 was 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
M.B.A. from Suffolk University in 1980 and a B.S. in Accounting and Finance from
Marquette University in 1976.
ROBERT H. BOSWELL has served as the Executive Vice President of the Company
since 1992. From 1989 until the 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.
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 30, 1996 to
March 1, 1997, Dr. Perlow served as President and Director of Perlow Physicians,
P.C. which has a management contract with BSC. Dr. Perlow received an annual
salary of $25,000 in this position. Dr. Perlow received a B.A. from Harvard
College in 1959 and an M.D. from Tufts University School of Medicine in 1963.
DONALD E. ROBAR has served as a Director of the Company since 1985 and as
the Treasurer since February, 1996. He served as the 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 an Ed.D. from the University of Massachusetts in 1978, an M.A. from
Boston College in 1968 and a B.A. from the University of Massachusetts in 1960.
PAULA C. WURTS has served as the Controller of the Company since 1989 and
as Assistant Treasurer since 1993 and as Assistant Clerk since January, 1996.
Ms. Wurts served as the Company's Accounting Manager from 1985 until 1989. Ms.
Wurts received an Associate's degree in Accounting from the University of South
Carolina in 1980, a B.S. in Accounting from Northeastern University in 1989 and
passed the examination for Certified Public Accountants. She received a Master's
Degree in Accounting from Western New England College in 1996.
HOWARD W. PHILLIPS has served as a Director of the Company since August 27,
1996 and has been employed by the Company as a public relations specialist since
August 1, 1995. From 1982 until October 31, 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.
EMPLOYMENT AGREEMENTS
The Company has not entered into any employment agreements with its
executive officers. The Company has acquired a $1,000,000 key man life insurance
policy on the life of Bruce A. Shear.
EXECUTIVE COMPENSATION
Two executive officers of the Company received compensation in the 1996
fiscal year which exceeded $100,000. The following table sets forth the
compensation paid or accrued by the Company for services rendered to these
executives in fiscal years 1994 to 1996:
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
(A) (B) (C) (D) (E) (G) (I)
YEAR SALARY BONUS OTHER SECURITIES ALL OTHER
NAME AND ($) ($) ANNUAL UNDERLYING COMPENSATION
PRINCIPAL COMPENSATION OPTIONS/SARS
POSITION ($) (#) ($)
- -------- ---- ----- ----- ------------ ----- -----
Bruce A. Shear.... 1996 $294,063 -- $10,818(1) -- --
President and 1995 $237,500 -- $8,412(2) -- --
Chief Executive 1994 $245,000 -- $7,850(3) -- --
Officer
Robert H. Boswell. 1996 $80,667 $1,000 $23,750(4) 5,000 $11,250
Executive Vice 1995 $69,750 -- $6,000(5) 15,000 $28,050
President 1994 $55,083 $5,000 $6,000(5) 14,000 $36,445
---------------------------
(1) This amount represents (i) $2,650 contributed by the Company to the
Company's Executive Employee Benefit Plan on behalf of Mr. Shear, (ii) $5,146 in
premiums paid by the Company with respect to life insurance for the benefit of
Mr. Shear, and (iii)$3,022 for the personal use of a Company car held by Mr.
Shear.
(2) 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.
(3) This amount represents (i) $2,483 contributed by the Company to the
Company's Executive Employee Benefit Plan on behalf of Mr. Shear, (ii) $600 paid
by the Company for club memberships used by Mr. Shear for personal activities
and (iii)$ 4,767 in premiums paid by the Company with respect to life insurance
for the benefit of Mr. Shear.
(4) This amount represents (i) $3,750 automobile allowance, and (ii) $20,000 net
gain from the exercise of options and subsequent sale of stock.
(5) This amount represents an automobile allowance.
COMPENSATION OF DIRECTORS
Directors who are full time employees of the Company receive no compensation
for services as members of the Board of Directors. Directors who are not
employees of the Company receive a $2,500 stipend per year and $1,000 for each
meeting of the Board of Directors which 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
"Non-Employee Director Plan"). Pursuant to the Non-Employee Director Plan, in
February 1997, Dr. Perlow, Dr. Robar and Mr. Grieco were each granted an option
to purchase 2,000 shares of the Company's Class A Common Stock at an exercise
price of $3.50 per share. Pursuant to the Company's 1993 Stock Plan, in February
of 1997, Mr. Phillips was granted an option to purchase 2,000 shares of the
Company's Class A Common Stock at an exercise price of $3.50 per share. All of
these options are immediately exercisable for 25% of the shares with an
additional 25% becoming exercisable on each of the first three anniversaries of
the grant date.
Additionally, pursuant to the Company's 1993 Stock Plan, in February 1997,
each of Drs. Perlow and Robar and Messrs. Phillips and Grieco was granted an
option to purchase 5,000 shares of the Company's Class A Common Stock at an
exercise price of $3.50 per share. These options become exercisable six months
after the date of the grant for 25% of the shares with an additional 25%
becoming exercisable on each of the first three anniversaries of the grant date.
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 and
upon exercise of options. Generally, an option is not transferable by the option
holder 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 March 31, 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. 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.
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
were paid in full as of March 31, 1997. Two employees were in default. Mark
Cowell forfeited 6,925 shares and Joan Chamberlain forfeited 1,731 shares.
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 the average of the
bid and ask price on the first day of the plan period and the last day of the
plan period. An offering period under the plan began on February 1, 1996 and
ended on January 31, 1997. Seventeen employees purchased an aggregate of 9,452
shares of Class A Common Stock. A new offering commenced on February 1, 1997 and
will end on January 31, 1998. There are thirty-seven employees participating in
the second offering under this plan.
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 the first meeting of the Board
of Directors subsequent to each annual meeting of stockholders, each
non-employee director is granted under the Director Plan an option to purchase
2,000 shares of the Class A Common Stock of the Company. The option exercise
price is the fair market value of the shares of the Company's Class A Common
Stock on the date of grant. The options are non-transferable and become
exercisable as follows: 25% immediately and 25% on each of the first, second and
third anniversaries of the grant date. If an optionee ceases to be a member of
the Board of Directors other than for death or permanent disability, the
unexercised portion of the options, to the extent unvested, immediately
terminate, and the unexercised portion of the options which have vested lapse
180 days after the date the optionee ceases to serve on the Board. In the event
of death or permanent disability, all unexercised options vest and the optionee
or his or her legal representative has the right to exercise the option for a
period of 180 days or until the expiration of the option, if sooner.
On January 23, 1996, a total of 5,500 shares were issued under the Director
Plan at an exercise price of $6.63 per share. In February, 1997, a total of
6,000 shares were issued under the Director Plan at an exercise price of $3.50
per share. As of March 31, 1997, none of these options had been exercised.
The following table provides information about options granted to the
named executive officers during fiscal 1996 under the Company's Stock Plan,
Employee Stock Purchase Plan and Non-Employee Director Stock Plan.
INDIVIDUAL GRANTS
(A) (B) (C) (D) (E)
NUMBER OF % OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS EXERCISE
OPTIONS/SARS GRANTED TO OR BASE EXPIRATION
NAME GRANTED (#) EMPLOYEES PRICE DATE
IN FISCAL ($/SH)
YEAR
Bruce A. Shear... -- -- -- --
Robert H. Boswell 5,000 12.2% $3.50 3/21/01
The following table provides information about options exercised by the named
executive officers during fiscal 1996 and the number and value of options held
at the end of fiscal 1996.
(A) (B) (C) (D) (E)
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
ACQUIRED VALUE UNEXERCISED OPTIONS/SARS AT
ON REALIZED OPTIONS/SARS AT FY-END ($)
EXERCISE ($) FY-END (#) EXERCISABLE/
NAME (#) EXERCISABLE/ UNEXERCISABLE
UNEXERCISABLE
---- ------ ---- ------------- --------------
Bruce A. Shear........ -- -- -- --
Robert H. Boswell..... 5,000 $20,000 25,250/3,730 $58,808/$8,438
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For approximately the last ten years, Bruce A. Shear, a director and
the President and Chief Executive Officer 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 December 31, 1996, the
Company owed an aggregate of $103,996 to related parties.
During the six months ended December 31, 1996, the Company paid to Mr. Shear
approximately $181,612 in principal and accrued interest under various notes. No
other consideration was paid to related parties. In connection with the IPO, Mr.
Shear contributed to the Company approximately $85,000 of accrued and unpaid
interest payable under various notes and approximately $15,000 of accrued and
unpaid guarantee fees owed to him for 20,000 shares of the Company's Class B
Common Stock. The Company paid Mr. Shear $50,000 out of the proceeds of the IPO
in reduction of the principal amount of the notes for the payment of certain tax
obligations arising from the issuance of the stock. Upon the consummation of
those transactions, Mr. Shear accepted a new promissory note of the Company in
exchange for the notes plus accrued interest for $110,596. As of December 31,
1996, the Company owed Bruce A. Shear $78,996 on that promissory note, which is
dated March 31, 1994, matures on December 31, 1998 and bears interest at the
rate of 8% per year, payable quarterly in arrears, and requires repayments of
principal quarterly in equal installments commencing July 1, 1996, until
maturity.
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 Form 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.
For fiscal year 1996, Mr. Boswell and Ms. Wurts each failed to timely file
Form 5.
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 March 31, 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:
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 11,462(1) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Donald E. Robar 8,750(2) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Bruce A. Shear 5,000(3) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Robert H. Boswell 29,324(4) 1.08%
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Howard W. Phillips 35,560(5) 1.3%
P. O. Box 2047
East Hampton, NY 11937
William F. Grieco 59,780(6)(7) 2.2%
115 Marlborough Street
Boston, MA 02116
J. Owen Todd 59,280(7) 2.2%
c/o Todd and Weld
1 Boston Place
Boston, MA 02108
All Directors and 163,301(8) 6.0%
Officers as a Group
(7 persons)
Class B Common Stock (9) Bruce A. Shear 671,259(10) 91.8%
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
All Directors and 671,259 91.8%
Officers as a Group
(7 persons)
Class C Common Stock.... 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 84.9%
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) 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 27,750 shares of Class A Common Stock issu-
able pursuant to currently exercisable stock options at an exercise price
of $3.50 per share.
(5) Includes 35,060 shares issuable upon the exercise of a currently exer-
cisable Unit Purchase Option for 17,530 Units, at a price per unit of
$5.99, 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 54,000 shares issuable pursuant to currently
exercisable stock options. Of those options, 2,750 have an exercise price
of $6.63 per share and 51,250 have an exercise price of $3.50 per share.
(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.
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 April 10, 1997:
Bruce A. Shear .......................................52.9%
J. Owen Todd...........................................0.9%
William F. Grieco......................................0.9%
All Directors and Officers as a Group (7 persons)....55.4%
SELLING SECURITY HOLDERS
The following table sets forth the ownership of the shares offered pursuant
to this Prospectus by the Selling Security Holders as of the dates such
information was provided to the Company. The information contained in the
following table is based on the Company's records and on information provided by
the Selling Security Holders. Since the dates such information was provided to
the Company, such information may have changed. Except as otherwise noted in the
footnotes to the following table, none of the Selling Security Holders has had
any position, office or material relationship with the Company or affiliates
during the past three years.
NAME OF SELLING NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
SECURITY HOLDER OF CLASS A OF CLASS A OF CLASS A COMMON
COMMON STOCK OWNED COMMON STOCK STOCK OWNED AFTER
BEFORE THE OFFERED THE OFFERING
OFFERING
- ----------------- ------------------ ---------------- ------------------
Infinity Investors 1,027,500 1,027,500(1) 0
Ltd...............
Seacrest Capital 685,000 685,000(2) 0
Limited...........
Alpine Capital 25,000 25,000(3) 0
Partners, Inc.....
Barrow Street 3,000 3,000(4) 0
Research, Inc.....
Leon Rubenfaer, M.D. 6,000 6,000(5) 0
Alan Rickfelder, 9,000 9,000(6) 0
Ph.D..............
Mukesh Patel, M.D. 32,250 32,250(7) 0
Himanshu Patel, M.D. 32,250 32,250(7) 0
Irwin Mansdorf, Ph.D. 120,375 114,375(8) 6,000
Yakov Burstein, Ph.D. 45,625 35,625(9) 10,000
C.C.R.I. Corporation 160,000 160,000(10) 0
(1) Consists only of 937,500 shares of Class A Common Stock issuable upon
the conversion of a 7% convertible debenture due December 31, 1998 in the
principal amount of $1,875,000 and 90,000 shares of Class A Common Stock
issuable upon the exercise of a warrant at an exercise price of $2.00 per share.
The number of shares of Class A Common Stock into which the debenture may be
converted is determined by dividing the principal amount to be converted by the
conversion price. The conversion price is 98% of the average closing bid price
of the Class A Common Stock as reported by NASDAQ for the 5 trading days
immediately preceding the date of conversion. The percentage drops 2% per month
on the first day of each 30 day period following April 15, 1997 during which the
Company does not have a Registration Statement declared effective by the
Securities and Exchange Commission covering such shares. For the purposes of
this Prospectus, the number of shares of Class A Common Stock into which the
debenture is convertible has been determined by assuming a conversion price of
$2.00.
(2) Consists of shares of Class A Common Stock issuable upon the conversion
of a 7% convertible debenture due December 31, 1998 in the principal amount of
$1,250,000 and 60,000 shares of Class A Common Stock issuable upon the exercise
of a warrant issued by the Company to Seacrest Capital Limited at an exercise
price of $2.00 per share. The number of shares of Class A Common Stock into
which the debenture may be converted is determined by dividing the principal
amount to be converted by the conversion price. The conversion price is equal to
98% of the average closing bid price of the Class A Common Stock as reported by
NASDAQ for the 5 trading days immediately preceding the date of conversion. This
percentage drops 2% per month on the first day of each 30 day period following
April 15, 1997 during which the Company does not have a Registration Statement
declared effective by the Securities and Exchange Commission covering such
shares. For the purposes of this Prospectus, the number of shares of Class A
Common Stock into which the debenture is convertible has been determined by
assuming a conversion price of $2.00.
(3) Consists of shares of Class A Common Stock issuable upon the exercise
of a warrant issued by the Company to Alpine Capital Partners, Inc. for
consulting services at an exercise price of $6.88 per share. The warrant may be
exercised in whole or in part any time prior to October 7, 2001. Alpine Capital
Partners, Inc. may not sell in excess of 5,000 shares of Class A Common Stock in
any thirty day period without the written consent of the Company.
(4) Consists of shares of Class A Common Stock issuable upon the exercise
of a warrant issued by the Company to Barrow Street Research, Inc. for investor
relation services at an exercise price of $2.50 per share. The warrant may be
exercised in whole or in part at any time prior to February 18, 2002.
(5) Consists of shares of Class A Common Stock issued to Leon Rubenfaer,
M.D. pursuant to Section 3.1 of an Asset Purchase Agreement for NPP dated May
24, 1996 and entered into by and between certain persons and entities, including
Leon Rubenfaer, M.D., Alan Rickfelder, Ph.D. and the Company.
(6) Consists of shares of Class A Common Stock issued to Alan Rickfelder,
Ph.D. pursuant to Section 3.1 of an Asset Purchase Agreement for NPP dated May
24, 1996 and entered into by and between certain persons and entities, including
Leon Rubenfaer, M.D., Alan Rickfelder, Ph.D. and the Company.
(7) Consists of shares of Class A Common Stock issued to Mukesh Patel, M.D.
and to Himanshu Patel, M.D. by the Company pursuant to Section 2.3 of a Stock
Exchange Agreement for PCV dated January 17, 1997 entered into by and between
Mukesh Patel, M.D., Himanshu Patel, M.D. and the Company.
(8) Consists of 114,375 shares of Class A Common Stock issued to Irwin
Mansdorf by the Company pursuant to an Agreement and Plan of Merger dated
October 31, 1996 and entered into by and between the Company, BSC-NY, Inc.,
Behavioral Stress Center, Inc., Irwin Mansdorf and Yakov Burstein. Pursuant to a
Registration Rights Agreement entered into by and among, Irwin Mansdorf, Yakov
Burstein and the Company, Dr. Mansdorf may not sell in the aggregate in excess
of 5,000 shares of Class A Common Stock during any calendar month.
(9) Consists of 35,625 shares of Class A Common Stock issued to Yakov
Burstein by the Company pursuant to an Agreement and Plan of Merger dated
October 31, 1996 and entered into by and between the Company, BSC-NY, Inc.,
Behavioral Stress Center, Inc., Irwin Mansdorf and Yakov Burstein. Pursuant to a
Registration Rights Agreement entered into by and among, Irwin Mansdorf, Yakov
Burstein and the Company, Dr. Burstein may not sell in the aggregate in excess
of 5,000 shares of Class A Common Stock during any calendar month.
(10) Consists of 160,000 shares of Class A Common Stock issuable upon the
exercise of a warrant issued by the Company to C.C.R.I Corporation at an
exercise price of $2.62 per share. The warrant is exercisable as to 40,000
shares of Class A Common Stock at any time prior to March 3, 2002. The warrant
becomes exercisable as to an additional 40,000 shares of Class A Common Stock on
July 3, 1997 provided that the closing price of the Company's Class A Common
Stock as reported by the Nasdaq SmallCap Market has been in excess of $5.62 for
ten days prior to July 3, 1997. The warrant becomes exercisable as to an
additional 40,000 shares of Class A Common Stock on October 3, 1997 provided
that the closing price of the Company's Class A Common Stock as reported by the
Nasdaq Small Cap Market has been in excess of $7.62 for 10 days prior to October
3, 1997. The warrant becomes exercisable as to an additional 40,000 shares of
Class A Common Stock on January 3, 1998 provided that the closing price of the
Company's Class A Common Stock as reported by the Nasdaq SmallCap Market has
been in excess of $9.62 for 10 days prior to January 3, 1998. In the event that
any of the shares do not become exercisable by their target dates, such shares
shall become exercisable retroactively if the respective target prices of the
Company's Class A Common Stock are achieved by March 3, 1998. All shares which
become exercisable by March 3, 1998 may be exercised at any time prior to March
3, 2002. The warrant shall terminate with respect to such shares which do not
become exercisable by March 3, 1998. C.C.R.I. Corporation may not sell in excess
of 5,000 shares on any single day or 20,000 shares in any single month without
the prior consent of the Company.
PLAN OF DISTRIBUTION
The shares of Class A Common Stock offered by this Prospectus may be sold
from time to time by the Selling Security Holders or by transferees thereof. No
underwriting arrangements have been entered into by the Selling Security
Holders. The distribution of the shares offered by this Prospectus by the
Selling Security Holders may be effected in one or more transactions that may
take place in the over-the-counter market, including ordinary broker's
transactions, privately negotiated transactions, or through sales to one or more
dealers for resale of such shares as principals, at prevailing market prices at
the time of sale, prices related to prevailing market prices, or negotiated
prices. Underwriter's discounts and usual and customary or specifically
negotiated brokerage fees or commissions may be paid by a Selling Security
Holder in connection with sales of the shares.
In order to comply with certain state securities laws, if applicable, the
shares of Class A Common Stock offered by this Prospectus will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In certain
states, such shares may not be sold unless they have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the shares of Class A Common Stock offered by this
Prospectus may not simultaneously engage in market-making activities with
respect to such shares for a period of two to nine business days prior to the
commencement of such distribution. In addition to, and without limiting the
foregoing, each of the selling Security Holders and any other person
participating in a distribution will be subject to the applicable provisions of
the Exchange Act and the rules and regulations thereunder, including, without
limitation, rules 10b-2, 10b-6, and 10b-7, which provisions may limit the timing
of purchases and sales of any of the shares by the Selling Security Holders or
any such other person. All of the foregoing may affect the marketability of the
shares.
Pursuant to a Registration Rights Agreement between the Company and
Infinity Investors Ltd. ("Infinity") and Seacrest Capital Limited ("Seacrest")
(the "Infinity/Seacrest Agreement"), the Company will pay all the fees and
expenses incident to the registration of the shares owned by them and offered by
this Prospectus (other than underwriting discounts and commissions, if any, and
counsel fees and expenses in excess of $10,000, if any). The Company was
required, pursuant to the Registration Rights Agreement, to prepare and file
with the Commission the Registration Statement of which this Prospectus forms a
part, pursuant to Rule 415 under the Act, with respect to all of the shares of
Class A Common Stock covered by this Prospectus and owned by Infinity and
Seacrest. Pursuant to the Infinity/Seacrest Agreement, the Company agreed to
maintain the effectiveness of the Registration Statement for a maximum of 180
days from the date the Registration Statement is declared effective.
Pursuant to a Registration Rights Agreement between the Company and Irwin
Mansdorf ("Mansdorf") and Yakov Burstein ("Burstein") (the "Mansdorf/Burstein
Agreement"), the Company will pay all the fees and expenses incident to the
registration of the shares owned by them and offered by this Prospectus (other
than underwriting discounts and commissions, if any, and counsel fees and
expenses in excess of $5,000, if any). The Company was required, pursuant to the
Registration Rights Agreement, to prepare and file with the Commission the
Registration Statement of which this Prospectus forms a part, pursuant to Rule
415 under the Act, with respect to all of the shares of Class A Common Stock
covered by this Prospectus and owned by Mansdorf and Burstein. Pursuant to the
Mansdorf/Burstein Agreement, the Company agreed to maintain the effectiveness of
the Registration Statement for a maximum of 24 months following the issuance of
the Shares which are the subject of such registration, or, if sooner, the date
following the date that all Registrable Securities covered by such registration
have been sold pursuant to the provisions of Rule 144.
Pursuant to both of the Registration Rights Agreements described above, the
Company has agreed to indemnify Infinity, Seacrest, Mansdorf and Burstein
against certain liabilities, including liabilities under the Act. In addition,
each of Infinity, Seacrest, Mansdorf and Burstein has agreed to indemnify the
Company against certain liabilities, including liabilities under the Act. Such
Registration Rights Agreements, also provide for rights of contribution if such
indemnification is not available.
DESCRIPTION OF SECURITIES
The Company is authorized to issue up to 20,000,000 shares of Class A
Common Stock, $.01 par value, 2,000,000 shares of Class B Common Stock, $.01 par
value, 200,000 shares of Class C Common Stock, $.01 par value, and 1,000,000
shares of Preferred Stock, $.01 par value. As of March 31, 1997, the Company had
73 record holders of its Class A Common Stock, 325 record holders of its Class B
Common Stock and 342 record holders of its Class C Common Stock, the only
classes of equity securities outstanding as of such date.
COMMON STOCK
The Company has authorized three classes of Common Stock, the Class A
Common Stock, the Class B Common Stock and the Class C Common Stock. Subject to
any preferential rights in favor of the holders of the Preferred Stock, the
holders of the Common Stock are entitled to dividends when, as and if declared
by the Company's Board of Directors. Holders of the Class A Common Stock, the
Class B Common Stock and the Class C Common Stock are entitled to share equally
in such dividends, except that stock dividends (which shall be at the same rate)
shall be payable only in Class A Common Stock to holders of Class A Common
Stock, only in Class B Common Stock to holders of Class B Common Stock and only
in Class C Common Stock to holders of Class C Common Stock.
On liquidation of the Company, after there shall have been set aside for
the holders of Preferred Stock, if any, the full preferential amount to which
they may be entitled, the net assets of the Company remaining available for
distribution to stockholders shall be distributed equally to each share of Class
A Common Stock, Class B Common Stock and Class C Common Stock.
Subject to all the rights which may be granted to holders of the Company's
Preferred Stock, if any, and as otherwise required by Massachusetts law, a
description of the preferences, voting powers, qualifications and special or
relative rights and privileges of the Class A Common Stock, the Class B Common
Stock and the Class C Common Stock is set forth below. Except as otherwise
stated below and as otherwise required by Massachusetts law, each share of Class
A Common Stock, Class B Common Stock and Class C Common Stock has identical
powers, preferences and rights.
CLASS A COMMON STOCK
The Class A Common Stock is entitled to one vote per share with respect to
all matters on which shareholders are entitled to vote, except as otherwise
required by law and except that the holders of the Class A Common Stock are
entitled to elect two members to the Company's Board of Directors.
The Class A Common Stock is non-redeemable and non-convertible and has no
pre-emptive rights. The shares of Class A Common Stock offered hereby will be
fully paid and non-assessable.
CLASS B COMMON STOCK
The Class B Common Stock is entitled to five votes per share with respect
to all matters on which shareholders are entitled to vote, except as otherwise
required by law. The holders of the Class B Common Stock are also entitled to
elect all of the remaining members of the Board of Directors in excess of the
two directors elected by the holders of Class A Common Stock.
The Class B Common Stock is non-redeemable and has no pre-emptive rights.
Each share of Class B Common Stock is convertible, at the option of its
holder, into a share of Class A Common Stock. In addition, each share of Class B
Common Stock is automatically convertible into one fully-paid and non-assessable
share of Class A Common Stock (i) upon its sale, gift or transfer to a person
who is not an affiliate of the initial holder thereof or (ii) if transferred to
such an affiliate, upon its subsequent sale, gift or other transfer to a person
who is not an affiliate of the initial holder. Shares of Class B Common Stock
that are converted into Class A Common Stock will be retired and canceled and
shall not be reissued.
All of the outstanding shares of Class B Common Stock are fully paid and
nonassessable.
CLASS C COMMON STOCK
The Class C Common Stock is non-voting except as otherwise required by law.
The Class C Common Stock is non-redeemable and has no pre-emptive rights.
The Class C Common Stock is convertible automatically into Class B Common
Stock, as follows: if the Company's net profit after taxes (but before any
charge is taken with respect to the conversion of the Class C Common Stock) for
the fiscal year ended June 30, 1997 is $4.0 million or more, any shares of Class
C Common Stock which have not theretofore been converted into shares of Class B
Common Stock will be converted automatically into an equivalent number of shares
of Class B Common Stock on the 90th day following the end of the fiscal year in
which the targets described above are first achieved. If the earnings target is
not achieved, all of the shares of Class C Common Stock outstanding will be
canceled and retired without any action on the part of the shareholders, on the
90th day following the end of the Company's fiscal year ended June 30, 1997.
If the Class C Common Stock is converted into Class B Common Stock, the
Company will be obligated concurrently to record a charge to its earnings equal
to the product of the number of shares of Class C Common Stock converted and the
fair market value of such stock at the time it is converted. The charge will not
affect the total shareholders' equity of the Company. The Company believes that
it is unlikely that the earnings target for the fiscal year ended June 30, 1997
will be achieved.
PREFERRED STOCK
The Board of Directors is authorized, subject to the limitations prescribed
by law and the Company's Articles of Organization, to issue the Preferred Stock
in one or more classes or series and to determine, with respect to any series so
established, the preferences, voting powers, qualifications and special or
relative rights of the established class or series. The Board of Directors may
make this determination and issue shares of Preferred Stock without any prior
consent or approval from the holders of the Company's Common Stock for up to the
1,000,000 shares of Preferred Stock which are currently authorized. No shares of
the Company's Preferred Stock are currently issued or outstanding.
MASSACHUSETTS LAW AND CERTAIN CHARTER PROVISIONS
ANTI-TAKEOVER MEASURES
In addition to the directors' ability to issue shares of Preferred Stock in
series, the Company's Restated Articles of Organization and By-Laws contain
several other provisions that are commonly considered to have an anti-takeover
effect. The Company's Restated Articles of Organization include a provision
prohibiting shareholder action by written consent except as otherwise provided
by law. Under Massachusetts law, action taken by shareholders without a meeting
requires their unanimous written consent. Additionally, under the Company's
By-Laws, the directors may enlarge the size of the Board and fill any vacancies
on the Board.
Under Massachusetts law, any corporation which has a class of voting
securities registered under the Exchange Act is required to classify its board
of directors, with respect to the time for which they severally hold office,
into three classes, unless the board of directors of such corporation or the
stockholders by a vote of two-thirds of the shares outstanding, adopts a vote
providing that the corporation shall be exempt from the foregoing provision. A
provision classifying the Board of Directors is commonly considered to have an
anti-takeover effect. The Company's Board of Directors has voted to exempt the
Company from this provision.
The Company, as a Massachusetts corporation, is subject to the
Massachusetts Business Combination statute and to the Massachusetts Control
Share Acquisition statute. Under the Massachusetts Business Combination statute,
a person (other than certain excluded persons) who acquires 5% or more of the
stock of a Massachusetts corporation without the approval of the Board of
Directors (an "Interested Shareholder"), may not engage in certain transactions
with the corporation for a period of three years. There are certain exceptions
to this prohibition; for example, if the Board of Directors approves the
acquisition of stock or the transaction prior to the time that the person became
an Interested Shareholder, or if the Interested Shareholder acquires 90% of the
voting stock of the corporation (excluding voting stock owned by directors who
are also officers and stock held by certain employee stock plans) in one
transaction, or if the transaction is approved by the Board of Directors and by
the affirmative vote of two-thirds of the outstanding voting stock which is not
owned by the Interested Shareholder.
Under the Massachusetts Control Share Acquisition statute, a person (the
"Acquiror") who makes a bona fide offer to acquire, or acquires, shares of a
corporation's common stock that when combined with shares already owned, would
increase the Acquiror's ownership to at least 20%, 33 1/3%, or a majority of the
voting stock of such corporation, must obtain the approval of a majority of
shares held by all shareholders except the Acquiror and the officers and inside
directors of the corporation in order to vote the shares acquired. The statute
does not require the Acquiror to consummate the purchase before the shareholder
vote is taken.
The foregoing provisions of Massachusetts law and the Company's Restated
Articles of Organization and By-Laws could have the effect of discouraging
others from attempting unsolicited takeovers of the Company and, as a
consequence, they may also inhibit temporary fluctuations in the market price of
the Company's Common Stock that might result from actual or rumored unsolicited
takeover attempts. Such provisions may also have the effect of preventing
changes in the management of the Company. It is possible that such provisions
could make it more difficult to accomplish transactions which shareholders may
otherwise deem to be in their best interests.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company, New York, New York, serves as the
Company's Transfer Agent.
NASDAQ SYSTEM QUOTATION
Application has been made to approve the shares being offered hereby for
quotation on NASDAQ under the trading symbol PIHC.
INDEMNIFICATION FOR SECURITIES ACT VIOLATIONS
Section 6 of the Company's Restated Articles of Organization provides, in
part, that the Company shall indemnify its directors, trustees, officers,
employees and agents against all liabilities, costs and expenses, including but
not limited to amounts paid in satisfaction of judgments, in settlement or as
fines and penalties, and counsel fees, reasonably incurred by such person in
connection with the defense or disposition of or otherwise in connection with or
resulting from any action, suit or proceeding in which such person may be
involved or with which he or she may be threatened, while in office or
thereafter, by reason of his or her actions or omissions in connection with
services rendered directly or indirectly to the Company during his or her term
of office, such indemnification to include prompt payment of expenses in advance
of the final disposition of any such action, suit or proceeding.
In addition, the Restated Articles of Organization of the Company, under
authority of the Business Corporation Law of the Commonwealth of Massachusetts,
contain a provision eliminating the personal liability of a director to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, or (iii) for any transaction from which the director derived an improper
personal benefit. The foregoing provision also is inapplicable to situations
wherein a director has voted for, or assented to, the declaration of a dividend,
repurchase of shares, distribution or the making of a loan to an officer or
director, in each case where the same occurs in violation of applicable law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Choate, Hall & Stewart, Boston, Massachusetts.
EXPERTS
The financial statements of PHC, Inc. for the years ended June 30, 1995 and
1996 appearing in this Registration Statement have been audited by Richard A.
Eisner & Company, LLP, independent auditors, as set forth in their report
thereon, and are included herein and therein in reliance upon such report and
upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Act with respect to the shares offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and the shares, reference is hereby made to the Registration
Statement, exhibits and schedules which may be inspected without charge at the
public reference facilities maintained at the principal office of the Commission
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the
Commission's regional offices at 7 World Trade Center, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained upon written request
from the public reference section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Reference is made to the copies of
any contracts or other documents filed or incorporated by reference as exhibits
to the Registration Statement.
50
<PAGE>
PHC, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
NUMBER
REPORTS OF INDEPENDENT AUDITORS F-1
CONSOLIDATED BALANCE SHEETS F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS F-5
NOTES TO FINANCIAL STATEMENTS F-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
PHC, Inc.
Peabody, Massachusetts
We have audited the accompanying consolidated balance sheets of PHC,
Inc. and subsidiaries as at June 30, 1996 and June 30, 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for each of the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements enumerated
above present fairly, in all material respects, the consolidated financial
position of PHC, Inc. and subsidiaries at June 30, 1996 and June 30, 1995,
and the results of their operations and their cash flows for each of the
years then ended in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
September 6, 1996
F-1
<PAGE>
PHC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
A S S E T S 1996 1996 1995
(Notes C, D and O) (Unaudited)
Current assets:
Cash and cash equivalents . . . . . . . . $ 290,253 $ $293,515 $ 586,738
Accounts receivable, net of allowance
for bad debts of $1,492,983 at
June 30, 1996, $815,459 at June 30, 1995
and $1,517,586 at December 31, 1996
(Notes A and M) . . .. . . . . . . . . . 10,811,406 8,866,065 5,964,279
Prepaid expenses. . . . . . . . . . . . 536,279 259,893 174,539
Other receivables and advances. . . . . . 158,595 66,513 81,889
Deferred income tax asset (Note F). . . . 515,300 515,300 251,863
Other receivables, related party
(Note L) . . . . . ................... 1,182,670
Total current assets . . . . . . . . . . . .13,494,503 10,001,286 7,059,308
Accounts receivable, noncurrent. . . . . . . 740,000 740,000 656,734
Loans receivable . . . . . . . . . . . . . . 112,805 113,805 96,343
Property and equipment, net (Notes A and B). 7,926,515 7,884,063 7,086,637
Deferred income tax asset (Note F) . . . . 154,700 154,700
Deferred financing costs, net of amortization. 999,931 702,948
Goodwill, net of accumulated amortization
(Note A) . . . 905,872 709,573
Other assets (Note A). . . . . . . . . . . . 639,081 454,160 352,795
Net assets of operations held for sale (Note J). 1,394 56,682 163,568
Other receivables noncurrent, related party
(Note L) . . . . . . . . . . . . . . . . . . 1,182,670
T O T A L. . . . . . . . . . . . $26,157,471 $20,817,217 $15,415,385
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . $3,996,476 $3,127,052 $2,282,765
Notes payable -related parties (Note E). 51,600 56,600 46,598
Notes payable -bank. . . . . . . . . . . . 100,000
Current maturities of long-term debt
(Note C). . . . . . . . . . . . . . . 1,104,875 403,894 61,438
Current portion of obligations under
capital leases (Note D). . . . . .. . .. 113,374 88,052 59,212
Accrued payroll, payroll taxes and
benefits . . . .. . .. . .. . .. . .. . . 555,790 715,515 535,525
Accrued expenses and other liabilities. . 521,494 738,784 567,846
Deferred revenue. . . . . . . . . . . . 55,453
Total current liabilities. . . . . 6,343,609 5,129,897 3,708,837
Long-term debt and accounts payable (Note C). 8,427,592 7,754,262 5,682,036
Obligations under capital lease (Note D) . . .1,593,148 1,468,475 1,474,976
Notes payable -related parties (Note E) . . . 31,596 47,394 88,996
7% convertible debentures ($3,125,000 less
discount $546,875) (Note C) . .. .. .. ..2,578,125
Total noncurrent liabilities . . ..12,630,461 9,270,131 7,246,008
Total liabilities. . . . . . . . . 18,974,070 14,400,028 10,954,845
Commitments and contingent liabilities
(Notes A, G, H, K, M, N and O)
Stockholders' equity (Notes H and K):
Preferred stock, $.01 par value; 1,000,000
shares authorized, none issued
Class A common stock, $.01 par value;
10,000,000 shares authorized, 2,493,552
shares issued in December 1996, 2,293,568
and 1,504,662 shares issued in June 1996
and 1995 . . .. . .. . .. . .. . .. . . 24,936 22,936 15,047
Class B common stock, $.01 par value;
2,000,000 shares authorized, 790,628 shares
issued in December 1996, 812,237 and
898,795 shares issued in June 1996 and 1995
and convertible into one share of Class
A common stock. . . . . . . . . . . . . 7,906 8,122 8,988
Class C common stock, $.01 par value;
200,000 shares authorized and 199,816 shares
issued in December 1996, 199,816 and 199,966
shares issued in June 1996 and 1995. . . . .1,998 1,998 2,000
Additional paid-in capital. . . . . . . . 8,764,408 8,078,383 5,554,874
Notes receivable related to purchase of
31,000 shares of Class A common stock. . (63,266) (63,928) (75,362)
Accumulated deficit . . . . . . . . . . (1,552,581) (1,630,322) (1,045,007)
Total stockholders' equity . . . 7,183,401 6,417,189 4,460,540
T O T A L. . . . . . . . . . . $26,157,471 $20,817,217 $15,415,385
The accompanying notes are an integral part hereof.
F-2
<PAGE>
PHC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
December 31, Year Ended June 30,
1996 1995 1996 1995
(Unaudited)
Revenues:
Patient care, net (Note A) $12,257,060 $9,368,635 $21,569,594 $16,408,461
Other. . . . . . . . . . . . 403,935 101,245 233,164 128,157
Total revenue . . . . 12,660,995 9,469,880 21,802,758 16,536,618
Operating expenses:
Patient care expenses. . . . 6,425,116 5,616,081 12,004,383 9,248,317
Cost of management contracts 139,898 62,002 146,407 149,317
Administrative expenses. . . 5,492,182 3,622,866 9,694,802 6,223,815
Total operating
expenses. . . . . . 12,057,196 9,300,949 21,845,592 15,621,449
Income (loss) from operations . 603,799 168,931 (42,834) 915,169
Other income (expense):
Interest income. . . . . . . 33,331 6,562 14,486 28,870
Other income . . . . . . . . 215,939 95,462 211,292 80,317
Start-up costs (Note A). . . (128,313) (128,313)
Interest expense . . . . . . (759,665) (369,724) (863,484) (577,544)
Gain on disposal of center
(Note G[2]). . . . . . . . 72,756
Gain (loss) from operations
held for sale (Note J). . 36,478 17,683 11,947 (9,789)
Total other income
(expense) . . . . . (473,917) (378,330) (754,072) (405,390)
Income (loss) before income
taxes (benefit). . . . . . . 129,882 (209,399) (796,906) 509,779
Income taxes (benefit) (Note F) 52,141 (211,591) 241,108
NET INCOME (LOSS) . . . . . . . 77,741 $ (209,399) $(585,315) $ 268,671
Net income (loss) per share
(Note A) . . . . . . . . . . $.02 $(.09) $(.22) $.11
Weighted average number of
shares outstanding . . . . . 3,175,775 2,419,246 2,709,504 2,403,457
The accompanying notes are an integral part hereof.
F-3
<PAGE>
PHC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Class B Class C Additional
Common Stock Common Stock Common Stock Paid-in
Shares Amount Shares Amount Shares Amount for Capital
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -June 30, 1994 . . . 1,483,500 $14,835 $920,000 $9,200 200,000 $2,000 $5,554,902
Payment of notes receivable .
Conversion of shares. . . . . 21,162 212 (21,205) (212) (34) (28)
Net income, year ended June
30, 1995.
Balance -June 30, 1995 . . . 1,504,662 15,047 898,795 8,988 199,966 2,000 5,554,874
Payment of notes receivable .
Conversion of shares. . . . . 86,554 866 (86,558) (866) (150) (2) 2
Exercise of options . . . . . 22,500 225 113,575
Issuance of stock for
obligations in
lieu of cash . . . . . . . 6,600 66 36,184
Exercise of bridge loan 33,509 335 153,617
warrants. . .
Sale of stock in connection
with private placement. . . . 493,750 4,937 1,970,063
Costs related to private (442,395)
placement. .
Exercise of IPO warrants. . . 21,493 215 137,785
Issuance of shares with 87,000 870 392,678
acquisitions.
Exercise of private placement
warrants . . . . . . . . . 37,500 375 149,625
Amount paid for options, not
yet issued . . . . . . . . . . 9,375
Compensatory stock options. . 3,000
Net loss, year ended June 30,
Balance -June 30, 1996 . . . 2,293,568 22,936 812,237 8,122 199,816 1,998 8,078,383
Additional costs related to
private placement. . . . . . (8,066)
Issuance of shares with 165,000 1,650 634,575
acquisitions.
Exercise of options . . . . . 13,375 134 59,516
Payment of notes receivable .
Conversion of shares. . . . . 21,609 216 (21,609) (216)
Net income -quarter ended -
December 31, 1996. . . . .
BALANCE -DECEMBER 31, 1996
(UNAUDITED). . . . . . . . 2,493,552 $24,936 790,628 $7,906 199,816 $1,998 $8,764,408
</TABLE>
F-4 (Con't)
<PAGE>
PHC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Con't)
Notes
Receivable Accumulated
for Stock Deficit Total
Balance -June 30, 1994 . . . $(93,000) $(1,313,678) $4,174,259
Payment of notes receivable . 17,638 17,638
Conversion of shares. . . . . (28)
Net income, year ended June 268,671 268,671
30, 1995. ---------- ------------- --------------
Balance -June 30, 1995 . . . (75,362) (1,045,007) 4,460,54
Payment of notes receivable . 11,434 11,434
Conversion of shares. . . . -0-
Exercise of options . . . . 113,800
Issuance of stock for
obligations in
lieu of cash . . . . . . . 36,250
Exercise of bridge loan 153,952
warrants. . .
Sale of stock in connection
with private placement. . . . . 1,975,000
Costs related to private (442,395)
placement. .
Exercise of IPO warrants. . . 138,000
Issuance of shares with 393,548
acquisitions.
Exercise of private placement
warrants . . . . . . . . . 150,000
Amount paid for options, not
yet issued . . . . . . . . . 9,375
Compensatory stock options. . 3,000
Net loss, year ended June 30, (585,315) (585,315)
1996. . ----------- ------------ -------------
Balance -June 30, 1996 . . . (63,928) (1,630,322) 6,417,189
Additional costs related to
private placement. . . . . . . . . (8,066)
Issuance of shares with 636,225
acquisitions.
Exercise of options . . . . . 59,650
Payment of notes receivable . 662 662
Conversion of shares. . . . . -0-
Net income -quarter ended -
December 31, 1996. . . . . 77,741 77,741
------------- ------------- ------------
The accompanying notes are an integral part hereof.
F-4 (End of Page)
<PAGE>
PHC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended Year Ended June
December 31, 30,
1996 1995 1996 1995
(Unaudited)
Cash flows from operating activities:
Net income (loss) . . . . . . . . $ 77,741 $(209,399) $(585,315) $268,671
Adjustments to reconcile net
income (loss) to net cash used in
operating activities:
Deferred tax provision (benefit) (418,137) 173,137
Depreciation and amortization . 292,385 216,668 554,025 238,547
(Increase) in accounts
receivable (2,374,540)(1,564,093) (2,985,052)(1,786,691)
Compensatory stock options and
stock issued for obligations 39,250
(Increase) in prepaid expenses and
other current assets. . . . (438,386) (78,576) (69,978) (150,933)
(Increase) decrease in other
assets . .................... 133,804 40,102 (107,711) 162,570
Decrease in net assets of
operations held for sale..... 55,288 107,371 106,886 32,303
Increase in accounts payable. . 524,622 740,269 1,414,089 314,196
Increase (decrease) in accrued
expenses and other liabilities (306,613) 150,354 295,475 258,175
Net cash used in operating..... 2,035,699) (597,304 (1,756,468) (490,025)
activitie
Cash flows from investing activities:
Acquisition of property and
equipment and intangibles .... (646,727) (1,700,862)(1,557,419)(3,557,378)
Loan receivable . . . . . . . . (2,365,340) (17,462) (91,343)
Net cash used in investing
activities. . . .. . .. . . . .(3,012,067) (1,700,862)(1,574,881)(3,648,721)
Cash flows from financing activities:
Proceeds from exercise of
options and warrants. . 59,650 576,561 17,610
Net proceeds from private
placement .. . . . (8,066) 1,532,605
Proceeds from borrowings. . . . .3,522,673 2,440,025 2,043,748 5,149,643
Payments on debt. . . . . . . . (1,744,765) (668,552) (402,828)(2,651,546)
Deferred financing costs. . . . . (711,960)
Issuance of common stock. . . . 636,887
Convertible debt. . . . . . . . .2,578,125
Net cash provided by financing... 5,044,504 1,771,473 3,038,126 2,515,707
activities. . . .
NET DECREASE IN CASH AND CASH
EQUIVALENTS. . ................... (3,262) (526,693) (293,223)(1,623,039)
Beginning balance of cash and
cash equivalents . . . . . . 293,515 586,738 586,738 2,209,777
ENDING BALANCE OF CASH AND CASH
EQUIVALENTS.. . . . . . .. . . $290,253 $60,045 $293,515 $586,738
Supplemental cash flow information:
Cash paid during the year for
interest.. . . . . . .. . . . . $741,265 $351,324 $779,898 $575,000
Cash paid during the year for
income taxes. . . . . . . 39,785 51,778 187,120 40,200
Supplemental disclosures of noncash
investing and financing activities:
Stock issued for acquisition of
property and equipment and
intangibles . . . . . . . 636,225 323,000 393,548 84,242
Long-term debt assumed upon
acquisition . . . . . . . . . 84,242
Note payable due for litigation 225,000
settlement. . . . . .
Capital leases. . . . . . 108,361 94,699
The accompanying notes are an integral part hereof.
F-5
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaditied with respect to December 31, 1996 and the six-months ended December
31, 1996 and December 31, 1995)
(NOTE A) - The Company and Summary of Significant Accounting Policies:
[1] Basis of presentation and consolidation:
PHC, Inc. ("PHC") operates substance abuse treatment centers in several
locations in the United States, a nursing home in Massachusetts, a psychiatric
hospital in Michigan and psychiatric outpatient facilities in Nevada, 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 five outpatient
behavioral health centers under the name of Pioneer Counseling Centers (see
Note O). 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 costs related to an
addition at Quality Care prior to obtaining a license to admit patients. These
costs, amounting to $128,313, are included in other expense in the accompanying
statement of operations under the caption "Start-up Costs".
[2] Revenues and accounts receivable:
Patient care revenues are recorded at established billing rates or at the
amount realizable under agreements with third-party payors, including Medicaid
and Medicare. Revenues under third-party payor agreements are subject to
examination and adjustment, and amounts realizable may change due to periodic
changes in the regulatory environment. Provisions for estimated third party
payor settlements are provided in the period the related services are rendered.
Differences between the amounts accrued and subsequent settlements are recorded
in operations in the year of settlement.
A substantial portion of the Company's revenues at the Franvale Nursing and
Rehabilitation Center is derived from patients under the Medicaid and Medicare
programs. There have been and the Company expects that there will continue to
be, a number of proposals to limit Medicare and Medicaid reimbursement, as well
as reimbursement from certain private payor sources for both Franvale and
substance abuse treatment center services. The Company cannot predict at this
time whether any of these proposals will be adopted or, if adopted and
implemented, what effect such proposals would have on the Company.
Medicaid reimbursements are currently based on established rates depending
on the level of care provided and are adjusted proactively at the beginning of
each calendar year. Medicare reimbursements are currently based on provisional
rates that are adjusted retroactively based on annual calendar cost reports
filed by the Company with Medicare. The Company's 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-6
<PAGE>
The Company has substantial receivables from Medicaid and Medicare,
relating to its long-term care facility aggregating approximately $2,350,000
(including $415,000 related to Medicare adjustments) at June 30, 1996 which
constitutes a concentration of credit risk should these agencies defer or be
unable to make reimbursement payments as due.
[3] Property and equipment:
Property and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the assets using accelerated and straight-line
methods. The estimated useful lives are as follows:
Estimated
Assets Useful Life
Buildings. . . . . . . . . . 20 through 39 years
Furniture and equipment. . . 3 through 10 years
Motor vehicles . . . . . . . 5 years
Leasehold improvements . . . term of lease
[4] Other assets:
Other assets represent deposits, deferred expenses and costs incurred in
the organization of the Companies. Organization costs are amortized over a
five-year period using the straight-line method.
[5] Goodwill, net of accumulated amortization:
The excess of the purchase price over the fair market value of net assets
acquired are being amortized on a straight-line basis over their estimated
useful lives.
[6] Earnings per share:
Net income or loss per share is based on the weighted average number of
shares of common stock outstanding during each period excluding Class C common
shares held in escrow. Common stock equivalents have been excluded since they
are antidilutive.
[7] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
[8] Cash and cash equivalents:
Cash and cash equivalents are short-term highly liquid investments with
original maturities of less than three months.
[9] Interim financial statements:
The financial statements as of December 31, 1996 and for the six months
ended December 31, 1996 and 1995, are unaudited. In management's opinion, such
unaudited financial statements include all adjustments necessary for a fair
presentation. Such adjustments were of a normal recurring nature.
[10] Fair value of financial instruments:
F-7
<PAGE>
The carrying amounts of cash, trade receivables, other current assets,
accounts payable, notes payable and accrued expenses approximate fair value.
(NOTE B) - Property and Equipment:
Property and equipment is comprised as follows:
June 30,
1996 1995
Land. . . . . . . . . . . . . . $ 251,759 $ 239,259
Buildings . . . . . . . . . . . 7,338,838 3,834,799
Furniture and equipment . . . . 1,404,716 1,027,413
Motor vehicles. . . . . . . . . 50,889 42,459
Leasehold improvements. . . . . 301,067 216,633
Construction. . . . . . . . . . 2,753,679
9,347,269 8,114,242
Less accumulated depreciation . 1,463,206 1,027,605
T o t a l . . . . . . $7,884,063 $7,086,637
(NOTE C) - Long-Term Debt:
At June 30, 1996, the Company substantially completed an addition and
renovation to the Quality Care facility in which 37 new beds were added. The
Company financed this addition and renovation through the United States
Department of Housing and Urban Development ("HUD"). At the final endorsement,
which took place subsequent to year-end in July 1996, an additional $479,308 of
costs were advanced bringing the final balance of the note payable to
$6,781,294. At June 30, 1996 deferred financing costs related to the
construction note payable totaled $711,960 and are being amortized over the life
of the note. Interest costs capitalized in conjunction with the construction
approximated $65,250 and $89,000 at June 30, 1996 and June 30, 1995.
Long-term debt is summarized as follows:
June 30,
1996 1995
Notes payable to various entities with interest ranging
from 8% to 9% requiring monthly payments aggregating
approximately $4,000 and maturing through May 2001. $58,154 $ 73,772
Note payable due in monthly installments of $2,000
including imputed interest at 8% through April 1,
1999, when the principal is due . . . . . . . . 60,163 78,145
9% mortgage note due in monthly installments of $4,850
through July 1, 2012, when the remaining principal
balance is payable. . . . . . . . . . . . . . . . . 505,485 518,224
Mortgage note payable. . . . . . . . . . . 23,690
Note payable due in monthly installments of $21,506
including interest at 10.5% through November 1,
F-8
<PAGE>
1999, collateralized by all assets of PHN and
certain receivables . . . . . . . . . . . . . . 735,213
Construction obligations:
Construction note payable collateralized by real
estate and insured by HUD due in monthly
installments of $53,635, including interest at
9.25%, through December 2035. . . . . . . . . 6,301,986 5,049,643
Other construction obligations to be added to note
payable . . . . . . . . . . . . . . . . . . . 344,802
Note payable to a former vendor, payable in monthly
installments of $19,728 including interest at 9.5%
through February 1997 (see Note N). . . . . . . 152,353
T o t a l. . . . . . . . . . . . . . . 8,158,156 5,743,474
Less current maturities. . . . . . . . . . . . . 403,894 61,438
Noncurrent maturities. . . . . . . . . . . . . . $7,754,262 5,682,036
Maturities of long-term debt are as follows as at June 30, 1996:
Year Ending
June 30, Amount
1997 . . . . . . . . . . . . . $ 403,894
1998 . . . . . . . . . . . . . 273,424
1999 . . . . . . . . . . . . . 302,539
2000 . . . . . . . . . . . . . 157,923
2001 . . . . . . . . . . . . . 56,977
Thereafter . . . . . . . . . . 6,618,597
Subtotal . . . . . . 7,813,354
Other construction
obligations to be added to
note payable . . . . . . 344,802
T o t a l. . . . . . $8,158,156
In May 1996, PHU entered into a loan and security agreement to borrow up to
$1,000,000 under a revolving line of credit. This agreement will be in effect
for a period of two years with an option to renew for one-year periods
thereafter. Principal is due upon the expiration of the term of the revolver.
Interest is payable monthly at the prime rate plus 2.25%. The revolver is
collateralized by substantially all the assets of PHU. At June 30, 1996 there
were no borrowings under this agreement. At December 31, 1996 approximately
$480,000 was borrowed under this agreement.
During the six months ended December 31, 1996, the Company issued two 7%
convertible debentures due December 31, 1998 in the aggregate principal amount
of $3,125,000 with warrants to purchase 150,000 shares of Class A Common Stock
at an exercise price of $2.00 per share. 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 98% of the average closing bid price of the Class A Common Stock as
reported by NASDAQ for the 5 trading days immediately preceding the date of
conversion. This percentage drops 2% per month on the first day of each 30 day
period following April 15, 1997 during which the Company does not have a
Registration Statement declared effective by the Securities and Exchange
Commission covering such shares.
F-9
<PAGE>
(NOTE D) - Capital Lease Obligations:
At June 30, 1996, the Company is obligated under various capital leases for
equipment and real estate (see Note L) providing for monthly payments
aggregating approximately $19,000 for fiscal 1997 and terms expiring from
December 1996 through February 2014.
The carrying value of assets under capital leases is as follows:
June 30,
1996 1995
Building. . . . $1,477,800 $1,477,800
Equipment and improvements. 214,754 137,207
Less accumulated depreciation (222,100) (137,057)
$1,470,454 $1,477,950
Future minimum lease payments under the terms of the capital
lease agreements are as follows at June 30, 1996:
Year Ending Real
June 30, Equipment Property Total
1997. . . . . . . . $ 68,895 $ 231,000 $ 299,895
1998. . . . . . . . 56,728 231,000 287,728
1999. . . . . . . . 33,262 239,000 272,262
2000. . . . . . . . 15,075 259,248 274,323
2001. . . 3,098 272,208 275,306
Thereafter. . 4,886,036 4,886,036
Total future
minimum lease
payments . . . . 177,058 6,118,492 6,295,550
Less amount
representing
interest . . . . (29,711) (4,709,312) (4,739,023)
Present value of
future minimum
lease payments . 147,347 1,409,180 1,556,527
Less current
portion. . 53,936 34,116 88,052
Long-term
obligations
under capital
lease. . . . . . $ 93,411 $ 1,375,064 $ 1,468,475
F-10
<PAGE>
(NOTE E) - Notes Payable -Related Parties:
Related party debt is summarized as follows:
June 30,
1996 1995
Note payable, president and
principal stockholder,
interest at 8%, due in
installments through
1998 . . . . . . . . $ 78,996 $110,596
Notes payable, other related
parties interest at 12% and
payable on demand. . . . . . . . 24,998 24,998
T o t a l . . . 103,994 135,594
Less current maturities . . . . . . 56,600 46,598
T o t a l . . . $ 47,394 $88,996
Accrued interest related to these notes totals $3,652 and $21,950 at
June 30, 1996 and June 30, 1995, respectively.
Maturities of related party debt are as follows at June 30, 1996:
Year Ending
June 30, Amount
1997. . . . . . . . . . . .. $ 56,600
1998. . . . . . . . . . . . 31,600
1999. . . . . . . . . . . .. 15,794
T o t a l . . . . . $103,994
Related party interest on notes receivable related to the purchase of
Class A common stock approximated $4,295 and $3,000 for the year ended June 30,
1996 and June 30, 1995, respectively.
(NOTE F) - Income Taxes:
For the year ended June 30, 1995 the Company utilized net operating loss
carryforwards of approximately $754,000 to reduce taxable income. No significant
state income taxes were paid prior to June 30, 1995.
The Company had the following deferred tax assets included in the
accompanying balance sheets:
June 30,
1996 1995
Temporary differences attributable to:
Allowance for doubtful accounts . . . . $510,000 $251,863
Depreciation. . . . . . . . . . . . . . 154,700
Other . . . . . . . . . . . . . . . . . 5,300
Total deferred tax asset . . . . 670,000 251,863
Less current portion. . . . . . . . . . 515,300 251,863
Long-term portion. . . . . . . $154,700 $ -0 -
F-11
<PAGE>
The Company had no deferred tax liabilities at June 30, 1996 and June 30,
1995.
Income tax expense (benefit) is as follows:
Year Ended June 30,
1996 1995
Deferred income taxes (benefit) . . $(418,137) $173,000
Current income taxes. . . . . 206,546 68,108
Total . . . $(211,591) $241,108
Reconciliations of the statutory U.S. Federal income taxes based on a rate
of 34% to actual income taxes is as follows:
Year Ended June 30,
1996 1995
Income taxes (benefit) at statutory rate. . $(271,000) $173,000
State income taxes. . . . . . . . . . . . . . 80,850 48,108
Increase due to nondeductible items,
primarily penalties and travel and
entertainment expenses . . . . . . . . . . 12,100 20,000
Other . . . . . . . . . . . . . . . . . . . . (33,541)
Total . . . . . . . . . . $(211,591) $241,108
(NOTE G) - Commitments and Contingent Liabilities:
[1] Operating leases:
The Company leases office and treatment facilities and furniture and
equipment under operating leases expiring on various dates through May 2000.
Rent expense for the years ended June 30, 1996 and June 30, 1995 was
approximately $450,000 and $386,000, respectively. Minimum future rental
payments under noncancelable operating leases having remaining terms in excess
of one year as of June 30, 1996 are as follows:
Year Ending
June 30, Amount
1997 . . . . . . . . . . . . . . . $ 422,791
1998 . . . . . . . . . . . . . . . 419,490
1999 . . . . . . . . . . . . . . . 205,380
2000 . . . . . . . . . . . . . . . 59,235
Total minimum future
rental payments . . . $1,106,896
[2] Center closing:
The Company decided to discontinue operations at its treatment center in
California because of poor financial performance and discharged its last patient
in August 1994. The results of operations for the year ended June 30, 1995
reflect revenues of approximately $90,000 and a net gain of approximately
$22,000 from this center.
F-12
<PAGE>
(NOTE H) - Stock Plans:
The Company has three stock plans: a stock option plan, an employee stock
purchase plan and a nonemployee directors' stock option plan.
The stock option plan provides for the issuance of a maximum of 300,000
shares of Class A common stock of the Company pursuant to the grant of incentive
stock options to employees or nonqualified stock options to employees,
directors, consultants and others whose efforts are important to the success of
the Company. Subject to the provisions of this plan, the compensation committee
has the authority to select the optionees and determine the terms of the options
including: (i) the number of shares, (ii) option exercise terms, (iii) the
exercise or purchase price (which in the case of an incentive stock option will
not be less than the market price of the Class A common stock as of the date of
grant), (iv) type and duration of transfer or other restrictions and (v) the
time and form of payment for restricted stock upon exercise of options.
In October 1995, the Company adopted an employee stock purchase plan which
provides for the purchase of Class A common stock at 85 percent of the fair
market value at specific dates, to encourage stock ownership by all eligible
employees. At June 30, 1996, 100,000 shares were available for purchase. During
the year ended 1996, there were no shares purchased under this plan.
Also in October 1995, the Company adopted a nonemployee directors' stock
option plan that provides for the grant of nonstatutory stock options
automatically at the time of each annual meeting of the Board. During the
meeting in which this plan was approved, options for 5,500 shares were granted
under this plan. The Company has reserved 30,000 shares for issuance under this
plan. Each outside director shall be granted an option to purchase 2,000 shares
of Class A common stock at fair market value, vesting 25% immediately and 25% on
each of the first three anniversaries of the grant.
The Company had the following activity in its stock option plans for 1996
and 1995:
Number of Option Price
Shares Per Share
Option plans:
Balance -June 30, 1994. . . 60,500 $5.00 -$6.37
Granted. . . . . . . . . . . 39,000 $5.13
Canceled. . . . . . . . . . (7,500) $5.00
Exercised. . . . . . . . . .
Balance -June 30, 1995. . . 92,000 $5.00 -$6.37
Granted. . . . . . . . . . . 46,500 $5.25 -$7.00
Canceled. . . . . . . . . . (1,250) $5.00
Exercised. . . . . . . . . . (22,500) $5.00 -$5.13
Balance -June 30, 1996. . .. 114,750 $5.00 -$7.00
Options for 68,625 shares are exercisable as of June 30, 1996 at an average
price of $5.20.
During fiscal 1994 the Company also issued restricted stock to certain of
the directors and officers of the Company for the purchase of 31,000 shares at a
purchase price of $4.00 per share. The directors and officers were required to
pay 25% of the purchase price of their shares immediately, with the balance
being payable quarterly over three years together with interest at 6% per year
until paid in full.
Subsequent to December 31, 1996 certain of the above options were repriced
at the then fair market value.
F-13
<PAGE>
(NOTE I) - Segment Information:
The Company's continuing operations are classified into two primary
business segments: substance abuse/psychiatric treatment and long-term care.
Year Ended June 30,
1996 1995
Revenue:
Substance abuse/psychiatric
treatment. . . . . . . . . $16,525,672 $12,227,990
Long-term care . . . . . . . . 5,043,922 4,180,471
Other. . . . . . . . . . . . . 233,164 128,157
T o t a l . . . . . . . $21,802,758 $16,536,618
Income (loss) from operations:
Substance abuse/psychiatric
treatment. . . . . . . . . . $818,188 $649,395
Long-term care . . . . . . . . (826,463) 243,335
Other. . . . . . . . . . . . . 146,407 149,317
General corporate. . . . . . . (180,966) (126,878)
Other income (expense), net. . (754,072) (405,390)
Income (loss) before income
taxes . . . . . . . . . . . . . $(796,906) $509,779
Depreciation and amortization:
Substance abuse/psychiatric
treatment. . . . . . . . . . $349,437 $131,109
Long-term care . . . 176,450 78,332
General corporate. . . . 28,138 29,106
$554,025 $238,547
Capital expenditures:
Substance abuse/psychiatric
treatment. . . . . . . . . . $233,466 $496,793
Long-term care . . . . 982,978 2,953,679
General corporate. . . . 16,583 36,542
$1,233,027 $3,487,014
Identifiable assets:
Substance abuse/psychiatric
treatment. . . . . . . . . $10,877,197 $8,308,656
Long-term care . . . . . 8,619,133 6,091,763
General corporate. . . . 1,264,205 851,398
Net assets of operations held
for sale . . . . . . . 56,682 163,568
T o t a l . . . . . . . $20,817,217 $15,415,385
(NOTE J) - Operations Held For Sale:
Over the past several years, the Company has been systematically phasing
out its day care center operations (STL). At June 30, 1996 and June 30, 1995,
the Company had net assets relating to its day care centers amounting to
approximately $57,000 and $164,000, respectively, which primarily represents the
depreciated cost of real estate. At June 30, 1996 the Company had one real
estate parcel remaining which was sold in October 1996.
The Company does not anticipate any significant future losses
due to the day care center operations.
F-14
<PAGE>
(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, 1996:
Number of Exercise Expiration
Description Units/Shares Price Date
Bridge warrants 4,814 units $4.57 per unit September 1998
Unit purchase option 146,077 units $5.99 per unit March 1999
IPO warrants 1,657,821 shares $7.50 per share March 1999
Private placement warrants 703,125 shares $4.00 per share January 1999
Bridge warrants 33,696 shares $7.50 per share March 1999
Incentive bridge warrants 8,424 shares $6.00 per share December 1998
Each unit consists of one share of Class A common stock and a warrant to
purchase one share of Class A common stock at $7.50 per share.
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 became issuable under the antidilution
provisions of certain outstanding securities of the Company.
Also, in connection with the Company's initial public offering, present
stockholders have agreed to restrictions on approximately 200,000 shares
(designated Class C common stock, which is nonvoting) whereby some or all of
those shares will be transferred to the Company for no consideration if certain
future earnings targets are not achieved through June 30, 1997. The earnings
target for fiscal 1996 was net income of $3.0 million or more to have
restrictions released and increases to $4.0 million for the year ending June 30,
1997. When, and if, the share restrictions are released, the Company will incur
an expense based on the fair market value of the shares at the time the
restrictions lapse. The Company believes that it is unlikely that the earnings
target for the fiscal year ending June 30, 1997 will be achieved.
F-15
<PAGE>
(NOTE L) - Acquisitions:
On September 20, 1994 the Company purchased a 64-bed healthcare facility
located in Michigan ("PHM") which provides psychiatric and other specialty
services to patients. The Company acquired the tangible, intangible, and real
property owned by the seller of the business for consideration consisting of
$759,307 in cash. The purchase price was allocated to the assets acquired as
follows:
Land. . . . . . . . . $ 20,959
Building. . . . . . 644,152
Equipment and other assets. . 94,196
T o t a l . . $759,307
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)
T o t a l . . . . $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
T o t a l . . . . . . . . . $ 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.
On August 31, 1996, the Company purchased the assets of six outpatient
behavioral health centers located in Michigan ("NPP"). The centers were
purchased for $260,000 and 15,000 shares of Class A common stock of PHC, Inc. Of
the $260,000, $100,000 is contingent upon the execution of certain contracts.
The Company borrowed $900,000 to finance the purchase and to provide working
capital for the centers. Annual revenues for this clinic in the past year
approximated $750,000.
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.
(NOTE L) - Acquisitions: (continued)
F-16
<PAGE>
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 December 31, 1996 Perlow owed the Company $2,365,340 which is expected to
be repaid over two years. The Company has no ownership interest in Perlow
although the manager of Perlow is also a member of the Board of Directors of the
Company.
Based on unaudited data, the pro forma results of operations as though the
foregoing acquisitions through June 30, 1996 were made at the beginning of the
periods indicated below are as follows. Management does not believe such results
are indicative of future operations.
Year Ended June 30,
(in thousands
except per share
data)
1996 1995
Revenues. . . . . . . . . . $22,135 $17,588
Operating expenses. . . . . 22,126 16,559
Income from operations. . . 9 1,029
Other expenses, including
income taxes . . . 552 (690)
Net income (loss) . . . . . $ (543) $ 339
Pro forma income (loss)
per share. . . . . . . $ (.20) $ .14
(NOTE M) - Sale of Receivables:
The Company has entered into a sale and purchase agreement whereby
third-party receivables are sold at a discount with recourse. The interest rate
is calculated at 5.5% plus the six-month LIBOR rate which is 11.3% and 11.5% at
June 30, 1996 and June 30, 1995, respectively. The amount of receivables subject
to recourse at June 30, 1996 totaled approximately $805,000 and the agreement
states that total sales of such outstanding receivables are not to exceed
$4,000,000. Proceeds from the sale of these receivables totaled approximately
$3,500,000 and $2,100,000 at June 30, 1996 and June 30, 1995, respectively. The
purchase fees related to the proceeds above of approximately $73,720 and $30,000
at June 30, 1996 and June 30, 1995, respectively, are included in interest
expense in the accompanying consolidated statement of operations. The agreement
expires December 31, 1997.
F-17
<PAGE>
(NOTE N) - Litigation:
On October 31, 1994, the Company and a supplier, NovaCare, Inc.,
("NovaCare") became parties to a Civil Action in the Superior Court Department
of the Trial Court of the Commonwealth of Massachusetts. NovaCare is an entity
which contracted with the Company in 1992 to provide rehabilitation therapy and
related administrative services to the Company's long-term care facility. During
the year ended June 30, 1996, the parties agreed to settle all claims and
counterclaims in the Civil Action whereby no additional loss accrual was
necessary. See Note C for payment terms. NovaCare has obtained (but has not
recorded) a Real Estate Attachment for a portion of the settlement amount which
may be employed if PHC does not satisfy its obligation under the settlement
agreement.
In connection with a trademark challenge by Pioneer Health Care, Inc., the
Company filed an appeal on July 10, 1995 with the United States First Circuit
Court of Appeals from an unfavorable judgement of the Federal District Court. If
the Company were required to discontinue using the PIONEER HEALTHCARE mark, the
costs involved could have an adverse effect on the Company's financial
performance.
The Company was named as a defendant in a complaint filed in the Supreme
Court of the State of New York. The complaint alleges claims for breach of
contract, specific performance and quantum meruit in connection with the merger
and acquisition of PHC with Behavioral Stress Center, Inc. ("BSC") on
November 1, 1996. PHC has referred the defense of the action to BSC, which has
agreed to defend and indemnify PHC for all claims in the action. The complaint
seeks compensatory damages for alleged unpaid advisory fees of approximately
$1.3 million and equitable relief. PHC subsequently moved to dismiss the
complaint on the grounds that it is not a party to nor is it responsible for any
fees allegedly owed under the contract at issue in the case. PHC's motion is
currently pending before the Court.
(NOTE O) - Subsequent Events:
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 consisting of
private practices of psychiatry. The Stock Exchange Agreement provided that in
exchange for 64,500 shares of restricted Class A common stock, the Company
received 80% of the outstanding shares of the Virginia corporation. Concurrent
with the Stock Exchange Agreement the two owners of the Virginia corporation
each executed Employment Agreements with the Virginia corporation to provide
professional services. 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 for $600,000. When renovations are complete, this property will
house the outpatient clinic operations of PCV.
On January 13, 1997, PHM executed a $400,000 Secured Bridge Note and a
$2,000,000 mortgage on the Real Estate of PHM.
On February 3, 1997, PHM entered into a Loan and Security Agreement and
pursuant to that executed a $1,500,000 Revolving Credit Note. The obligations
under this Loan and Security Agreement are collateralized by all the assets of
the corporation. Also PHU executed an amendment to the Loan and Security
Agreement which cross collateralized and cross defaulted the obligations of PHU
and PHM. The Company executed an Unconditional Guarantee of Payment and
Performance guaranteeing the obligations of PHM.
In February 1997, Quality Care was notified by regulatory authorities that
the Company was cited for deficiencies and is subject to certain fines and
restrictions on its operations. The Company is addressing these deficiencies and
is considering its options in mitigating such fines and restrictions.
F-18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6 of the Registrant's Restated Articles of Organization provides, in
part, that the Registrant shall indemnify its directors, trustees, officers,
employees and agents against all liabilities, costs and expenses, including but
not limited to amounts paid in satisfaction of judgments, in settlement or as
fines and penalties, and counsel fees, reasonably incurred by such persons in
connection with the defense or disposition of or otherwise in connection with or
resulting from any action, suit or proceeding in which such person may be
involved or with which he or she may be threatened, while in office or
thereafter, by reason of his or her actions or omissions in connection with
services rendered directly or indirectly to the Registrant during his or her
term in office, such indemnification to include prompt payment of expenses in
advance of the final disposition of any such action, suit or proceeding.
In addition, the Restated Articles of Organization of the Registrant, under
authority of the Business Corporation Law of the Commonwealth of Massachusetts,
contain a provision eliminating the personal liability of a director to the
Registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, or (iii) for any transaction from which the director derived an improper
personal benefit. The foregoing provision also is inapplicable to situations
wherein a director has voted for, or assented to, the declaration of a dividend,
repurchase of shares, distribution, or the making of a loan to an officer or
director, in each case where the same occurs in violation of applicable law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
It is estimated that the following expenses will be incurred in connection
with the proposed offering hereunder:
SEC Registration Fee.................................. $ 2,420
NASDAQ Listing Fees................................... $ 7,500
Legal Fees and Expenses............................... $50,000
Accounting Fees and Expenses.......................... $10,000
Miscellaneous......................................... $ 1,080
Total........................................ $71,000
The Registrant will bear all expenses shown above.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, the
Registrant has issued the following securities without registering such
securities under the Securities Act.
On June 21, 1994 the Company issued 15,000 shares of Class A Common Stock to
Edwin Brown in exchange for the acquisition by the Company of Mr. Brown's
interest in Highland Ridge Hospital.
On July 7, 1995 the Company issued a warrant for the purchase of up to 1,600
shares of Class A Common Stock at an exercise price of $5.47 to Westergard
Publishing in payment for investor relations services.
On November 1, 1995 the Company issued 75,000 shares of Class A Common Stock
to Norton A. Roitman in exchange for the acquisition by the Company of Dr.
Roitman's interest in Harmony Healthcare.
On February 8, 1996 the Company issued 79 units, each of which consisted of
6,250 shares of Class A Common Stock, and 9,375 warrants, each of which is
exercisable for one share of Class A Common Stock at an exercise price of $4.00
per share to 11 investors in a private placement, which resulted in net proceeds
to the Company of approximately $1,524,800.
On March 15, 1996 the Company issued 12,000 shares of Class A Common Stock to
Ronald J. Dreier in exchange for the acquisition by the Company of Mr. Dreier's
interest in Total Concept.
On April 15, 1996 the Company issued a warrant to purchase up to 2,500 shares
of Class A Common Stock at an exercise price of $5.50 to Peter Mintz as payment
for investor relations services.
On April 23, 1996 the Company issued a warrant to purchase up to 2,500 shares
of Class A Common Stock at an exercise price of $5.50 to Barrow Street Research
as payment for investor relations services.
On September 30, 1996 the Company issued 6,000 shares of Class A Common Stock
to Leon Rubenfaer and 9,000 shares of Class A Common Stock to Alan Rickfelder in
exchange for the acquisition by the Company of their interest in NPP.
On November 1, 1996 the Company issued 114,375 shares of Class A Common Stock
to Dr. Irwin Mansdorf and 35,625 shares of Class A Common Stock to Dr. Yakov
Burstein in exchange for the acquisition by the Company of Drs. Mansdorf's and
Burstein's interest in BSC.
On January 13, 1997 the Company issued 32,250 shares of Class A Common Stock
to each of Dr. Himanshu Patel and Dr. Mukesh P. Patel in exchange for the
acquisition by the Company of their interest in PCV.
On November 1, 1996 the Company issued a warrant to purchase up to 25,000
shares of Class A Common Stock at an exercise price of $6.88 per share to Alpine
Capital Partners as payment for consulting services.
On February 18, 1997, the Company issued a warrant to purchase up to 3,000
shares of Class A Common Stock at an exercise price of $2.50 per share to Barrow
Street Research as payment for investor relation services.
On December 6, 1996 the Company issued 7% Convertible Debentures due December
31, 1998 in the aggregate face amount of $3,125,000 (the "Debentures") to
Infinity Investors Ltd. ("Infinity") and Seacrest Capital Limited ("Seacrest")
resulting in $2,500,000 of proceeds to the Company.
On March 31, 1997 the Company issued a warrant to purchase up to 90,000
shares of Class A Common Stock to Infinity and a warrant to purchase up to
60,000 shares of Class A Common Stock to Seacrest at an exercise price of $2.00
per share in consideration of Infinity and Seacrest waiving certain liquidated
damages payable to them pursuant to the Debentures.
On March 3, 1997 the Company issued a warrant to purchase up to 160,000
shares of Class A Common Stock at an exercise price of $2.62 per share to
C.C.R.I. Corporation as payment for consultant services.
On March 4, 1997 the Company issued 100 shares of Class A Common Stock to
Charles E. Hauff a former employee in consideration of past employment services.
None of the sales of securities described above involved an underwriter. Each
sale was made in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act on the basis that such sales by the
Registrant did not involve a public offering. Additionally, the February 8, 1996
private placement was made in reliance upon Regulation D of the Securities Act
of 1933 pursuant to which the Registrant filed a Form D on January 25, 1996.
<PAGE>
ITEM 27. EXHIBITS
EXHIBIT NO......................DESCRIPTION
++1.1 Form of Underwriting Agreement
+3.1 Restated Articles of Organization of the Registrant, as amended
****3.2 By-laws of the Registrant, as amended.
+4.1 Form of Warrant Agreement
+4.2 Specimen certificate representing Class A Common Stock.
+4.3 Form of Certificates representing redeemable Class A Warrants (form
of certificate representing redeemable Class A Warrants included in
Exhibit 4.1).
+4.4 Form of Unit Purchase Option.
#4.5 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 Salah M.
Hassanein and Whitney Gettinger
#4.7 Form of Subscription Agreement fior the Purchase of Units Consisting
of Shares of Class A Common Stock and Warrants to Purchase Ckass 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 Stock
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 repreenting 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.
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.
23.1 Consent of Independent Auditors
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 number
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 Center
of Massachusetts, Inc. dated July 6, 1993.
+10.12 Lease Agreement between Anna Meta Leonhard & Claire Leonhard Morse and
PHC, Inc., dated 6/30/94 December 13, 1989; Approval of Assignment of
lease by PHC, Inc. to PHC of California, Inc.dated December 13, 1989.
<PAGE>
EXHIBIT NO......................DESCRIPTION
+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, nd Renewal of Addendum dated April 7, 1992; Tenant
Acceptance Letter to The Mutual Benefit Life Insurance Company and
Palmer-Wells Enterprises, executed by PHC, Inc. and Edwin G. Brown,
dated June 6, 1989.
+10.15 Sample Equipment Lease with Trans National Leasing Corp.
+10.16 Note of PHC, Inc. in favor of Tot Care, Inc., dated January 1, 1991,
in the amount of $55,000.
+10.17 Note of PHC, Inc. in favor of Humpty Dumpty School, Inc., dated
March 1, 1991, in the amount of $25,000.
+10.18 Note of PHC, Inc. in favor of Bruce A. Shear, dated April 1, 1993,
in the amount of $152,500; Subordination letter from Aquarius Realty
to Malden Trust Company as to $50,000 of debt, dated 1983, regarding
debt of PHC, Inc.; Subordination letter from Bruce A. Shear and Steven
J. Shear, individually, to Malden Trust Company as to $80,000 of debt,
dated 1983, regarding debt of PHC, Inc.
+10.19 Note of PHC, Inc. in favor of Steven J. Shear, dated April 1, 1993,
in the amount of $25,000
+10.20 Note of PHC, Inc. in favor of Gertrude Shear, dated April 15, 1993,
in the amount of $27,700.
+10.21 Note of PHC, Inc. in favor of Mark S. Cowell and Karen K. Cowell,
dated May 5, 1993, in the amount of $10,000.
+10.22 Note of PHC, Inc. in favor of Trans National Leasing Corp., dated
May 17, 1993, in the amount of $50,000.
+10.26 Advance Funding Agreement by and among Quality Care Centers of
Massachusetts, Inc., Kelspride Nursing Homes, Inc. and Continental
Medical Systems, Inc., dated June 30, 1988, and amendment thereto
dated June 30, 1992; Note of Quality Care Centers of
Massachusetts, Inc. in favor of Continental Medical Systems, Inc.,
dated June 30, 1992, in the amount of $240,084; Mortgage, Security
Agreement and Assignment by PHC, Inc. to Continental Medical Systems,
Inc., dated June 30, 1988, and amendment thereto dated June 30, 1992;
Security Agreement by Quality Care Centers of Massachusetts, Inc. to
Continental Medical Systems, Inc., dated June 30, 1988, and amendment
thereto dated June 30, 1992; Guaranty of PHC, Inc. in favor of
Continental Medical Systems, Inc. dated June 30, 1988, and amendment
thereto dated June 30, 1992; Guaranty of Bruce A. Shear, individually,
dated June 30, 1988, and amendment thereto dated June 30, 1992 and
Guaranty Fee , Inc. in favor of Bruce A. Shear in consideration of
June 30, 1988, Guaranty on behalf of PHC, Inc.; Waiver and Agreement
by and among PHC, Inc., Quality Care Centers of Massachusetts, Inc.,
Continental Medical Systems, Inc. and CMS Capital Ventures, Inc.,
dated October 13, 1993.
+10.28 Purchase and Sale Agreement by and between Alternative Counseling
Services, Inc. and PHC of Virginia, Inc., dated March 22, 1993; Note
of PHC of Virginia, Inc. in favor of Alternative Counseling Services,
Inc., dated April 1, 1993, in the amount of $30,000; Note of PHC of
Virginia, Inc. in favor of Alternative Counseling Services, Inc.,
dated April 1, 1993, in the amount of $15,485 with Changes Clinic
Collections on Purchased Receivables, April 1, 1993 - September 7,
1993.
***10.29 Note of PHC of Virginia, Inc. in favor of Himanshu S. Patel and
Anjana H. Patel, dated April 1, 1995, in the amount of $10,000.
<PAGE>
EXHIBIT NO......................DESCRIPTION
+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.
+10.33 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.
+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.
<PAGE>
EXHIBIT NO......................DESCRIPTION
***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.
**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.
<PAGE>
EXHIBIT NO......................DESCRIPTION
**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 10K Hope Center, Inc.
and the Company, dated as 6/30/94 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 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.
****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.
<PAGE>
EXHIBIT NO......................DESCRIPTION
++++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.
10.104 Guaranty by PHC. Inc. for Secured Bridge Note in principal
amount of $400,000 by and between PHC of 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.
<PAGE>
EXHIBIT NO......................DESCRIPTION
##16.1 Letter on Change in Independent Public Accountants.
***21.1 List of Subsidiaries. -
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Exhibit intentionally omitted.
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 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 (Commission 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 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.
++++ 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.
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 To be filed as an Amendment to this Registration Statement.
<PAGE>
x Management contract or compensatory plan or arrangement.
ITEM 28. UNDERTAKINGS
UNDERTAKINGS REQUIRED BY REGULATION S-B, ITEM 512(A).
The undersigned Registrant hereby undertakes
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the Registration Statement; and
(iii) include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
UNDERTAKINGS REQUIRED BY REGULATION S-B, ITEM 512(E).
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any arrangement, provision or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
UNDERTAKINGS REQUIRED BY REGULATION S-B, ITEM 512(F).
The undersigned Registrant hereby undertakes to:
(1) For purposes of determining any liability under the Securities
Act, treat the information omitted from the form of prospectus filed as part of
the registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
the Commission declared it effective; and
(2) For the purpose of determining any liability under the
Securities Act, treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that time as the
initial BONA FIDE offering of those securities.
<PAGE>
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1933, the
registrant certified that it meets all of the requirements for filing on Form
SB-2 and has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Peabody, State of
Massachusetts on April 15, 1997.
PHC, INC.
Date: April 15, 1997 BY: /s/ Bruce A.Shear
---------------------
Bruce A. Shear
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration has been signed by the following persons in the capacities and on
the dates indicated.
Signature Titles(s) Date
/s/ Bruce A. Shear President, Chief Executive April 15, 1997
Officer and Director
(principal executive officer)
/s/ Robert H. Boswell Executive President April 15, 1997
/s/ Paula C. Wurts Controller and Assistant April 15, 1997
Treasurer (Principal financial
and accounting officer)
/s/ Gerald M. Perlow Clerk and Director April 15, 1997
/s/ Donald E. Robar Treasurer and Director April 15, 1997
/s/ Howard Phillips Director April 15, 1997
/s/ William F. Grieco Director April 15, 1997
<PAGE>
EXHIBIT LIST
Exhibit Document
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 are parties to Regulation D
Securities Subscription Agreement dated October 7, 1996.
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.
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 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 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 of Michigan, Inc. and New Life Treatment
Centers, Inc. dated July 1, 1996 to provide treatment.
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.
****21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors
<PAGE>
Exhibit 4.17
THE SECURITIES REPRESENTED BY THIS WARRANT (AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, OR ANY STATE SECURITIES STATUTE. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT
OF 1933 AND ANY APPLICABLE STATE SECURITIES STATUTE, OR UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE THEREUNDER.
Shares Issuable Upon Exercise: Up to 3,000 shares of the Class A
Common Stock, $.01 par value, of PHC, Inc.
WARRANT TO PURCHASE
SHARES OF CLASS A COMMON STOCK
Expires February 18, 2002
THIS CERTIFIES THAT, for value received, Barrow Street Research,
Inc. is entitled to subscribe for and purchase that number of shares (the
"Shares") of the fully paid and nonassessable Class A Common Stock, $.01 par
value, (the "Class A Common Stock") of PHC, Inc., a Massachusetts corporation
(the "Company"), for a price of $2.50 per Share (the "Warrant Price"),
subject to the provisions and upon the terms and conditions hereinafter set
forth. 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 Incorporation 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 February 18, 1997.
1 Term. Subject to the provisions of this Warrant, the purchase
right represented by this Warrant is exercisable, in whole or in part, at any
time and from time to time from and after the Grant Date and prior to
February 18, 2002 .
2 Method of Exercise. The purchase right represented by this
Warrant may be exercised by the holder hereof, in whole or in part and from
time to time, by either, at the election of this holder, (a) the surrender of
the Warrant (with the notice of exercise form attached hereto as Exhibit A-1
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 then applicable Warrant Price multiplied by the number of
shares then being purchased or (b) if in connection with a registered public
offering of the Company's securities (provided that such offering includes
the shares), the surrender of this Warrant (with the notice of exercise form
attached hereto as Exhibit A-2 duly executed) at the principal office of the
Company together with notice of arrangements reasonably satisfactory to the
Company and any underwriter, in the case of an underwritten registered public
offering, for payment to the Company either by certified or bank check or by
wire transfer of from the proceeds of the sale of Shares to be sold by the
holder in such public offering of an amount equal to the then applicable
Warrant Price per Share multiplied by the number of Shares then being
purchased. The person or persons in whose name(s) any certificate(s)
representing Shares which shall be issuable upon exercise of this Warrant
shall be deemed to have become the holder(s) of record of, and shall be
treated for all purposes as the record holder(s) of, the shares represented
thereby (and such shares shall be deemed to have been issued) immediately
prior to the close of business on the date or dates upon which this Warrant
is exercised and the then applicable Warrant Price paid. In the event of any
exercise of the rights represented by this Warrant, certificates for the
shares of stock so purchased shall be delivered to the holder hereof as soon
as possible and in any event within ten (10) days of receipt of such notice
and payment of the then applicable Warrant Price and, unless this Warrant has
been fully exercised or expired, a new Warrant representing the portion of
the Shares, if any, with respect to which this Warrant shall not then have
been exercised shall also be issued to the holder hereof as soon as possible
and in any event within such ten-day period.
3 Stock Fully Paid; Reservation of Shares. All shares that may be
issued upon the exercise of the rights represented by this Warrant will upon
issuance, be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof. During the period within which
the rights represented by the Warrant may be exercised, the Company will at
all times have authorized and reserved for the purpose of issuance upon
exercise of the purchase rights evidenced by this Warrant, a sufficient
number of shares of Class A Common Stock to provide for the exercise of the
rights represented by this Warrant.
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:
4.1 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.
4.2 Subdivision or Combination of Shares. If the Company at
any time while this Warrant 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.
4.3 Stock Dividends. If the Company at any time while this
Warrant 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 4.1 and 4.2), 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 shall be appropriately adjusted.
<PAGE>
4.4 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 Article 4 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. .
4.5 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, 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.
4.6 Adjustment to Number of Shares and Warrant Price Based on
Dilutive Issuance If and whenever the Company should issue shares of its
Class A Common Stock at a price per share less than the average of the
closing of the bid and asked prices for such Class A Common Stock for the
last trading day immediately prior to the issuance of such shares (other than
shares issued pursuant to an employee benefit plan including Class A Common
Stock issued or issuable to the officers or employees or directors of or
consultants to the Company and approved by a disinterested majority of the
directors of the Company), then the Warrant Price shall be adjusted by
dividing (1) the sum of (A) the total number of shares of Class A Common
Stock outstanding immediately prior to such issuance multiplied by the then
effective Warrant Price and (B) the value of the consideration received by
the Company upon such issuances as determined by the Board of Directors by
(2) the total number of shares of Class A Common Stock outstanding
immediately after such issuance. The holder of the Warrant shall thereafter
be entitled to purchase, at the Warrant Price resulting from such adjustment,
the number of Shares (calculated to the nearest whole share) obtained by
multiplying the Warrant Price in effect immediately prior to such adjustment
by the number of shares issuable upon the exercise hereof immediately prior
to such adjustment and dividing the product thereof by the Warrant Price
resulting from such adjustment. For the purpose of this paragraph (d) the
issuance of securities convertible into or exercisable for the Class A Common
Stock shall be deemed the issuance of the number of shares of Class A Common
Stock into which such securities are convertible or for which such securities
are exercisable, and the consideration received for such securities shall be
deemed to include the minimum aggregate amount payable upon conversion or
exercise of such securities expire unexercised, the Warrant Price of Shares
issuable upon the exercise hereof shall be readjusted accordingly.
5. Notice of Adjustments. Whenever the Warrant Price or number of
Shares shall be adjusted pursuant to the provisions hereof, the Company shall
within thirty (30) days of such adjustments deliver a certificate signed by
its chief financial officer to the registered holder(s) hereof setting forth
in reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the
Warrant Price after giving effect to such adjustment.
6. Fractional Shares. No fractional Shares will be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect.
7. Compliance with Securities Act, Disposition of Shares.
7.1 Compliance with Securities Act. The holder of this
Warrant, by acceptance hereof, reconfirms the representations made by the
Purchaser in a letter agreement with the Company as of the date hereof (the
"Letter Agreement") and agrees to the placement of a restrictive transfer
legend on this Warrant and the certificates representing the shares.
7.2 Disposition of Warrants and Shares. With respect to any
offer, sale or other disposition of this Warrant or any Shares acquired
pursuant to the exercise of this Warrant prior to registration of this
Warrant or such Shares, the holder hereof and each subsequent holder of this
Warrant agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of
such holder's counsel, if reasonably requested by the Company (and, in such
case, such counsel and opinion must be reasonably acceptable to the Company),
to the effect that such offer, sale or other disposition my be effected
without registration or qualification (under the Securities Act of 1933 (the
"Act") as then in effect or any federal or state law then in effect) and
indicating whether or not under the Act certificates for this Warrant or such
Shares to be sold or otherwise disposed of require any restrictive legend as
to applicable restrictions on transferability in order to insure compliance
with the Act. Each certificate representing this Warrant or the Shares thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as
to the applicable restrictions on transferability in order to ensure
compliance with the Act, unless in the aforesaid opinion of counsel for the
holder,, such legend is not required in order to ensure compliance with the
Act. The Company may issue stop transfer instructions to its transfer agent
in connection with the foregoing restrictions.
8. Rights as Shareholders. No holder of the Warrant, as such, shall
be entitled to vote or receive dividends or be deemed the holder of Shares or
any other securities of the Company which may at any time be issuable on the
exercise thereof for any purpose, nor shall anything contained herein, be
construed to confer upon the holder of this Warrant, as such any of the
rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to receive notice of meetings (except as otherwise provided in
Section 4.5 of this warrant), or to receive dividends or subscription rights
or otherwise until this Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable, as
provided herein.
9. Representations and Warranties. This Warrant is issued and
delivered on the basis of the following:
9.1 Authorization and Delivery. This Warrant has been
duly authorized and executed by the Company and when delivered will be valid
and binding obligation of the Company enforceable in accordance with its
terms; and
9.2 Shares. The Shares have been duly authorized and
reserved for issuance by the Company and when issued and paid for in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable.
10. Modification and Waiver. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
11 Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall
be delivered in the manner set forth in the Letter Agreement.
12. Binding Effect of Successors. This Warrant shall be binding upon
any corporation succeeding the Company by merger of consolidation, and all of
the obligations of the Company relating to the Shares issuable upon the
exercise of this Warrant shall be as set forth in the Letter Agreement, the
Company's Charter and the Company's by-laws (each as amended from time to
time) and shall survive the exercise and termination of this Warrant and all
of the covenants and agreements herein and in such other documents and
instruments of the Company shall inure to the benefit of the successors and
assigns of the holder hereof. The Company will, at the time of the exercise
of this Warrant, in whole or in part, upon request of the holder hereof but
at the Company's expense, acknowledge in writing its continuing obligation to
the holder hereof in respect of any rights (including without limitation, any
right to registration of the Shares) to which the holder hereof shall
continue to be entitled after such exercise in accordance with this Warrant;
provided that the failure of the holder hereof to make any such request
shall not affect the continuing obligation of the Company to the holder
hereof in respect of such rights.
13. Lost Warrants or Stock Certificates. The Company covenants to
the holder hereof that upon receipt of evidence reasonable satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant or
any stock certificates and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonable satisfactory to the
Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, or like tenor, in lieu of the
lost, stolen, destroyed or mutilated Warrant or stock certificate.
14. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
15. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the Commonwealth of Massachusetts.
PHC, INC.
By: ____________________________
Bruce A. Shear, President
Date: February 18, 1997
<PAGE>
A-1
Notice of Exercise
To:
1. The undersigned hereby elects to purchase _______ Shares of PHC,
Inc. pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase 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 Section 7 of the Warrant, 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 not present intention of distributing or reselling such
shares.
_______________________________
Signature
_________________
Date
<PAGE>
Exhibit A-1
Notice of Exercise
To:
1. Contingent upon and effective immediately prior to the closing
(the "Closing") of the Company's public offering contemplated by the
Registration Statement of Form S _____________, filed ______________,
______ the undersigned hereby elects to purchase Shares of the Company (or
such lesser number of Shares as may be sold on behalf of the undersigned at
the Closing) pursuant to the terms of the attached Warrant.
2, Please deliver to the custodian for the selling shareholders a
certificate representing the Shares being so purchased.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $ _________________ of, if less, the
net proceeds due the undersigned from the sales of Shares in the aforesaid
public offering. If such net proceeds are less than the purchase price for
such Shares, the undersigned agrees to deliver the difference to the Company
prior to the Closing.
_______________________________
Signature
_________________
Date
warrants.doc
<PAGE>
Exhibit 4.18
Appendix A
160,000
Warrants
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT, (II) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR
ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES),
OR (III) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF
COUNSEL, REASONABLY SATISFACT0RY TO COUNSEL TO THE ISSUER, STATING THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
PHC, INC.
CONSULTANT WARRANT AGREEMENT
THIS AGREEMENT is made and entered into as of this 3rd day of
March 1997, by and between PHC, INC. (the "Company") and C.C.R.I. CORPORATION
(the "Consultant") (together, the "Parties").
RECITALS
A. As of March 3, 1997, the Company and the Consultant entered
into a Consulting Agreement, under which the Consultant received warrants to
purchase common stock of the Company ("Common Stock").
B. The Consulting Agreement provides for the issuance to
Consultant of warrants to purchase 160,000 shares of the common stock of the
Company, exercisable at a price of $2.62 per share.
C. The Company has agreed to issue and the Consultant is
desirous of obtaining the warrants on the terms and conditions herein
contained.
IT IS THEREFORE agreed by and between the parties, for and in
consideration of the premises and the mutual covenants herein contained and
for other good and valuable consideration, as follows:
1. The Company hereby confirms and acknowledges that it has
granted pending, Board approval to the Consultant, on March 3, 1997, warrants
to purchase 160,000 shares of Common Stock (the "Warrant") upon the terms and
conditions herein set forth subject to the terms and conditions of the
Consulting Agreement. The Warrant shall have a 5 year life and is granted as
compensation for services.
<PAGE>
2. The purchase price of the shares of Common Stock underlying
the warrants which may be purchased pursuant to the Warrant is as outline
below.
3. The Warrant shall continue for five years after the date of
grant set forth in paragraph 1, unless sooner terminated or modified under
the provisions of this Agreement or the Consulting, Agreement, and shall
automatically expire at midnight on the fifth anniversary of such date.
4. The Warrant shall vest in equal increments of 40,000 shares
exercisable as follows upon the occurrence of certain conditions set forth
below:
a. The Warrant shall become exercisable at a price of
$2.62 per share as to 40,000 shares upon execution and delivery of this
Warrant Agreement.
b. The second increment of 40,000 shares shall vest and
become exercisable at a price of $2.62 per share on July 3, 1997 if on or
before said date the stock has closed above $5.62 for 10 (ten) trading days.
c. The third increment of 40,000 shares shall vest and
become exercisable at a price of $2.62 per share on October 3, 1997, if on or
before said date the stock has closed above $7.62 for 10 (ten) trading days.
d. The fourth increment of 40,000 shares shall vest and
become exercisable at a price of $2.62 per share on January 3, 1998 if on or
before said date the stock has closed above $9.62 for 10 (ten) trading days.
In the event that any of the stock performance parameters set forth above for
a specific period is not met for such period, but in a subsequent period are
met, then, in addition to the shares which would otherwise be exercisable for
such subsequent period pursuant to the terms hereof with respect to that
performance parameter, these previous shares shall also become vested by
having achieved the price target. Warrant shares which have not vested as of
March 3, 1998 in accordance with these terms shall not be exercisable and
this Warrant shall terminate as to such unvested shares after March 3, 1998.
"All" price targets that have been met by March 3, 1998 will retroactively
vest those shares. The Consultant, C.C.R.I. Corp., shall further agree to
sales no greater than 5,000 shares per day or 20,000 shares in any given
month unless approved in advance by the company.
5 . The shares of Common Stock issuable upon exercise of the Warrant shall be
included in a Registration Statement which shall be filed with the Securities
and Exchange Commission to permit Consultant's public resale of any shares
obtained upon exercise of the Warrant. The Company agrees to cause such
Registration Statement to be filed prior to December 31, 1997, with the
understanding that "consultant" warrants would be piggybacked on any earlier
Registrations initiated by the Company. Warrant issuance will require Board
approval. The Company agrees to bear the reasonable costs and expenses of
such registration, and the costs and expenses of obtaining the registration
or qualification of the shares issuable upon exercise of the Warrant.
6 . Subject to the terms of paragraph 8 hereof, this Warrant
shall be transferable upon surrender of this Warrant Agreement, with the form
of assignment attached hereto duly executed by Consultant, to the Company at
its office in the State of Massachusetts. Upon such surrender, the Company
shall cause a Warrant Certificate containing terms identical to those of this
Warrant Agreement, to be issued in the name of the transferee or
transferees. If this Warrant Agreement is assigned in respect of less than
all the shares covered hereby, Consultant shall be entitled to receive a new
Warrant Agreement covering the number of shares not so assigned.
-2-
<PAGE>
7 . Subject to the vesting requirements of paragraph 4 above,
the Warrant may be exercised in whole or in part by delivering to the Company
written notice of exercise on the Purchase Form included herein together with
payment in full for the shares being purchased upon such exercise. The
Company will, upon receipt of said notice and payment, issue or cause to be
issued to the Consultant a stock certificate for the number of shares
purchased hereby.
8 . The consultant represents and agrees that: (i) the Warrant
shall not be exercisable unless the purchase of Warrant shares upon the
exercise of the Warrant is pursuant to an applicable effective registration
statement under the Securities Act of 1933 (the "Act"), or unless in the
opinion of counsel for the Company, the proposed purchase of such Warrant
shares would be exempt from the registration requirements of the Act, and
from the qualification requirements of any state securities law; (ii) upon
exercise of the Warrant, it will acquire the Warrant shares for its own
account for investment and not with any intent or view to any distribution,
resale or other disposition of the Warrant shares except as permitted hereby;
(iii) it will not sell or transfer the Warrant shares, unless they are
registered under the Act. The Company may require, as a condition of the
exercise of the Warrant, that the consultant sign such further
representations and agreements as it reasonably determines to be necessary or
appropriate to assure and to evidence compliance with the requirements of the
Act.
9. In case the Company shall at any time subdivide (by way of a
stock split or stock dividend) or combine the outstanding shares of Common
Stock, the exercise price shall be forthwith proportionately decreased (in
the case of subdivision) or increased (in the case of combination) and the
number of shares of Common Stock deliverable upon the exercise of this
Warrant shall be proportionately adjusted. If financing activities completed
during the time period of this contract increase fully diluted capitalization
by more than 25%, the before mentioned warrant numbers shall be increased
proportionately.
10. The Consultant shall have no rights as a stockholder with respect
to the shares of Common Stock which may be purchased pursuant to the Warrant
until such shares are issued to the Consultant.
11. THIS AGREEMENT IS ENTERED INTO AND SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
MASSACHUSETTS.
12. The terms and conditions contained in Consulting Agreement, and
as it may be amended from time to time hereafter, are incorporated into and
made a part of this Agreement by reference, as if the same were set forth
herein in full, and all provisions of the Warrant are made subject to any and
all terms of the Consulting Agreement.
13. Any notice to be given under the terms of this Agreement shall be
given in accordance with Section 10 of the Consulting Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Consultant Warrant Agreement as of the date first above mentioned.
PHC, INC.
By:
______________________________________
Bruce Shear, C.E.O.
C.C.R.I. CORPORATION
By: ___________________________
Malcolm McGuire, President
Address:
Suite 539
3104 East Cametback Road
Phoenix, Arizona 85016
<PAGE>
Exhibit 4.19
AMENDMENT AGREEMENT
March 31, 1997
WHEREAS PHC, Inc. (the "Company"), Infinity Investors Ltd. ("Infinity")
and Seacrest Capital Limited ("Seacrest") are parties to a Regulation D
Securities Subscription Agreement dated as of October 7, 1996 (the
"Subscription Agreement") and
WHEREAS, pursuant to the Subscription Agreement, the Company issued to
Infinity $1,875,000 principal amount of its 7% Convertible Debentures and to
Seacrest $1,250,000 principal amount of its 7% Convertible Detective (the
"Debentures"); and
WHEREAS, in consideration of the agreements set forth in this Amendment
Agreement, the Company is issuing today to Infinity a warrant to purchase up
to 90,000 shares of the Company's Class A Common Stock, and to Seacrest a
warrant to purchase up to 60,000 Shares of the Company's Class A Common
Stock, in each case at an exercise price of $2.00 per share (the "Warrants");
NOW THEREFORE, the parties agree as follows:
1. Registration. Not later than April 15, 1997 (the "Registration
Date"), the Company will file a shelf registration statement with the
Securities and Exchange Commission (the "Commission") on form SB-2, covering,
among other things, the Class A Common Stock issuable on the conversion of
the Debentures and the Class A Common Stock issuable on the exercise of the
Warrants. The failure of the Registration Statement to be declared effective
by the Commission on or before July 31, 1997, and the breach by the Company
of any of its obligations set forth in the Warrants shall constitute an Event
of Default under the Debentures. The shares of Class A Common Stock issuable
on the exercise of the Warrants shall be deemed Registrable Shares within the
meaning of the Registration Rights Agreement dated October 7, 1996 among the
parties.
2. Amendments to Debentures. The Debentures shall be amended as
follows:
(a) Paragraph 9(b) of the Debentures shall be amended by deleting the
phrase "(the Subscription Agreement)" and inserting in lieu thereof the
phrase, "(as amended or modified from time to time, the Subscription
Agreement)".
(b) Paragraph 9(c) of the Debentures shall be amended by deleting
such paragraph in its entirety and inserting in lieu thereof the following
new paragraph:
"(c) The Company shall fail to perform or observe, in any
material respect, any other covenant, term, provision, condition,
agreement or obligation of the Company under this Debenture,
Section 5.9 or 8.1 of the Subscription Agreement, the Warrant
Agreement, dated as of March 31, 1997, between the Company and
the initial Holder of this Debenture or the Amendment Agreement,
dated as of March 31, 1997, between the Company and the initial
Holder of this Debenture; or
3. Reservation of Shares. So long as the Warrants remain
outstanding, the Company will reserve from its authorized but unissued shares
of Class A Common Stock a sufficient number of shares to permit the exercise
in full of the then unexercised warrants.
4. Amendment to Section 5.9 of the Subscription Agreement. Section
5.9 of the Subscription Agreement shall be amended by deleting such section
and inserting in lieu thereof the following new Section 5.9.
<PAGE>
"5.9 Registration Rights. The Company will grant the Subscribers the
registration rights covering the Common Shares issuable upon conversion
of the Convertible Debentures and upon exercise of the warrants (the
"Warrants") issued by the Company to the Subscribers pursuant to the
Warrant Agreements, each dated as of March 31, 1997, between the
Company and each Subscriber, all on the terms of the Registration
Rights Agreement (as the same may be amended or modified from time to
time). Failure to cause the Registration Statement contemplated by the
Registration Rights Agreement to be declared effective by the
Commission on or before July 31, 1997, or failure to cause the
Registration Statement to remain effective for a consecutive 180 day
period, shall result in an "Event or Default" under the Debentures."
5. Amendment to Definition of Conversion Price. The definition of
'Floating Conversion Price' set forth in Section 4 of the Debentures is
amended to equal 98% of the average Closing Bid Price (as defined in the
Debentures) of the Company's Common Stock for the five (5) trading days
immediately preceding the Date of Conversion (as defined in the Debentures).
On the first day of each 30-day period following the Registration Date during
which the Registration Statement referred to in Section I above has not been
declared effective by the Securities and Exchange Commission, the Floating
Conversion Price shall be reduced by an additional 2% of the average Closing
Bid Price for the five (5) trading days preceding the Date of Conversion.
6. Substitution of New Debentures. Within 15 days after the
surrender by Infinity and Seacrest to the Company of the currently
outstanding Debentures, the Company will issue new Debentures to Infinity and
Seacrest incorporating the amendments set forth in this Amendment Agreement
and will cancel the currently outstanding Debentures.
7. Representations of the Company. The Company represents and warrants as
follows:
(a) Organization, Good Standing, and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Massachusetts and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole.
(b) Authorization. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, and the performance of all
obligations of the Company hereunder and the authorization, issuance (or
reservation for issuance) and delivery of the Warrants and the shares of the
Class A Common Stock, par value $.01 per share (the "Common Stock") of the
Company issuable upon exercise of the Warrants have been taken (such shares
of Common Stock are hereinafter referred to as the "Common Shares", and the
Warrants and Common Shares are hereinafter referred to as the "Securities").
(c) Agreement. This Agreement has been duly executed and delivered
by the Company and, assuming due authorization, execution and delivery of
this Agreement by each of Infinity and Seacrest, is a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
(d) Valid Issuance of Security. When issued and delivered in
accordance with the terms of this Agreement, the Warrants will constitute
legal, valid and binding obligations of the Company, enforceable by the
Company in accordance with their terms, and will have been issued in
compliance with all applicable U.S. federal and state securities law. The
Common Shares, when issued upon exercise in accordance with the terms of the
Warrants, shall be duly and validly issued and outstanding, fully paid and
nonassessable, free and clear of any claims or pre-emptive rights, and will
have been issued in compliance with all applicable U.S. federal and state
securities laws.
<PAGE>
(e) No Conflicts. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby does not and will
not conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under, the Articles of Organization or
Bylaws of the Company, or any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company is a party or by which it or any
of its properties or assets are bound, or any existing applicable decree,
judgment or order of any court, Federal or State regulatory body,
administrative agency or other governmental body having jurisdiction over the
Company or any of its properties or assets.
8. Representations of Infinity and Seacrest.
Each of Infinity and Seacrest represents and warrants, only as to itself, as
follows:
(a) Accredited Investor. Such person is a sophisticated investor, as
defined in Rule 506(b)(2)(ii) of Regulation D under the Securities Act, of
1933, as amended (the "Act") and an "accredited investor" as defined in Rule
501 of Regulation D under the Act.
(b) Economic Risk. Such person understands and acknowledges that an
investment in the Securities involves a high degree of risk, including a
possible total loss of investment in the Securities.
(c) No Government Recommendation or Approval. Such person
understands that no United States federal or state agency or similar agency
of any other country has passed upon or made any recommendation or
endorsement of the Company, this transaction or the subscription of the
Securities.
(d) No Registration. Each such person understands that the
Securities have not been registered under the Act and are being offered and
sold pursuant to an exemption from registration contained in the Act based in
part upon the representations of such Subscriber contained herein. The
Common Shares do, however, carry certain registration rights as set forth in
this Agreement.
(e) Investment Intent. Such person is acquiring the Securities for
such Subscriber's own account for investment and not with a view to the
distribution thereof. Each Subscriber understands that except as set forth
in this Agreement with respect to the registration of the Common Shares, the
Company has no present intention of registering any such sale of the
Securities. Such person represents and warrants to the Company that it has
no present plan or intention of selling the warrants, and has made no
predetermined arrangements to sell the Securities (other than the
registration provisions contained in this Agreement, which pertain only to a
potential method of disposing of the Common Shares).
(f) Incorporation and Authority. Such person has the full power and
authority to execute, deliver and perform this Agreement and to perform its
obligations hereunder. This Agreement has been duly approved by all
necessary action of such person, including any necessary shareholder
approval, has been executed by persons duly authorized by such person, and
constitutes a valid and legally binding obligation of such person,
enforceable in accordance with its terms.
9. Reimbursement of legal fees. The Company agrees to reimburse
Infinity and Seacrest for the fees and expenses of their legal counsel in
connection with the review of this Agreement and the Warrants and the
transactions contemplated hereby, to a maximum of $5,000.
<PAGE>
10. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, applicable to
agreements made in and wholly to be performed in that jurisdiction without
regards to the choice of law rules of such state, except for matters arising
under the Act or the 1934 Act which matters shall be construed and
interpreted in accordance with such laws. Any action brought to enforce, or
otherwise arising out of, this Agreement shall be heard and determined in
either a Federal or state court sitting in the State of Massachusetts.
(b) Entire Agreement: Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party
in any manner by any warranties representations or covenants except as
specifically set forth herein or therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the
party against whom enforcement of any such amendment, waiver, discharge or
termination is sought.
(c) Notices, Etc. Any notice, demand or request required or
permitted to be given by any of the Company, Infinity or Seacrest or pursuant
to the terms of this Agreement shall be in writing and shall be deemed given
when delivered personally or by facsimile, with a hard copy to follow by two
day courier addressed to the parties at the addresses of the parties set
forth at the end of this Agreement or such other address as a party may
request by notifying the other in writing.
(d) Confidentially. Each of Infinity and Seacrest will keep
confidential all nonpublic information regarding the Company that they
receive from the Company unless disclosure of such information in compelled
by a court or other administrative body or otherwise necessary, in the
opinion of such person's counsel, to comply with applicable law. Neither
party shall disclose any information regarding any of the transactions
contemplated hereby without the prior consent of the other party, unless such
disclosure is required in filings made with the commission.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument. A facsimile transmission of a signature hereto shall be valid as
if an original and binding on all parties.
(f) Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such Severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
(g) Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(h) Parties in Interest Cited. This Agreement may not be
transferred, assigned, pledged or hypothecated by any party hereto,, other
than by operation of law. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective heirs,
executors, administrators, successors and permitted assigns. all
representations warranties, covenants and agreements of each party hereto
shall survive the closing contemplated herein.
[the rest of the page has been left blank deliberately and the
signature page follows.]
<PAGE>
This agreement has been signed under seal by the parties by their officers
thereunto duly authorized as of the date set forth below.
Dated as of this 31st day of March, 1997.
INFINITY INVESTORS LTD. SEACREST CAPITAL LIMITED
27 Wellington Road 27 Wellington Road
Cork, Ireland Cork, Ireland
____________________________ ____________________________
Signature Signature
PHC, INC.
200 Lake Street, Suite 102
Peabody, Massachusetts 01960
By: ______________________________
Print Name: Bruce A. Shear
Title: President
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES
LAW. THEY ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE ACT. THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO
AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THOSE
LAWS.
THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Shares Issuable Upon Exercise: Up to 90,000 shares of the Class A
Common Stock, $.01 par value, of PHC,
Inc
WARRANT AGREEMENT
THIS WARRANT AGREEMENT dated as of March 31, 1997 is entered into by
PHC, Inc. (the "Company") and Infinity Investors Ltd. (the "Holder").
WITNESSETH:
WHEREAS, the Holder is a holder of the Company's 7% Convertible
Debentures; and
WHEREAS, in partial consideration of the relinquishment by the Holder
of certain liquidated damages now owed by the Company to the Holder, 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 90,000 shares of Class A Common Stock, at a price per
share of $2.00 (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 March 31, 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.
<PAGE>
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 on or prior to March 3 1, 2002 (the "Exercise Period").
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"). The
Company hereby agrees that this Warrant may be exercised by facsimile, and
the Form of Election delivered by facsimile, (accompanied by payment of the
exercise price), provided that the Holder hereof delivers the original
Warrant and Form of Election within 48 hours of such exercise.
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, but no later than five (5) New York
Stock Exchange trading days, 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 Nonassessable. 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, free of any preemptive
or other rights.
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 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 the Class A Common Stock issuable upon the
conversion of the Company's 7% Convertible Debentures issued to the Holder on
October 7, 1996 are registered under the Act.
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.
<PAGE>
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.
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") or
pursuant to an applicable exemption from registration.
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.:
THESE SECURITIES HAVE NOT BEEN REGISTERED
WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES COMMISSION OF ANY STATE UNDER ANY
STATE SECURITIES LAW. THEY ARE BEING OFFERED
PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE ACT. THE SECURITIES MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS THE SECURITIES ARE REGISTERED UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAWS,
OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE
PURSUANT TO AVAILABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND
THOSE LAWS.
THESE SECURITIES HAVE NOT BEEN RECOMMENDED
BY ANY FEDERAL OR STATE SECURITIES COMMISSION
OR REGULATORY AUTHORITY. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
For so long as such shares are registered under the Act, and as long as a
valid prospectus permitting the resale of such shares is available, such
shares will be issued without any restrictive legends.
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.
Section 4.5 Stop-Transfer and similar instructions. The Company
covenants and agrees that it will not issue any "stop-transfer" or similar
instructions to any transfer agent for its Class A Common Stock that would
have the effect of interfering with any transfer of Class A Common Stock
issued upon exercise of this Warrant, other than those in compliance with the
foregoing Sections 4.2 through 4.4.
ARTICLE V
MISCELLANEOUS
Section 5.1 Notices. Notices or demands relating to this Warrant
Agreement shall be sufficiently given or made if sent by facsimile,
first-class mail, postage prepaid, addressed as follows, or telecopied, or
delivered by nationally-recognized overnight or other courier:
If to the Holder: Infinity Investors Ltd.
27 Wellington Road
Cork, Ireland
Attention: James E. Martin
Fax: 011-44-171-351-4975
copy to: HW Partners, L.P.
4000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Attention: Stuart J. Chasanoff
Fax: 214-720-1662
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.
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
Infinity Investors Ltd.
By:
__________________________________
Name:
Title:
<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
DSI.332811.1
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES
LAW. THEY ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE ACT. THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO
AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THOSE
LAWS.
THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Shares Issuable Upon Exercise: Up to 60,000 shares of the Class A
Common Stock, $.0l par value, of PHC,
Inc.
WARRANT AGREEMENT
THIS WARRANT AGREEMENT dated as of March 31, 1997 is entered into by
PHC, Inc. (the 'Company") and Seacrest Capital Limited (the "Holder").
WITNESSETH:
WHEREAS, the Holder is a holder of the Company's 7% Convertible
Debentures; and
WHEREAS, in partial consideration of the relinquishment by the Holder of
certain liquidated damages now owed by the Company to the Holder, 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 60,000 shares of Class A Common Stock, at a price per
share of $2.00 (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 March 31, 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.
<PAGE>
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 on or prior to March 3 1, 2002 (the "Exercise Period").
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"). The Company
hereby agrees that this Warrant may be exercised by facsimile, and the Form
of Election delivered by facsimile, (accompanied by payment of the exercise
price), provided that the Holder hereof delivers the original Warrant and
Form of Election within 48 hours of such exercise.
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, but no later than five (5) New York
Stock Exchange trading days, 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 Nonassessable. 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, free of any preemptive
or other rights.
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 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 the Class A Common Stock issuable upon the
conversion of the Company's 7% Convertible Debentures issued to the Holder on
October 7, 1996 are registered under the Act.
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 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.
<PAGE>
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.
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") or
pursuant to an applicable exemption from registration.
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.:
THESE SECURITIES HAVE NOT BEEN REGISTERED
WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES COMMISSION OF ANY STATE UNDER ANY
STATE SECURITIES LAW. THEY ARE BEING OFFERED
PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE ACT. THE SECURITIES MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS THE SECURITIES ARE REGISTERED UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAWS,
OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE
PURSUANT TO AVAILABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND
THOSE LAWS.
THESE SECURITIES HAVE NOT BEEN RECOMMENDED
BY ANY FEDERAL OR STATE SECURITIES COMMISSION
OR REGULATORY AUTHORITY. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
For so long as such shares are registered under the Act, and as long as
a valid prospectus permitting the resale of such shares is available, such
shares will be issued without any restrictive legends.
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.
Section 4.5 Stop-Transfer and similar instructions. The Company
covenants and agrees that it will not issue any "stop-transfer" or similar
instructions to any transfer agent for its Class A Common Stock that would
have the effect of interfering with any transfer of Class A Common Stock
issued upon exercise of this Warrant, other dm those in compliance with the
foregoing Sections 4.2 through 4.4.
ARTICLE V
MISCELLANEOUS
Section 5.1 Notices. Notices or demands relating to this Warrant
Agreement shall be sufficiently given or made if sent by facsimile,
first-class mail, postage prepaid, addressed as follows, or telecopied, or
delivered by nationally-recognized overnight or other courier:
If to the Holder: Seacrest Capital Limited
27 Wellington Road
Cork, Ireland
Attention: James E. Martin
Fax: 011-44-171-351-4975
copy to: HW Partners, L.P.
4000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Attention: Stuart J. Chasanoff
Fax: 214-720-1662
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
<PAGE>
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.
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
SEACREST CAPITAL LIMITED
By: ___________________________
Name:
Title:
<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
<PAGE>
EXHIBIT 4.20
March 11, 1997
HCFP Funding, Inc.
2 Wisconsin Circle, Suite 320
Chevy Chase, Maryland 20815
Attention: Michael G. Gardullo, Vice President and Senior Credit Officer
Dear Mr. Gardullo:
Reference is made to that certain Loan and Security Agreement dated
February 3, 1997 (the "Loan Agreement"), by and between PHC of Michigan,
Inc., a Massachusetts corporation (the "Borrower") and HCFP Funding, Inc.
(the "Lender"). All capitalized terms used but not defined in this letter
shall have the respective meanings given them in the Loan Agreement.
Lender and Borrower hereby agree to the following terms regarding an
additional loan to be made by Lender to Borrower on the date hereof, in the
form of an overline facility in the principal amount of Three Hundred
Thousand and no/cents Dollars ($300,000.00) (the "Overline Loan"):
1. Except as expressly modified by the terms of this letter
agreement, the Overline Loan will be treated for all purposes as a Revolving
Credit Loan under the Loan Agreement, and all principal, interest, fees and
other costs and expenses relating thereto shall be treated as additional
Obligations under the Loan Agreement and the other Loan Documents.
2. Overline Loan shall bear interest at the Base Rate as specified
in Loan Agreement, and all outstanding principal and accrued interest with
respect to the Overline Loan shall be repaid in full no later than March 26,
1997. The failure to make such repayment shall constitute an immediate Event
of Default under the Loan Agreement.
3. The Maximum Loan Amount under the Loan Agreement shall be
inclusive of the Overline Loan.
4. Except as specifically modified hereby, the Loan Agreement, and
all other documents shall remain in full force and effect, and are hereby
ratified and confirmed.
5. The execution, delivery and effectiveness of this letter agreement
shall not, except as expressly provided hereon, operate as waiver of any right,
power or remedy of Lender, nor constitute a waiver of any provision of the Loan
Agreement, or any other documents, instruments and agreements executed or
delivered in connection therewith.
<PAGE>
HCFP Funding, Inc.
March 11, 1997
Page 2
6. This letter agreement shall be governed by and construed in
accordance with the laws of the State of Maryland.
7. This letter agreement may be executed in counterpart, and both
counterparts taken together shall be deemed to constitute one and the same
instrument.
Very truly yours,
ATTEST: PHC OF MICHIGAN, INC.
(Seal) a Massachusetts corporation
By: s/ Stuart A. Kaufman By: s/ Paula C. Wurts
---------------------- -------------------
Name: Stuart A. Kaufman Name: Paula C. Wurts
Title: Director of Corporate Services Title: FO
AGREED:
HCFP FUNDING, INC.
By: s/ Michael G. Gardulla
------------------------
Name: Michael G. Gardulla
Title: Vice President and Senior Credit Officer
G:\WP\SIDELTR3.PHC
Exhibit 10.114
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the 1st day of March,
1997, (the "Effective Date") by and between ________ P.C., a New York
professional corporation (the "Practice"), and Nissan Shliselberg, M.D. (the
"Employee").
WHEREAS, the Employee desires to obtain employment with the Practice
and the Practice desires to employ the employee upon the terms and conditions
stated herein;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties agree as follows:
1. Employment. Employee is hereby employed by the Practice as its
Medical Services Director, or such other reasonably related position as it
may designate, to perform such duties as are reasonably required by such
position(s) and such other duties as he may be assigned from time to time.
The Employee agrees to accept such employment under the terms and conditions
herein, and to devote a minimum of ten (10) hours per month to the Practice.
In performing duties hereunder, Employee shall at all times act in a
professional, competent and loyal manner and shall comply with all policies
and procedures of the Practice as they may be amended from time to time. The
Employee shall maintain complete and accurate time and duty log sheets
reflecting the time spent fulfilling his duties under this Agreement.
2. Term. The term of this Agreement shall commence on its
above-written effective date and shall continue for a period of five (5)
years, unless sooner terminated pursuant to the provisions of Section 9
herein. The parties may renew this Agreement for an additional five (5) year
period in a written instrument signed by both parties.
3. Compensation. The Practice agrees to pay to Employee as
compensation for his services hereunder a salary at the rate of $2,000.00 per
month, payable in accordance with the payroll procedures established by the
Practice, as they may be amended from time to time.
4. Benefits. As a part-time employee, the Employee will not be
eligible to participate in any benefit program offered by the Practice to its
full-time employees.
5. Expenses. The Practice shall reimburse the Employee 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.
6. Insurance. Throughout the term of this Agreement, the Employee
shall maintain, at all times and at his own expense, professional liability
insurance coverage in the amount of at least $1,000,000.00 per occurrence and
$3,000,000.00 in the annual aggregate.
<PAGE>
All such malpractice or professional liability insurance must be in a form
reasonably satisfactory to the Practice and include coverage for all clinical
services rendered pursuant to this Agreement.
7. Notice of Proceedings. The Employee shall notify the Practice
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
8. Compliance with Other Agreements and Applicable Law. The
Employee represents and warrants that his performance hereunder shall not
conflict with any other agreements to which he was or is a party. The
Employee agrees not to enter into any agreement, either written or oral,
which may conflict with this Agreement. The Employee further represents and
warrants that in performing his duties hereunder, he shall comply with all
applicable laws and regulations and that he immediately will report to the
Practice's Board of Directors all illegal conduct by the Practice or its
employees or agents of which he is aware. The Employee represents and
warrants that he has a current, valid license to practice medicine in the
State of New York, and he agrees that he must maintain such license as a
condition of continued employment by the Practice. The Employee further
represents and warrants that there is not presently pending nor threatened
against him any action, claim or proceeding the outcome of which could result
in revocation or suspension of his license to practice medicine in New York.
9. Termination. This Agreement shall terminate automatically upon
the expiration of its term or upon the death of the Employee. In addition,
this Agreement may be terminated by the Practice or the Employee under the
following circumstances:
9.1 By the Practice.
(a) Termination for Cause. The Practice may terminate
this Agreement at any time prior to the expiration of its terms for cause.
For purposes of this Section 9. 1 (a), "cause" shall mean: (i) the Employee's
conviction for any felony or crime of moral turpitude; (ii) dishonesty or
disloyalty by the Employee in performance of his duties hereunder; (iii)
insubordination by the Employee; (iv) conduct by the Employee which
jeopardizes the Practice's right or ability to operate its business; (v) the
Employee's material breach of any provision of this Agreement; (vi) the
failure or inability of the Employee to perform his duties in a manner which
is reasonably acceptable to the Practice; (vii) gross neglect of duty; or
(viii) the Employee fails to retain his license in good standing to practice
medicine in the State of New York.
(b) Termination Without Cause. The Practice may, in its
sole discretion, without any cause whatsoever, terminate the Employee's
employment by providing him with 30 days' prior written notice and, at its
election, may relieve the Employee of his duties and responsibilities at any
time thereafter and provide his with pay in lieu of notice.
<PAGE>
9.2 By the Employee
(a) Termination for Cause. The Employee may terminate
this Agreement at any time prior to the expiration of its term for cause.
For the purposes of this Section 9.2(a), the term "cause" means the material
breach of any provision of this Agreement by the Practice.
(b) Termination Without Cause. The Employee may
terminate this Agreement without cause upon 30 days' written notice to the
Practice. Upon receipt of such notice, the Practice may elect to terminate
his employment at any time thereafter prior to the Employee's designated last
day of employment, and provide him with pay in lieu of notice.
10. Protection of the Practice. In consideration of the Employee's
initial and/or continued employment and other good and valuable consideration
provided by the Practice, the adequacy of which is hereby acknowledged, the
parties agree to the following:
10.1 Covenants. The Employee agrees, both during his employment with the
Practice and for a period of two (2) years following termination of this
Agreement, that he will not (a) directly or indirectly (whether as sole
proprietor, partner, stockholder, director, officer, employee, consultant,
independent contractor, or in any capacity as principal or agent or in any other
individual or representative capacity) compete with the Practice in any business
that is in competition in any manner whatsoever with (i) the then-existing
business or operations of the Practice, or (ii) any business that the employee
knows or should know that the Practice intends to enter or pursue; (b) be
interested in, associated with, render services to or sell any ideas, inventions
or products to any party in competition with the Practice; (c) make known or
disclose the name and/or address of any clients, customers or patrons of the
Practice or persons having a contractual relationship with the Practice; (d)
call upon, solicit, divert or take away, or attempt to solicit, divert or take
away any such clients, customers or patrons or employees of the Practice or any
persons having a contractual relationship with the Practice; or (e) request or
advise any present or future client, customer or patron of the Practice or any
persons having a contractual relationship with the Practice to withdraw, curtail
or cancel their business relationship with the Practice. For the purposes
hereof, "competition" shall include the providing of professional services by
psychologists or psychiatrists to individuals either individually or in group
settings in clinics, nursing homes, hospitals or in private offices within a
radius of fifteen (15) miles from any location in which such professional
services are being provided by the Practice; provided, however, that the
Employee may continue to provide professional services to patients through his
current medical practice and at the facilities listed on Schedule 10. 1 attached
hereto without violating the covenants contained in this Section.. For the
purposes hereof, "competition" shall not preclude the ownership of less than one
percent (1 %) of the common stock, or other class of voting stock, of any
publicly traded company.
<PAGE>
10.2 Enforcement. The Employee agrees that the remedies
available at law for any breach of the covenants contained in this Section
10 will be inadequate and that the Practice shall be entitled to
appropriate equitable remedies, including injunctive relief in any action
or proceeding brought to prevent the taking or continuation of any action
which would constitute or result in a breach of such covenant. Such
remedies shall not be exclusive and shall be in addition to any and all
remedies which may be available, directly or indirectly, without limiting
the recovery of any damages, including incidental, consequential and/or
punitive damages. The Employee further agrees that if any restriction in
this Article is held by any court to be unenforceable or unreasonable, a
lesser restriction will be enforced in its place and the remaining
restrictions will be enforced independently of each other. The Employee
agrees to pay the attorneys' fees, court costs and other expenses incurred
by the Practice to enforce any provision under this Section.
10.3 Ancillary Obligations. This covenant shall be construed as
an obligation ancillary to the other provisions of this Agreement, and the
existence of any claim or cause of action by the Employee, whether
predicated on a breach of this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Practice of this covenant.
10.4 Jurisdiction. The Employee hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the
courts of the State of New York located in New York City for any actions,
suits or proceedings arising out of or relating to this covenant and
further agrees that service of any process, summons, notices or document by
U.S. registered mail to the address set forth herein shall be effective
service of process for any action, suit or proceeding brought against him
in any such court.
11. Nature of Relationship. Nothing in this Agreement shall be
construed as establishing the parties as partners or joint venturers.
12. Arbitration. Whenever a "dispute" arises between the parties
concerning this Agreement or their employment relationship, including
without limitation the termination thereof, the parties shall use their
best efforts to resolve the "dispute" by mutual agreement. If such a
"dispute" cannot be so resolved, it shall be submitted to final and binding
arbitration to the exclusion of all other avenues of relief and adjudicated
pursuant to the American Arbitration Association's Rules for Commercial
Arbitration then in effect, except that the parties to such arbitration
shall be entitled to engage in pre-hearing discovery, to the extent
permitted by and according to the provisions of the Federal Rules of Civil
Procedure. The decision of the arbitrator must be in writing and shall be
final and binding on the parties, and judgment may be entered on the
arbitrator's award in any court having jurisdiction thereof. The expenses
of the arbitration shall be borne equally by the parties, and each party
shall be responsible for his or its own costs and attorneys' fees. For the
purposes of this Section 12, the term "dispute" means all controversies or
claims relating to terms, conditions or privileges of employment, including
without limitation claims for breach of contract, discrimination,
harassment, wrongful discharge, misrepresentation, defamation, emotional
distress or any other personal injury, but excluding claims for
unemployment compensation or worker's compensation. This Section shall
survive the termination of this Agreement.
<PAGE>
13. No Requirement to Refer. 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 Practice and
the Employee, that the Employee refer any patient to the Practice or to any
other entity for the delivery of health care items or services. The
compensation paid to the Employee under this Agreement is made for
professional services and obligations as set forth in this Agreement, and no
payment made under this Agreement is 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 Practice or any other entity.
14. Non-Waiver. The Practice's failure at any time to require the
performance by the Employee of any of the terms hereof shall in no way affect
the Practice's right thereafter to enforce the same, nor shall the waiver by
the Practice of the breach of any term hereof be taken or held to be a waiver
of any succeeding breach.
15. Severability. In the event that any provision of this Agreement
conflicts with the law under which this Agreement is to be construed, or if
any such provision is held invalid or unenforceable by a court of competent
jurisdiction or an arbitrator, such provision shall be deleted from this
Agreement and the Agreement shall be construed to give full effect to the
remaining provisions thereof.
16. Governing Law. This Agreement shall be interpreted, construed
and governed according to the laws of the State of New York, without regard
to the conflicts of laws principles thereof.
17. Headings and Captions. The paragraph headings and captions
contained in this Agreement are for convenience only and shall not be
construed to define, limit or affect the scope or meaning of the provisions
hereof.
18. Entire Agreement. This Agreement contains and represents the
entire agreement of the parties and supersedes all prior agreements,
representations or understandings, oral or written, express or implied with
respect to the subject matter hereof. This Agreement may not be modified or
amended in any way unless in a writing signed by both the Employee and an
authorized representative of the Practice. No representation, promise or
inducement has been made by either party hereto that is not embodied in this
Agreement, and neither party shall be bound or liable for any alleged
representation, promise or inducement not specifically set forth herein.
<PAGE>
19. Assignability. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns. Neither this Agreement nor any rights or obligations hereunder may
be assigned by the Practice without the prior written consent of the
Employee, which consent shall not be unreasonably withheld. Notwithstanding
the foregoing, in the event of the merger or consolidation of the Practice
with any other corporation or corporations, the sale by the Practice of a
major portion of its assets or of its business and good will, or any other
corporate reorganization involving the Practice, this Agreement may, without
the Employee's written consent, be assigned and transferred to such successor
in interest as an asset of the Practice upon such assignee assuming the
Practice's obligation hereunder, in which event the Employee agrees to
continue to perform his duties and obligations according to the terms hereof,
to or for such assignee or transferee of this Agreement; provided, however,
that the Practice will remain secondarily liable as a guarantor of such
assignee or transferee's obligations to the Employee hereunder. The Employee
shall not have any right to assign, delegate or transfer any duty or
obligation to be performed by him hereunder to any third party, nor to assign
or transfer the right, if any, to receive payments hereunder.
20. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed properly given if delivered personally or sent by
certified or registered mail, postage prepaid, return receipt requested, or
sent by telegram, telex, telecopy or similar form of telecommunication, and
shall be deemed to have been given when received. Any such notice or
communication shall be addressed: (a) if to the Practice, to P.C., c/o Arent
Fox Kintner Plotkin and Kahn, 1675 Broadway, New York, N.Y. 10019, Attn:
Jerome Levy, Esq.; or (b) if to the Employee, to his/her last known home
address on file with the Practice; or to such other address as the parties
shall have furnished to one another in writing.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, to be effective as of the day and year first above written.
NISSAN SHLISELBERG, M.D.
______________________________________P.C.
Date: _______________________ By:
__________________________________
Title:
________________________________
Date:
________________________________
- 7 -
<PAGE>
SCHEDULE 10.1
FACILITIES EXCLUDED FROM THE NONCOMPETITION COVENANTS
OF SECTION 10.1
Sagamore Children's Psychiatric Center
Flushing Hospital Medical Center
Upstate Clinical Associates
Margaret Tietz Nursing Center
Private Practice
69-40 108 Street
Forest Hills, NY 11375
- 8 -
<PAGE>
Exhibit 10.115
OPTION AND INDEMNITY AGREEMENT
This OPTION AND INDEMNITY AGREEMENT (the "Agreement") is made this ____
day of February, 1997, by and between Pioneer Healthcare, Inc. ("Pioneer"),
and Nissan Shliselberg M.D. ("Shliselberg").
WITNESSETH
WHEREAS, Pioneer is in the business of providing management and
administrative services to psychotherapy practices through its wholly-owned
subsidiary BSC-NY, Inc. (the "Subsidiary"); and
WHEREAS, in November 1996, the Subsidiary merged with Behavioral Stress
Centers, Inc., which had been providing management and administrative
services to Clinical Associates and Clinical Diagnostics, a general
partnership and sole proprietorship respectively, which had been engaged in
the provision of psychotherapy services in the New York metropolitan area; and
WHEREAS, Gerald M. Perlow, M.D. ("Perlow") presently owns 98 percent of
the shares in Perlow Physicians, P.C., a New York professional corporation
(the "P.C.") that was formed in October 1996 in order to provide
psychotherapy services to the patients formerly served by Clinical Associates
and Clinical Diagnostics; and
WHEREAS, Shliselberg presently owns two percent of the shares in the P.C.;
and
WHEREAS, in November 1996, Pioneer loaned $750,000 to the P.C. in order
to allow the P.C. to purchase the professional assets of Clinical Associates
and Clinical Diagnostics, including the various contracts that those entities
have with health care facilities and third party payers for the provision of
psychotherapy services; and
WHEREAS, in November 1996, the P.C. also entered into a management
agreement with the Subsidiary (the "Management Agreement") pursuant to which
the Subsidiary provides non-clinical management and administrative services
to the P.C.; and
WHEREAS, as consideration for the aforementioned loan to the P.C. and
execution of the Management Agreement, Pioneer and Perlow entered into an
Option Agreement, dated November 5, 1996, which provides that no part of
Perlow's interest in the P.C. may be transferred without the prior written
consent of Pioneer; and
WHEREAS, Perlow now wishes to transfer his entire interest in the P.C. to
Shliselberg, and Shliselberg wishes to receive that interest, provided that he
is indemnified by Pioneer for any losses which he may incur as a result of his
service as a shareholder, director, officer or employee of the P.C. and
<PAGE>
WHEREAS, it is a condition of Pioneer's consent to the transfer of Perlow's
interest in the P.C. to Shliselberg that this Option be granted to Pioneer.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound hereunder, agree as follows:
I . Grant of Option. Shliselberg hereby irrevocably grants to
Pioneer the right and option (hereinafter called the "Option") to designate a
person who lawfully may hold an ownership interest in the P.C. (the
"Optionee") who shall be entitled to purchase all of the shares of the P.C.
owned by Shliselberg ("Shliselberg's Interest") at the exercise price set
forth in paragraph 2, during the period and subject to the conditions herein
set forth.
2. Exercise Price. The exercise price (the "Exercise Price")
for Shliselberg's Interest shall be One Thousand Dollars ($1,000.00).
3. Option Term. The term of this Option shall expire on the
fortieth (40th) anniversary of the date hereof.
4. Exercise of Option. The Option shall be exercisable only
upon the occurrence of one or more of the following events:
(a) Shliselberg's death;
(b) Shliselberg's disability which, for purposes of this
Agreement, shall be defined as Shliselberg's failure or inability to perform
his customary duties for a consecutive period of three (3) months or for any
number of days totalling 120 within a six (6) month period;
(c) The loss or suspension of Shliselberg's medical
license, cancellation of the P.C.'s medical malpractice insurance without
replacement, commission of a felony by the P.C. or by Shliselberg, or the
loss or suspension, for more than ninety (90) days, of the P.C.'s or
Shliselberg's participation in the Medicare or Medicaid programs or in any
third-party payor contract which, in the reasonable discretion of Pioneer, is
a significant contract for the P.C.;
(d) Upon the default or termination of that certain
Employment Agreement of even date herewith between the P.C. and Shliselberg;
(e) Upon default or termination of the Management
Agreement between the Subsidiary and the P.C.; or
<PAGE>
(f) The filing by Shliselberg of a petition in
bankruptcy, an assignment for the benefit of creditors, or other action taken
voluntarily or involuntarily under any state or federal statute for the
protection of debtors.
5. Manner of Exercise. Each exercise of the Option shall be
by written notice to Shliselberg, and shall be accompanied by the designated
Optionee's check payable to Shliselberg for the amount of the Exercise
Price. Upon delivery of such notice and payment, the Optionee shall be
deemed to have acquired Shliselberg's Interest and shall be deemed to have
become a member of the P.C. without any further action on the part of the
Optionee, Shliselberg or the P.C.. However, at the Optionee's request,
Shliselberg shall also deliver an assignment of his shares in the P.C. to the
Optionee in form and substance reasonably satisfactory to the Optionee.
6. No Obligation to Exercise Option. Pioneer shall be under
no obligation to exercise all or any part of the Option.
7. Transferability of Option. The Option is freely
transferable by Pioneer. Pioneer shall notify the P.C and Shliselberg of the
exercise or the revocation of any assignment of the Option.
8. Restrictions on Transfer of Shliselberg's Interests
Consents. During the Option Period, no part of Shliselberg's Interest shall
be transferred without the prior written consent of Pioneer. For purposes of
this Agreement, a transfer shall include any dissolution or termination of
the P.C. or any assignment, mortgage, hypothecation, transfer, pledge,
creation of a security interest in or lien upon, encumbrance, gift or other
disposition unless such transfer is made subordinate to or subject to this
Option. An authorized assignee or transferee must consent in writing to be
bound by the terms of this Agreement. Further, the P.C. and Shliselberg
shall not amend or modify the P.C.'s Articles of Organization or Bylaws in
any manner that would adversely affect Pioneer's rights hereunder without
Pioneer's prior written consent. Shliselberg consents to the Option on his
interests granted herein, and agrees to recognize the Optionee as a
substituted shareholder immediately upon the exercise of this Option. Any
provisions in the P.C.'s Bylaws that conflict with this Agreement are
superseded and shall be of no effect.
9. Representations and Warranties of Shliselberg. Shliselberg
hereby represents and warrants to, and covenants with, Pioneer as follows:
(a) Shliselberg has full power and authority to permit
him to execute and deliver this Agreement and to perform all of the
obligations contained herein, and none of such actions will violate any
provisions of law or will violate or constitute a default under any agreement
or instrument to which Shliselberg is a party.
<PAGE>
(b) This Agreement constitutes, and each instrument to be
executed and delivered by Shliselberg in connection with the exercise of the
Option will constitute, a valid and legally binding obligation of
Shliselberg, enforceable against him in accordance with its terms.
(c) No other person will be permitted to become a
shareholder (other than pursuant to the exercise of this Option) without
prior written notice to the Pioneer and the grant to Pioneer of an option of
such person's interest in form and substance comparable to this Agreement.
(d) Shliselberg shall take, or cause to be taken, all
steps necessary to maintain the P.C. as a New York professional corporation
in good standing and, without the prior written consent of the Pioneer, shall
not take, or cause or allow to be taken, any steps to dissolve the P.C..
(e) A legend shall be placed on each stock
certificate issued by the P.C. to Shliselberg indicating that the shares
represent by that certificate are subject to this Agreement and may not be
transferred without the express written consent of Pioneer.
10. Indemnity. As additional consideration for this Agreement,
the Corporation hereby indemnifies Shliselberg from and against all uninsured
liability, losses or damages that he may sustain as a result of claims,
demands, costs (including reasonable attorneys' fees) or judgments arising
from his service as a shareholder, director, officer or employee of the PC.
11. Notices. All notices required or permitted hereunder shall
be in writing and shall be deemed to be properly given when personally
delivered to the party entitled to receive the notice or when sent by
certified or registered mail, postage prepaid, properly addressed to the
party entitled to receive such notice at the address stated below or at such
other address as may be furnished in writing by any party hereto to the other:
If to Shliselberg: Nissan Shliselberg, M.D.
98-40 64th Avenue - 1-B
Rego Park, NY 11374
If to Pioneer: Pioneer Healthcare, Inc.
200 Lake Street
Suite 102
Peabody, MA 01960
Attn: President
<PAGE>
12. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
executors, administrators, heirs, and assigns.
13. Governing Law. This Agreement shall be governed by and
construed under the laws of the State of New York without regard to the
conflicts of laws provisions of that state.
14. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
15. Amendment. This Agreement may not be amended except by an
instrument in writing signed by all the parties.
16. Specific Performance. The parties hereto agree that
Shliselberg's Interest in the P.C. is unique and that failure to honor the
rights granted by this Agreement will result in irreparable damage, and that
in addition to all other remedies of which Pioneer may avail itself at law or
in equity, Pioneer shall have the right of specific performance.
17. Entire Agreement. This Agreement embodies the entire
agreement between the parties with respect to its subject matter. There are
no restrictions, promises, representations, warranties, covenants or
undertakings other than those expressly set forth herein. This Agreement
supersedes any and all prior agreements and understandings between the
parties with respect to its subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written above.
PIONEER HEALTHCARE, INC.:
By: _______________________________
Name: _____________________________
Its: ________________________________
___________________________________
Nissan Shliselberg, M.D.
<PAGE>
Exhibit 10.116
SECURED TERM NOTE
$1,100.000.00
March , 1997
FOR VALUE RECEIVED, and intending to be legally bound, PHC OF
MICHIGAN, INC., a Massachusetts corporation, ("Borrower") hereby promises
to pay to the order of HEALTHCARE FINANCIAL PARTNERS - FUNDING II, L.P., a
Delaware partnership, its successors and assigns ("Lender"), the maximum
principal sum of ONE MILLION ONE HUNDRED THOUSAND AND NO/100 DOLLARS
($1,100.000.00) (the "Principal Sum") together with interest, costs of
collection and other fees as further set forth herein, to be paid in
accordance with the terms set forth below. All terms not defined herein
shall have the meanings assigned to them in that certain Loan and Security
Agreement dated as of February 3, 1997 (the "Revolving Loan Agreement") by
Borrower and HCFP Funding, Inc., a Delaware corporation that is the
assignee of Lender ("HCFP Funding"). This Secured Term Note shall amend,
restate and replace in its entirety the Secured Bridge Note in the
principal amount of Four Hundred Thousand and No/100 Dollars ($400,000.00)
(the "Previous Advance") made by Borrower in favor of HCFP Funding dated
January 13, 1997, as amended (the "Old Note"). Upon execution of this
Secured Term Note by Borrower and Lender, the Old Note shall be canceled
and shall be of no further force and effect.
1. Commitment Fee. In consideration for the financing provided by
Lender as evidenced by this Secured Term Note, Borrower shall pay to Lender
(i) an initial Commitment Fee in the amount of Seven Thousand and No/100
Dollars ($7,000.00), which shall be paid to Lender through a deduction from
the additional Seven Hundred Thousand and No/100 Dollars ($700,000.00) (the
"New Advance") to be advanced on the date of this Secured Term Note, and
(ii) an annual Commitment Fee in the amount of one percent (1%) of the
Principal Sum outstanding on each anniversary date of this Secured Term
Note, to be payable on each such anniversary date.
2. Principal and Interest. Borrower promises to pay to Lender
interest on the Principal Sum at a fluctuating rate per annum (on the basis
of the actual number of days elapsed over a year of 360 days) equal to the
Prime Rate plus five percent (Prime plus 5.00%) (the "Base Rate"), provided
that after an Event of Default such rate shall be equal to the Base Rate
plus five percent (5%). For purposes of the foregoing, the term "Prime
Rate" means that rate of interest designated as such by Fleet National Bank
of Connecticut. N.A., or any successor thereto, as the same may from time
to time fluctuate. Interest only shall be payable monthly in arrears on
the last Business Day (defined herein) of each month for the first twelve
(12) months that this Secured Term Note remains outstanding, beginning on
April 30, 1997 (which interest installment shall include interest accrued
from the date hereof through April 30, 1997) and continuing on the last
Business Day of each month thereafter through and including March 31. 1998.
On April 30, 1998, and on the last Business Day of each month thereafter
through and including February 28, 2001, Borrower will make one of
thirty-five (35) equal monthly installment payments of principal, each of
which is equal to Nine Thousand One Hundred Sixty-Six and 67/100 Dollars
($9,166.67) per installment, together with accrued interest on each such
installment calculated at the Base Rate. On March 12, 2001 (the "Maturity
Date") Borrower shall make a balloon principal installment of the then
remaining principal of Seven Hundred Seventy-nine Thousand One Hundred
Sixty-Six and 55/100 Dollars ($779,166.55), together with all accrued and
unpaid interest. After the Maturity Date and until the entire Principal Sum
shall be paid in full. the amount of the Principal Sum then outstanding
shall bear interest, payable on demand, at the Base Rate plus five percent
(5%),
but in no event to exceed the maximum lawful rate.
Additional Payments. Borrower further promises to pay to Lender,
immediately upon demand, all reasonable costs. disbursements and reasonable
attorneys' fees incurred by Lender in connection with the preparation of
this Secured Term Note and all related agreements and documents, or in
connection with any action, suit or proceeding to protect, sustain or
enforce the rights and remedies of Lender hereunder.
4. Borrowing and Prepayment
a. Subject to the terms and conditions hereof, Lender shall
make available to Borrower the New Advance (less the remaining portion of
the initial Commitment Fee) in immediately available funds not later than
12:00 Noon (Washington, D.C. time) on the Business Day on which the
following conditions precedent are satisfied: (i) no default shall have
occurred under this Secured Term Note, the Revolving Loan Agreement, or that
certain Loan and Security Agreement by and between PHC of Utah, Inc. (an
affiliate of Borrower) and HCFP Funding ((as successor-in-interest to
HealthPartners Funding, L.P.) dated May 21, 1996, as amended (the "Utah Loan
Agreement"), (ii) all representations and warranties contained in this
Secured Term Note, the Revolving Loan Agreement, the Utah Loan Agreement, or
otherwise made in writing in connection herewith by or on behalf of Borrower
shall be true and correct in all material respects, (iii) PHC, Inc. shall
have executed and delivered to Lender a guaranty of the obligations under
this Secured Term Note (the "Guaranty"), (iv) Borrower shall have properly
executed a mortgage granting to Lender a first priority lien on the real
property described on Exhibit A attached to this Secured Term Note, which
exhibit is made a part hereof (the "First Mortgage"), (v) Borrower shall
have properly executed a mortgage granting to HCFP Funding a second priority
lien on the real property described on Exhibit A attached to this Secured
Term Note, which exhibit is made a part hereof (the "Second Mortgage"), (vi)
Borrower shall have delivered each of the First Mortgage and the Second
Mortgage, in recordable form, to Lender, and (vii) Borrower shall have
received Uniform Commercial Code ("UCC"), judgment and tax lien searches
with the Secretary of State and local filing offices of each jurisdiction
where Borrower maintains a place of business, which yield results consistent
with the representations and warranties contained herein.
b. Borrower may prepay all or any part of the Principal Sum
outstanding without penalty, together with all interest accrued thereon, and
all other sums that are payable pursuant to this Secured Term Note.
5. Payment 0ffice - Both the Principal Sum and the interest hereon
and any other amounts payable hereunder are payable in lawful money of the
United States of America at the office of Lender, at 2 Wisconsin Circle,
Suite 320, Chevy Chase, MD 20815, Attention: Mr. Ed Nordberg, or at such
other place as Lender may specify in writing to Borrower. Any payment by
other than immediately available funds shall be subject to collection.
Interest shall continue to accrue until the funds by which payment is made
are available to Lender for its use. Any payment hereunder which is stated
to be due on a day on which banks in Washington, DC are required or
permitted to be closed for business shall be due and payable on the next
business day (each such next day a "Business Day-") and such extension of
time shall be included in the computation of interest in connection with
such payment.
6. Acceleration: No Presentment. On the Maturity Date or upon the
occurrence of an Event of Default (as defined in Section 12 hereof), the
outstanding Principal Sum, accrued and unpaid interest thereon and all other
sums owed by Borrower to Lender in connection herewith shall immediately
become due and payable. Borrower hereby expressly waives any presentment
for payment, demand for payment, notice of nonpayment or dishonor, protest
and notice of protest of any kind, except the notices required under Section
12 hereof.
<PAGE>
7. Security Agreement.
a. This Secured Term Note shall constitute a security
agreement as that term is used in the UCC and Borrower hereby grants to
Lender, as security for Borrower's obligations hereunder, a security
interest in the following, (collectively, the "Collateral"), which security
interest shall have first priority and be senior to all other liens and
encumbrances except those made in favor of HCFP Funding and in existence
prior to the date of this Secured Term Note:
(i) All of Borrower's now-owned and hereafter acquired
or arising Accounts, accounts receivable and rights to payment of every kind
and description, and any contract rights, chattel paper, documents and
instruments with respect thereto;
(ii) All of Borrower's now owned and hereafter acquired
or arising general intangibles of every kind and description pertaining to
its Accounts, accounts receivable and other rights to payment, including,
but not limited to, all existing and future customer lists, choses in
action, claims, books, records, contracts, licenses, formulae, tax and other
types of refunds, returned and unearned insurance premiums, rights and
claims under insurance policies, and computer information, software,
records, and data;
(iii) All of Borrower's now or hereafter acquired deposit
accounts into which Accounts are deposited, including the Concentration
Account;
(iv) All of Borrower's monies and other property of every
kind and nature now or at any time or times hereafter in the possession of
or under the control of Lender or a bailee or Affiliate of Lender;
(v) All of Borrower's now owned or hereafter acquired
inventory of every description which is held by the Borrower for sale or
lease or is furnished by the Borrower under any contract of service or is
held by the Borrower as raw materials, work in process or materials used or
consumed in a business, wherever located, and as the same may now and
hereafter from time to time be constituted, together with all cash and
non-cash proceeds and products thereof,
(vi) All of Borrower's now owned or hereafter acquired
machinery, equipment, tools, tooling, furniture, fixtures, goods. supplies,
materials, work in process, whether now owned or hereafter acquired,
together with all additions, parts, fittings, accessories, special tools,
attachments, and accessions now and hereafter affixed thereto and/or used in
connection therewith, all replacements thereof and substitutions therefor,
and all cash and non-cash proceeds and products thereof-,
(vii) all of Borrower's general intangibles (including,
without limitation, any proceeds from insurance policies after payment of
prior interests), patents, unpatented inventions, trade secrets, copyrights,
contract rights, goodwill, literary rights, rights to performance, rights
under licenses, choses-in-action, claims, information contained in computer
media (such as data bases, source and object codes, and information
therein), things in action, trademarks and trademarks applied for (together
with the goodwill associated therewith) and derivatives thereof, trade
names, including the right to make, use, and vend goods utilizing any of the
foregoing, and permits, licenses, certifications, authorizations and
approvals, and the rights of the Borrower thereunder, issued by any
governmental, regulatory, or private authority, agency, or entity whether
now owned or hereafter acquired, together with all cash and non-cash
proceeds and products thereof,
(viii) the real property described on Exhibit A to this
Secured Term; and
<PAGE>
(ix) The proceeds (including, without limitation,
insurance proceeds) of all of the foregoing.
Borrower shall, at Borrower's expense, perform all acts and execute
all documents requested by Lender at any time to evidence, perfect, maintain
and enforce Lender's security interest and the priority thereof in the
Collateral. Upon Lender's request, at any time and from time to time,
Borrower shall, at Borrower's sole cost and expense, execute and deliver to
Lender one or more financing statements (in form and substance satisfactory
to Lender) pursuant to the UCC and, where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more financing statements
signed only by Lender. Notwithstanding anything to the contrary contained
in this Secured Term Note, Borrower and Lender agree that Lender is, and
shall be deemed to be, the "secured party" as that term is defined in the
UCC and elsewhere with respect to personal property.
b. In addition to all other rights, options. and
remedies granted to Lender under this Secured Term Note, upon the occurrence
of an Event of Default Lender may exercise all other rights granted to it
hereunder and all rights under the Uniform Commercial Code in effect in the
applicable jurisdictions) and under any other applicable law, and exercise
the following rights and remedies (which list is given by way of example and
is not intended to be an exhaustive list of all such rights and remedies):
(i) The right to take possession of, send notices
regarding, and collect directly the Collateral, with or without judicial
process, and to exercise all rights and remedies available to Lender with
respect to the Collateral under the Uniform Commercial Code in effect in the
jurisdiction(s) in which such Collateral is located;
(ii) The right to (by its own means or with
judicial assistance) enter any of Borrower's premises and take possession of
the Collateral, or render it unusable, or dispose of the Collateral on such
premises in compliance with subsection c. below, without any liability for
rent, storage, utilities, or other sums, and Borrower shall not resist or
interfere with such action;
(iii) The right to require Borrower at Borrower's
expense to assemble all or any part of the Collateral and make it available
to Lender at any place designated by lender, and
(iv) The right to relinquish or abandon any
Collateral or any security interest therein.
c. Borrower agrees that a notice received by it at least five
(5) days before the time of any intended public sale, or the time after
which any private sale or other disposition of the Collateral is to be made,
shall be deemed to be reasonable notice of such sale or other disposition.
If permitted by applicable law, any perishable Collateral which threatens to
speedily decline in value or which is sold on a recognized market may be
sold immediately by Lender without prior notice to Borrower. At any sale or
disposition of Collateral, Lender may (to the extent permitted by applicable
law) purchase all or any part of the Collateral, free from any right of
redemption by Borrower, which right is hereby waived and released. Borrower
covenants and agrees not to interfere with or impose any obstacle to
Lender's exercise of its rights and remedies with respect to the Collateral
following an Event of Default.
<PAGE>
d. Lender shall have the right to proceed against all or any portion of the
Collateral to satisfy the liabilities and obligations of Borrower to Lender in
any order. All rights and remedies granted Lender hereunder and under any
agreement referred to herein, or otherwise available at law or in equity, shall
be deemed concurrent and cumulative, and not alternative remedies, and Lender
may proceed with any number of remedies at the same time until the Principal
Sum, all interest, costs, expenses and other charges due hereunder, and all
other existing and future liabilities and obligations of Borrower to Lender, are
satisfied in full. The exercise of any one right or remedy shall not be deemed a
waiver or release of any other right or remedy, and Lender, upon the occurrence
of an Event of Default, may proceed against Borrower, and/or the Collateral, at
any time, under any agreement, with any available remedy and in any order.
9. Use of Funds. Borrower covenants and agrees that the loan of
the Principal Sum or any portion thereof shall be used for working capital
or other commercial purposes of Borrower.
10. Representative. Borrower hereby warrants and represents to
Lender that:
a. This Secured Term Note constitutes a valid and
binding obligation of Borrower, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws generally affecting creditors' rights or remedies, and
judicial doctrines concerning waivers of rights.
b. Except as may be provided in instruments executed by
Borrower in favor of HCFP Funding or except as otherwise provided in
Schedule 10b attached hereto and made a part hereof, the execution, delivery
or performance of or under this Secured Term Note will not violate or
conflict with any law, rule, regulation, order, judgment, indenture,
instrument, or agreement by which Borrower or Borrower's properties or
assets are bound or affect, or conflict or be inconsistent with, or result
in any breach of, any of the terms, covenants or provisions of, or
constitute a default under, or result in the creation or imposition of any
lien, security interest, charge or other encumbrance upon any of the
properties or assets of Borrower, pursuant to the terms of any indenture,
mortgage, deed of trust, agreement or other instrument to which Borrower is
a party or by which Borrower's properties or assets may be bound or to which
they may be subject other than a lien, security interest, charge or other
encumbrance in favor of Lender or its affiliates, successors or assigns.
c. Except as provided in Schedule 10c attached hereto
and made a part hereof, there are no actions, suits or other proceedings
pending, including, without limitation, any condemnation proceeding, or to
the knowledge of Borrower threatened, against or adversely affecting
Borrower's properties or assets or the validity or enforceability of this
Secured Term Note. Borrower is not in default with respect to any order,
writ, injunction, decree or demand of any court or governmental authority.
There is no litigation or proceeding, including, without limitation, any
condemnation proceeding, pending or, to the knowledge of Borrower,
threatened against or affecting Borrower's properties or assets, or any
circumstances existing which would in any manner materially adversely affect
Borrower's properties or assets, or the validity or ability of Borrower to
perform any obligations under this Secured Term Note.
d. The financial statements of Borrower previously
delivered to Lender are true, correct and complete and fairly present the
financial condition of Borrower as of the date thereof. No material adverse
change in the financial condition of Borrower has occurred since the date of
such financial statements of Borrower delivered to Lender.
<PAGE>
e. Except for liens, security interests, charges or
encumbrances in favor of HCFP Funding or as otherwise provided in Schedule
10e attached hereto and made a part hereof. Borrower is the sole owner of
all right, title and interest in and to all of the Collateral free and clear
of any lien, security interest, charge or encumbrance.
Borrower shall deliver to Lender: (i) its monthly financial
statements, prepared in accordance with the financial statements of such
party previously delivered to Lender, consistently applied, and certified by
such party to Lender to be true and correct and accurately reflecting such
party's financial condition as of the date thereof; (ii) prompt written
notice of any event or occurrence (including any pending or threatened
litigation) of which such party has knowledge which may materially adversely
affect the financial condition of Borrower; and (iii) any other information
relating to Borrower reasonably requested by Lender.
11. Covenants. Borrower covenants and agrees that until this
Secured Term Note shall be repaid in full, it shall be bound by, and shall
comply fully with, all of the affirmative and negative covenants set forth
in Article VI and Article VII of the Revolving Loan Agreement, all of which
covenants are hereby incorporated by reference into this Secured Term Note..
12. Events of Default. The following events are each an "Event of
Default" hereunder:
a. Borrower fails to make any payment of principal when
due or fails to make any payment of interest, fees or other amounts owed to
or for the account of Lender hereunder and such payment remains unpaid for
five (5) Business Days after written notice hereof from Lender to Borrower
is received; or
b. Borrower has made any representations or warranties
in this Secured Term Note or any financial statement delivered to Lender or
otherwise in connection herewith or therewith which contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements contained herein or therein not misleading; or
c. Borrower shall fail to perform or observe, or cause
to be performed or observed, any other term, obligation, covenant, condition
or agreement contained in this Secured Term Note and such failure shall have
continued for a period of ten (10) days after written notice thereof, or
d. Borrower shall (i) apply for, or consent
in writing to, the appointment of a receiver, trustee or liquidator; or (ii)
file a voluntary petition seeking relief under the Bankruptcy Code, or be
unable, or admit in writing Borrower's inability, to pay their debts as they
become due; or (iii) make a general assignment for the benefit of creditors,
or (iv) file a petition or an answer seeking reorganization or an
arrangement or a readjustment of debt with creditors, apply for, take
advantage, permit or suffer to exist the commencement of any insolvency,
bankruptcy, suspension of payments, reorganization, debt arrangement,
liquidation, dissolution or similar event, under the law of the United
States or of any state in which Borrower is a resident; or (v) file an
answer admitting the material allegations of a petition filed against
Borrower in any such bankruptcy, reorganization or insolvency case or
proceeding or (vi) take any action authorizing, or in furtherance of, any
of the foregoing; or
e. (i) an involuntary case is commenced against
Borrower and the petition is not controverted within ten (10) days or is not
dismissed within thirty (30) days after the commencement of the case or (ii)
an order, judgment or decree shall be entered by any court of competent
jurisdiction on the application of a creditor adjudicating Borrower bankrupt
or insolvent, or appointing a receiver, trustee or liquidation of Borrower
or of all or substantially all of the assets of Borrower and such order,
judgment or decree shall continue unstayed and in effect for a period ninety
(90) days or shall not be discharged within thirty (30) days after the
expiration of any stay thereof, or
f. an Event of Default shall have occurred under the
Revolving Loan Agreement, the Mortgage or the Utah Loan Agreement.
13. Lender's Rights.
a. Upon the occurrence of an Event of Default, Lender
may, in addition to the remedies set forth in Section 7 herein, proceed, to
the extent permitted by law, to protect and enforce its rights either by
suit in equity or by action at law, or both, whether for the specific
performance of any covenant, condition or agreement contained in this
Secured Term Note or in aid of the exercise of any power granted in this
Secured Term Note, or proceed to enforce the payment of this Secured Term
Note or to enforce any other legal or equitable right of Lender. No right
or remedy herein or in other agreement or instrument to the benefit of
Lender is intended to be exclusive of any other right or remedy, and each
and every such right or remedy shall be cumulative and shall be in addition
to every other right and remedy given hereunder or now or hereafter existing
at law or in equity or by statute or otherwise. Without limiting the
generality of the foregoing, if the outstanding Principal Sum, or any of the
other obligations of Borrower to Lender shall not be paid when due, Lender
shall not be required to resort to any particular security, right or remedy
or to proceed in any particular order of priority, and Lender shall have the
right at any time and from time to time, in any manner and in any order, to
enforce its security interests, liens, rights and remedies, or any of them,
as it deems appropriate in the circumstances, and apply the proceeds of any
collateral to such obligations of Borrower as it determines in its sole
discretion.
b. In the event that an Event of Default has occurred
as provided herein and Borrower has not paid the total outstanding Principal
Sum, together with interest accrued thereon upon demand by Lender, then
Borrower shall pay to Lender interest on such outstanding amounts at a rate
per annum equal to the Base Rate plus five percent (5%) from the date such
outstanding amounts are due until the date this Secured Term Note is paid in
full. Borrower promises to pay all costs of collection, including
reasonable attorneys' fees, if this Secured Term Note is referred to an
attorney for collection after the Event of Default.
15. No Waiver. No failure or delay on the part of Lender in
exercising any right, power or privilege under this Secured Term Note nor
any course of dealing between Borrower and Lender, shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other
or further exercise or the exercise of any right, power or privilege.
16. Writing Required. No modification or waiver of any provisions
of this Secured Term Note, nor consent to any departure by Borrower, shall
in any event be effective, irrespective of any course of dealing between the
parties, unless the same shall be in a writing executed by Lender and then
such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No notice to or demand on Borrower in any
case shall thereby entitle Borrower to any other or further notice or demand
in the same, similar or other circumstances.
<PAGE>
17. Usury Limitation. Notwithstanding anything contained
herein to the contrary, Lender shall never be entitled to receive, collect
or apply as interest any amount in excess of the maximum rate of interest
permitted to be charged by applicable law; and in the event Lender receives,
collects or applies as interest any such excess, such amount which would be
excessive interest shall be applied to the reduction of the Principal Sum;
and if the Principal Sum is paid in full, any remaining excess shall be paid
to Borrower. In determining whether or not the interest paid or payable in
any specific case exceeds the highest lawful rate, Lender and Borrower shall
to the maximum extent permitted under applicable law (i) characterize any
non-principal payment as an expense, fee or premium rather than as interest;
(ii) exclude voluntary prepayments and the effects thereof, and (iii)
"spread" the total amount of interest throughout the entire term of the
obligation so that the interest rate is deemed to have been uniform
throughout said entire term.
18. Notices. Any notice or demand given under this Secured Term
Note shall be given by delivering it, sending by telecopier (with a
confirming copy by regular mail), or by mailing it by certified or
registered mail, postage prepaid, return receipt requested, or sent by
prepaid overnight courier service addressed to Borrower at: 200 Lake Street,
Suite 102, Peabody, MA 01960 Attention: Paula Wurts, Chief Financial
Officer, (fax) (508) 536-2677, with a copy to Willie E. Washington, Esquire,
Choate, Hall & Stewart, Exchange Place, 53 State Street, Boston, MA 02109,
(fax) (617) 248-4000. Any notice to be given to Lender under this Secured
Term Note shall be given by delivering it, sending by telecopier (with a
confirming copy by regular mail), or mailing it by certified or registered
mail, return receipt requested, or sent by prepaid overnight courier
service, addressed to Lender at: 2 Wisconsin Circle, Suite 320, Chevy
Chase. MD 20815 Attention: Mr. Ed Nordberg, or at such other place as
Lender may specify in writing to Borrower. Each party may designate a
change of address by notice to the other given in accordance herewith at
least fifteen (15) days before such change of address is to become
effective. A notice given under this Secured Term Note shall be deemed
received five (5) days after it is sent by regular mail, or upon receipt
when it is delivered or sent by telecopier according to the requirements of
this paragraph, or if sent by courier on the next Business Day following
deposit with the courier.
19. Section Headings. The headings of the several paragraphs of
this Secured Term Note are inserted solely for convenience of reference and
are not a part of and are not intended to govern, limit or aid in the
construction of any term or provision.
20. Severability. Any provision contained in this Secured Term
Note which is prohibited or unenforceable in any respect in any jurisdiction
shall, as to such jurisdiction be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining
provisions hereof and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
21. Survival of Terms. All covenants, agreements, representations
and warranties made in this Secured Term Note or in any financial statements
delivered pursuant hereto shall survive Borrower's execution and delivery of
this Secured Term Note to Lender and shall continue in full force and effect
so long as this Secured Term Note or any other obligation hereunder shall be
outstanding and unpaid or any other obligation of Borrower hereunder shall
remain unperformed.
22. GOVERNING LAW, JURISDICTION, ETC. This Secured Term Note is to
be governed by and construed in accordance with the laws of the State of
Maryland without respect to any otherwise applicable conflicts-of-laws
principles, both as to interpretation and performance, and the parties
expressly consent and agree to the non-exclusive jurisdiction of the State
of Maryland courts, waiving all claims or defenses based on lack of personal
jurisdiction, improper venue, inconvenient forum or the like. Borrower
hereby consents to service of process by mailing a copy of the summons to
Borrower, by certified or registered mail, to Borrower's address set forth
in Section 18 above, or otherwise furnished to Lender in writing. Borrower
further waives any claim for consequential damages in respect of any action
taken or omitted to be taken by lender in good faith.
23. JURY TRIAL WAIVER. In any action or proceeding relating to
this Secured Term Note, Borrower, and Lender by its acceptance of this
Secured Term Note, irrevocably and unconditionally waive trial by jury.
Borrower understands that this waiver is a material inducement to Lender's
agreement to lend the principal sum.
24. CONFESSED JUDGMENT. Borrower irrevocably authorizes and
empowers any attorney of record, or the prothonotary, clerk or similar
officer of any court in any county of the State of Maryland or of Baltimore
City, Maryland, or in the United States District Court for the District of
Maryland, as attorney for Borrower, as well as for any persons claiming
under, by or through Borrower, to appear for Borrower in any such court in
any such action brought against Borrower at the suit of Lender to confess
judgment against Borrower in favor of Lender in the full amount due amount
due on this Secured Term Note (including principal, accrued interest and any
and all charges, fees and costs) plus reasonable attorneys incurred plus
court costs, all without prior notice or opportunity of Borrower for prior
hearing. The authority and power to appear for and enter judgment against
Borrower shall not be exhausted by one or more exercises thereof, or by any
imperfect exercise thereof, and shall not be extinguished by any judgment
entered pursuant thereto; such authority and power may be exercised on one
or more occasions from time to time, in the same or different jurisdictions,
as often as Lender shall deem necessary, convenient and proper.
25. Joint and Several Liability. Each of the undersigned is jointly
and severally liable for the payment and performance of all covenants and
obligations of Borrower set forth in this Secured Term Note.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Secured Term
Note as of the day and year first above written.
ATTEST: PHC OF MICHIGAN, INC.
(Seal) a Massachusetts corporation
By: ____________________________ By: ________________________________
Name: Paula C. Wurts Name: Bruce A. Shear
Title: CFO/Assistant Clerk Title: President
note2.phc
<PAGE>
Exhibit 10.117
MORTGAGE
This mortgage is made on March , 1997, between PHC OF MICHIGAN, INC.
a Massachusetts corporation, as Mortgagor, and HEALTH CARE FINANCIAL
PARTNERS - FUNDING II, L. P., a Delaware limited partnership, having its
principal office at 2 Wisconsin Circle, Suite 320, Chevy Chase. Maryland
20815, as Mortgagee.
For value received, Mortgagor mortgages and warrants to Mortgagee the
property situated in the City of New Baltimore, County of Macomb, and State
of Michigan, with a street address of 35031 Mile Road, New Baltimore,
Michigan 48047, and legally described as shown on the attached Exhibit A;
together with the easements, rights-of-way, licenses, privileges,
hereditaments, and appurtenances belonging to the property, and all the
rents, issues, leases, and profits, the interest of Mortgagor in the
property, either at law or in equity, all buildings, structures, and
improvements, and all fixtures located in, on, or affixed to the property,
and used or usable in connection with the operation of the property (all of
the above-stated property are collectively referred to in this mortgage as
the "premises").
This mortgage is given to secure the following:
(a) payment of the indebtedness evidenced by a promissory note of even
date, made and delivered by Mortgagor to Mortgagee, in the principal
sum of One Million One Hundred Thousand Dollars ($1,100,000.00),
payable with interest ("Secured Term Note");
(b) payment by Mortgagor to Mortgagee of all sums expended or advanced by
Mortgagee pursuant to any term or provision of this mortgage;
(c) performance of the covenants, conditions, and agreements contained in
this mortgage and in the Secured Term Note and in any other documents
securing the indebtedness shown above,
(d) all other indebtedness and obligations of Mortgagor presently or
subsequently owing to Mortgagee, including but not limited to all
future advances under this mortgage or on the Secured Term Note, loan
agreements, security agreements, pledge agreements, assignments,
mortgages, leases, Guarantees, and any other agreements, instruments,
or documents previously or subsequently signed by Mortgagor, whether
the indebtedness or obligations are direct or indirect, absolute or
contingent, primary or secondary, or related or unrelated to the
premises or the transaction of which this mortgage is a part, and any
and all partial or full extensions or renewals of this indebtedness or
other indebtedness and obligations (all of the foregoing are
collectively referred to as the "indebtedness").
Mortgagor warrants, covenants, and agrees that:
I . Title. Mortgagor is seized of the premises, in fee simple. Mortgagor
had the right and power to mortgage and warrant the premises as set
forth in this Mortgage. The premises are free from all liens and
encumbrances except easements and restrictions of record disclosed in
Lawyers Title Insurance Corporation Title Commitment No. 60108 LTC
dated October 8, 1996, relating to the premises. Mortgagor will
defend the premises against all claims and demands.
2. Payment of Indebtedness. Mortgagor will pay all indebtedness when
due, including the principal and interest. as provided in the Secured
Term Note.
<PAGE>
3. Taxes and Assessments. Until the indebtedness is fully satisfied.
Mortgagor will pay all taxes. assessments, and other similar charges
and encumbrances levied on the premises before they become delinquent.
and will promptly deliver to Mortgagee, without demand, receipts
showing the payment.
4. Tax and Insurance Escrow. On request, at the option of Mortgagee,
Mortgagor will pay to Mortgagee monthly, in addition to each monthly
payment required by this mortgage or under the Secured Term Note, a
sum equivalent to one-twelfth of the amount estimated by Mortgagee to
be sufficient to enable Mortgagee to pay, at least 30 days before they
become due, all taxes, assessments, and other similar charges levied
against the premises, and all insurance premiums on any policy or
policies of insurance required by this mortgage. The additional
payments may be commingled with the general funds of Mortgagee, and no
interest shall be payable on those payments. On demand by Mortgagee,
Mortgagor will deliver and pay over to Mortgagee any additional sums
necessary to make up any deficiency in the amount necessary to enable
Mortgagee to fully pay when due any of the preceding items. In the
event of any default by Mortgagor in performing any of the terms of
this mortgage, Mortgagee may apply against the indebtedness, in the
manner that Mortgagee may determine, any funds of Mortgagor then held
by Mortgagee under this paragraph.
5. Change of Law. If, after the date of this Mortgage, any statute or
ordinance is passed that changes in any way the laws now in force for
the taxation of mortgages or mortgaged debts or the manner in which
those taxes are collected, so as to affect this mortgage or the
interest of Mortgagee, the whole of the principal sum secured by this
mortgage. with all interest and charges, if any, at the option of
Mortgagee, shall become due and payable.
6. Insurance. Mortgagor will procure, deliver to, and maintain for the
benefit of Mortgagee during the term of this Mortgage:
(a) a policy of hazard insurance, providing an all-risk extended
coverage endorsement. in an amount equal to the highest
replacement value of the premises;
(b) a policy of comprehensive public liability insurance insuring
against bodily injury, with a coverage limit of at least
$1,000,000, and against property damage, with a coverage limit
of at least $250,000, from any accident or occurrence with
respect to the premises.
All policies of insurance required by this paragraph shall be in a
form, with companies, and in amounts acceptable to Mortgagee, and
shall contain a mortgagee endorsement clause acceptable to Mortgagee,
with loss payable to Mortgagee. Mortgagor will pay when due the
premiums on any policy of insurance required by Mortgagee, and will
deliver to Mortgagee renewals of all policies at least 10 days before
their expiration date(s). Duplicates of all policies shall be
delivered to Mortgagee.
In the event of any loss or damage to the premises. Mortgagor
will give immediate written notice to Mortgagee, and Mortgagee may
then make proof of the loss or damage, if it is not promptly made by
Mortgagor. All proceeds of insurance shall be payable to Mortgagee,
and any affected insurance company is authorized and directed to make
payment directly to Mortgagee. Mortgagee is authorized to settle,
adjust. or compromise any claims for loss. damage, or destruction
under any policy of insurance.
7. Maintenance and Repair. Mortgagor will not cause or permit the
commission of waste on the premises and will keep the premises in good
condition and repair. No building or other improvement on the
premises shall be removed. demolished. or materially altered without
the prior written consent of Mortgagee. Mortgagor will comply with
all laws, ordinances, regulations, and orders of all public
authorities having jurisdiction over the premises. If the premises,
in the sole judgment of Mortgagee, require inspection or repair,
Mortgagee may enter upon the premises and inspect and/or repair the
premises as Mortgagee may deem advisable. and may take other action as
Mortgagee may deem appropriate to preserve the premises. Mortgagor
will pay when due all charges for utilities or services contracted for
by Mortgagor.
8. Environmental Matters. No use, exposure, release, generation,
manufacture, storage. treatment, transportation or disposal of
Hazardous Material (as defined) has occurred or is occurring on or
from the property. All Hazardous Material used, treated, stored,
transported to or from, generated or handled on the property has been
disposed of on or off the property by or on behalf of Borrower in a
lawful manner. There are no underground storage tanks present on or
under the property. No other environmental, public health or safety
hazards exist with respect to the property. "Hazardous Material"
means any substances defined or designated as hazardous or toxic
waste, hazardous or toxic material, hazardous or toxic substance, or
similar term, by any environmental statute, rule or regulation or any
federal, state or local governmental authority.
9. Waste. The failure of Mortgagor to meet its maintenance obligations
or to pay any taxes assessed against the premises or any insurance
premium on policies covering any property located on the premises
shall constitute waste as provided by MCLA 600.2927, MSA 27A.2927,
and shall entitle Mortgagee to appoint a receiver of the property for
the purpose of preventing the waste. The receiver may collect the
rents and income from the premises.
10. Condemnation. If the premises, or any part, are taken under the power
of eminent domain, the entire award, to the full extent of the
indebtedness, shall be paid to Mortgagee. Mortgagee is empowered in
the name of Mortgagor to receive and give acquittance for any award,
whether it is joint or several. However, Mortgagee shall not be held
responsible for failing to collect any award.
11. Mortgagee Expenses. If Mortgagor fails to meet any of its obligations
under this mortgage, Mortgagee shall have the right, but not the
obligation, to perform in the place of Mortgagor. If Mortgagee incurs
or expends any sums, including reasonable attorney fees, whether or
not in connection with any action or proceeding, to (a) sustain the
lien of this mortgage or its priority, (b) protect or enforce any of
Mortgagee's rights, (c) recover any part of the indebtedness, (d) meet
an obligation of Mortgagor under this mortgage, or (e) collect
insurance or condensation proceeds, then those sums shall become
immediately due and payable by Mortgagor with interest at the default
rate set forth in the Secured Term Note from the date of Mortgagee's
payment until paid by Mortgagor. The sums expended in this manner by
Mortgagee shall be secured by this mortgage and be a lien on the
premises prior to any right, title, or interest on the premises
attaching or accruing subsequent to the lien of this mortgage.
12. Assignment of Contracts and Licenses. Mortgagor assigns to Mortgagee,
as further security for payment of the indebtedness, Mortgagor's
interest in all agreements, contracts (including any contracts for the
lease or sale of the premises), licenses, and permits affecting the
premises. The assignment shall not be construed as a consent by
Mortgagee to any agreement, contract. license or permit so assigned.
or to impose any obligations on Mortgagee. Mortgagor shall not
cancel. amend, permit, or cause a default or termination of any of the
agreements, contracts. licenses, and permits used in conjunction with
the operation of the premises without the written approval of
Mortgagee.
13 Assignment of Rents and Leases. As additional security for the payment
of the indebtedness, Mortgagor assigns and transfers to Mortgagee,
pursuant to 1953 PA 210, as amended by 1966 PA 151 (MCLA 554.231 et
seq., MSA 26.1137(1) et seq.), all the rents, profits, and income under
all leases, occupancy agreements, or arrangements upon or affecting the
premises (including any extensions or amendments) now in existence or
coming into existence during the period this mortgage is in effect.
This assignment shall run with the land and be good and valid as
against Mortgagor and those claiming under or through Mortgagor. This
assignment shall continue to be operative during foreclosure or any
other proceedings to enforce this mortgage. If a foreclosure sale
results in a deficiency, this assignment shall stand as security during
the redemption period for the payment of the deficiency. This
assignment is given only as collateral security and shall not be
construed as obligating Mortgagee to perform any of the covenants or
undertakings required to be performed by Mortgagor in any leases.
In the event of default in any of the terms or covenants of this
mortgage, Mortgagee shall be entitled to all of the rights and benefits
of MCLA 554.233B, MSA 26.1137(1)B(3) and 1966 PA 151, and Mortgagee
shall be entitled to collect the rents and income from the premises, to
rent or lease the premises on the terms that it may deem best, and to
maintain proceedings to recover rents or possession of the premises
from any tenant or trespasser.
Mortgagee shall be entitled to enter the premises for the purpose
of delivering notices or other communications to the tenants and
occupants. Mortgagee shall have no liability to Mortgagor as a result
of those acts. Mortgagee may deliver all of the notices and
communications by ordinary first-class U.S. mail.
If Mortgagor obstructs Mortgagee in its efforts to collect the
rents and income from the premises or unreasonably refuses or neglects
to assist Mortgagee in collecting the rent and income, Mortgagee shall
be entitled to appoint a receiver for the premises and the income,
rents, and profits, with powers that the court making the appointment
may confer.
Mortgagor shall at no time collect advance rent in excess of one
month under any lease pertaining to the premises, and Mortgagee shall
not be bound by any rent prepayment made or received in violation of
this paragraph. Mortgagee shall not have any obligation to collect
rent or to enforce any other obligations of any tenant or occupant of
the premises to Mortgagor. No action taken by Mortgagee under this
paragraph shall cause Mortgagee to become a "mortgagee in possession."
14. Performance of Leases. Mortgagor shall observe and perform all
obligations contained in any lease affecting the premises. Mortgagor
shall not default in performing any of the obligations imposed on
Mortgagor by any lease; such a default gives the lessee the right to
terminate or cancel the lease or offset against rentals. Upon request,
Mortgagor shall furnish to Mortgagee a statement, in any reasonable
detail that Mortgagee may request, of all leases relating to the
premises and executed counterparts of any and all leases.
15. Records. With respect to the premises and its operations, Mortgagor
shall keep proper books in accordance with generally accepted
accounting principles consistently applied. Mortgagee shall have the
right to examine the books at reasonable times as Mortgagee may elect.
Upon request, Mortgagor shall furnish to Mortgagee within 60 days
after the end of each calendar year, a financial statement of Mortgagor
for the calendar year, in reasonable detail and stating in comparative
form the figures as of the end of the previous calendar year, including
statements of income and expense relating to operations of the
premises, certified by an independent certified public accountant
acceptable to Mortgagee. In addition, Mortgagor shall furnish to
Mortgagee, in a form acceptable to Mortgagee, interim financial
statements that Mortgagee may request, certified by Mortgagor.
16. Waiver. If Mortgagee (a) grants any extension of time with respect to the
payment of any part of the indebtedness, (b) takes other or additional
security for the payment of the indebtedness, (c) waives or fails to
exercise any right granted by this mortgage or the Secured Term Note, (d)
grants any release on any part of the security held for the payment of the
indebtedness, or (e) amends any of the terms and provisions of this
mortgage or the Secured Term Note, that act or omission shall not release
Mortgagor under any covenant of this mortgage or the Secured Term Note, nor
preclude Mortgagee from exercising any right or power granted, nor impair
the lien or priority of this mortgage.
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<PAGE>
17. Use of Premises. Mortgagor shall not make, or permit, without the
prior written consent of Mortgagee, (a) any use of the premises for any
purpose other than that for which they are now used; (b) any alterations of
the buildings, improvements, and fixtures located on the premises; (c) any
purchase, lease of, or agreement for any fixtures to be placed on the
premises under which title is reserved in the vendor. Mortgagor shall
execute and deliver documents that may be requested by Mortgagee to confirm
the lien of this mortgage on any fixtures, machinery, and equipment.
18. Events of Default. The occurrences listed below shall be deemed events
of default and shall entitle Mortgagee, at its option and without
notice except as required by law, to exercise any one or any
combination of remedies under this mortgage or permitted by law:
(a) the failure by Mortgagor to (i) make any payment when due under
the Secured Term Note, or (ii) to perform any of the other terms,
covenants, or conditions of this mortgage within a period of 10
days after written notice from Mortgagee of Mortgagor's failure
to perform an obligation;
(b) the institution of foreclosure or other proceedings to enforce
any junior lien or encumbrance on the premises;
(c) the appointment by a court of a receiver or trustee of Mortgagor
or for any property of Mortgagor; (d) a decree by a court
adjudicating Mortgagor a bankrupt or insolvent, or for the
sequestration of any of Mortgagor's property;
(e) the filing of a petition in bankruptcy by or against Mortgagor
under the federal Bankruptcy Code or any similar statute that is
in effect,
(f) an assignment by Mortgagor for the benefit of creditors or a
written admission by Mortgagor of the inability to pay debts
generally as they become due;
(g) the failure to comply with all of the terms and covenants of any
leases or other agreements, documents, or restrictions that now
encumber, affect, or pertain to the premises;
(h) Mortgagor, without the written consent of Mortgagee, sells,
conveys, or transfers the premises, any interest in the premises,
or any rents or profits from the premises, or causes or allows
any mortgage, lien, or other encumbrance, or any writ of
attachment, garnishment, execution, or other legal process to be
placed on the premises, or any part of the premises is
transferred by operation of law;
(1) all or any part of the premises is damaged or destroyed by fire
or other casualty, regardless of insurance coverage, or is taken
by power of eminent domain.
19. Default Remedies. Upon the occurrence of any event of default of this
mortgage, Mortgagee shall have the option, in addition to and not in
lieu of all other rights and remedies provided by law, to do any or
all of the following:
(a) Without notice, except as expressly required by law, to declare
the principal sum secured by the Mortgage, together with all
interest and all other sums secured by this mortgage, to be
immediately due and payable; to demand any installment payment
due under the Secured Term Note; and to institute any
proceedings that Mortgagee deems necessary to collect and
otherwise to enforce the indebtedness and obligations secured by
this mortgage and to protect the lien of this mortgage.
(b) Commence foreclosure proceedings against the premises pursuant
to applicable laws. Mortgagee's commencement of a foreclosure
shall be deemed an exercise by Mortgagee of its option to
accelerate the due date of all sums secured by this mortgage.
Mortgagor grants to Mortgagee, in the event of the occurrence of
an event of default, the power to sell the premises at public
auction by advertisement, without notice or hearing, except as
required by Michigan statutes.
5
<PAGE>
(c) To enter into peaceful possession of the premises and/or to
receive the rent, income, and profits, and to apply those in
accordance with paragraph 13. Mortgagor acknowledges having
been advised that Mortgagee believes that the value of the
security covered by this mortgage is inextricably intertwined
with the effectiveness of the management, maintenance, and
general operation of the premises, and that Mortgagee would not
make the loan secured by this mortgage unless it could be
assured that it would have the right to take possession of the
premises in order to manage, control management, and enjoy the
income, rents, and profits, immediately upon default by
Mortgagor, notwithstanding that foreclosure proceedings may not
have been instituted, or are pending, or that the redemption
period may not have expired. Accordingly, Mortgagor knowingly
and voluntarily waives all right to possession of the premises
from and after the date of default, upon demand for possession
by Mortgagee.
20. Sale of Premises as a Whole or in Parcels. Upon any foreclosure sale
of the premises, the premises may be sold either as a whole or in
parcels, as Mortgagee may elect, and if in parcels, to be divided as
Mortgagee may elect, or, at the election of Mortgagee, the premises
may be offered first in parcels and then as a whole, with the offer
producing the highest price for the entire property to prevail.
21. Assignment. Mortgagor shall not make a conveyance of any interest in
the premises. A "conveyance" of Mortgagor's interest in the premises
shall include without limitation any voluntary or involuntary
disposition or dilution of legal or beneficial title to the premises
by any means. If ownership of the premises, or any part, becomes
vested in a person other than Mortgagor (with or without Mortgagee's
consent), Mortgagee may, without notice to Mortgagor, deal with the
successors in interest with reference to this mortgage or the Secured
Term Note without in any way releasing or otherwise affecting
Mortgagor's liability under the Secured Term Note and mortgage.
22. Application of Proceeds. In the event of the payment to Mortgagee,
pursuant to this mortgage, of any rents or profits, or proceeds of any
insurance or condemnation award, or proceeds from the sale of the
premises upon foreclosure, Mortgagee shall have the right to apply the
rents, profits, or proceeds, in amounts and proportions that Mortgagee
shall, in its sole discretion, determine, against the cost and
expenses incurred by Mortgagee in exercising its fights under this
mortgage, payment of the interest and principal due under the Secured
Term Note, payment of any other portion of the indebtedness, and
payment of expenses incurred in preserving the premises. Application
by Mortgagee of any proceeds toward the last maturing installments of
principal and interest to become due under the Secured Term Note shall
not excuse Mortgagor from making the regularly scheduled payments due
under the Secured Term Note and this mortgage, nor shall the
application reduce the amount of the payments. In the event of the
payment of proceeds as a result of an insurance or condemnation award,
Mortgagee shall have the right, but not the obligation, to require all
or part of the proceeds of any insurance or condemnation award to be
used to restore any part of the premises damaged or taken by reason of
the occurrence which gave rise to the payment of the proceeds.
<PAGE>
CAUTION: PARAGRAPH 23 CONTAINS A WAIVER OF
IMPORTANT LEGAL RIGHTS
23. Waiver of Rights. This mortgage contains a power of sale which
permits Mortgagee to cause the premises to be sold in the event of a
default. Mortgagee may elect to cause the premises to be sold by
advertisement rather than pursuant to court action, and Mortgagor
voluntarily and knowingly waives any right Mortgagor may have by
virtue of any applicable constitutional provision or statute to any
notice or court hearing prior to the exercise of the power of sale,
except as may be expressly required by the Michigan statute governing
foreclosures by advertisement. In addition, Mortgagor knowingly and
voluntarily waives any right Mortgagor may have to remain in
possession of the premises or to collect any rents or income therefrom
during the pendency of any foreclosure proceedings and during any
applicable redemption period. Also, paragraphs 18 and 21 above
entitle Mortgagee to require immediate payment of the balance of the
indebtedness in full if the premises are sold or otherwise
transferred. By execution of this mortgage, Mortgagor represents and
acknowledges that the meaning and consequences of these paragraphs
have been discussed as fully as desired by Mortgagor with Mortgagor's
legal counsel.
24. Environmental Matters. Mortgagor agrees to indemnify Mortgagee
against, and hold it harmless from, all obligations and liabilities
relating to the premises arising out of claims made or suits brought
for investigation, study, remedial work, monitoring, or other costs
and expenses arising from or associated with response to any
environmental matters, including but not limited to any (a) water
pollution, air pollution, noise, odor, spills, leaks. or inadvertent
discharges. emissions, or releases, or the generation, transportation,
storage. treatment, or disposal of solid waste. including hazardous
waste, hazardous substances. pollutants and contaminants; (b) injury,
sickness, disease, or death of any person; or (c) damage to any
property, regardless of whether the cause of the injury or damage
occurred before or after the date of this mortgage. Mortgagor further
agrees that Mortgagee shall have no liability for any environmental
contamination associated with Mortgagees business or the premises, and
that any involvement of Mortgagee with Mortgagor's business to protect
its security interest in the premises shall not constitute Mortgagor
as an "owner or operator" of Mortgagor's business for purposes of
determining environmental liability. In any event, if Mortgagee
becomes obligated, by judicial or administrative judgment or
settlement of a claim, to pay any amounts for response to any
environmental contamination associated or connected with Mortgagor's
business or the premises, any payment by Mortgagee shall be deemed
additional indebtedness secured by the lien of this mortgage, shall be
immediately due and payable to Mortgagee, and shall bear interest
until paid at the default interest rate specified in the Secured Term
Note.
25. Covenants Run with Land. All of the terms and covenants of this
mortgage shall run with the land and shall be binding on and inure to
the benefit of the respective legal representatives and successors of
the parties.
26. Release of Mortgage. If Mortgagor pays to Mortgagee the money
required by the Secured Term Note, in the manner and at the times
provided in the Secured Term Note, and all other sums of the
indebtedness payable by Mortgagor to Mortgagee, and keeps and performs
the terms, covenants, and agreements of Mortgagor with Mortgagee, then
this mortgage shall be satisfied, and Mortgagee shall release the
mortgage.
27. Notice. All notices, demands, and requests required or permitted to
be given to Mortgagor or by law shall be deemed delivered when
deposited in the United States mail, with postage prepaid, addressed
to Mortgagor or Mortgagee at their last known addresses.
28. Severability. If any provision of this mortgage is in conflict with
any statute or rule of law of the State of Michigan or is otherwise
unenforceable for any reason, then that provision shall be deemed null
and void to the extent of the conflict or unenforceability, but shall
be deemed separable from and shall not invalidate any other provision
of this Mortgage.
29. Venue and Jurisdiction. All provisions of this mortgage shall be
governed by and construed in accordance with the laws of the State of
Michigan. Venue shall be in Macomb County, Michigan for any action
brought with regard to this mortgage. Mortgagor consents to personal
jurisdiction over it by any Michigan courts to the extent that
personal jurisdiction may be necessary to enforce any of the
provisions of this mortgage.
<PAGE>
Signed on the date set forth above.
WITNESSES: MORTGAGOR:
PHC OF MICHIGAN, INC.,
_________________________________ a Massachusetts corporation
By: ____________________________
Name: Bruce A. Shear
Its: President
State of Massachusetts
County of Essex
The forgoing instrument was acknowledged before me on 12 March, 1997 by
Bruce A Shear, the President of PHC of Michigan, Inc., a Massachusetts
corporation, on behalf of the corporation
_________________________________ PAULA C WURTS
Notary Public, Essex County Notary Public
My Commission Expires 11/29/2002 My Commission Expires November
29, 2002
1commorl.phc
<PAGE>
Exhibit 10.118
MORTGAGE
This mortgage is made on March , 1997, between PHC OF MICHIGAN, INC.
a Massachusetts corporation. as Mortgagor. and HCFP FUNDING. INC., a
Delaware corporation. having its principal office at 2 Wisconsin Circle,
Suite 320. Chevy Chase, Maryland 20815, as Mortgagee.
For value received, Mortgagor mortgages and warrants to Mortgagee the
property situated in the City of New Baltimore, County of Macomb. and State
of Michigan, with a street address of 3503123 Mile Road, New Baltimore,
Michigan 48047, and legally described as shown on the attached Exhibit A;
together with the easements, rights-of-way, licenses, privileges,
hereditaments,. and appurtenances belonging to the property, and all the
rents, issues, leases, and profits, the interest of Mortgagor in the
property, either at law or in equity, all buildings, structures, and
improvements, and all fixtures located in, on, or affixed to the property,
and used or usable in connection with the operation of the property (all of
the above-stated property are collectively referred to in this mortgage as
the "premises").
This mortgage is given to secure the following:
(a) payment of the indebtedness evidenced by a promissory note dated
February 3, 1997, made and delivered by Mortgagor to Mortgagee, in the
principal sum of One Million Five Hundred Thousand Dollars
($1,500,000.00), payable with interest ("Revolving Credit Note");
(b) payment by Mortgagor to Mortgagee of all sums expended or advanced by
Mortgagee pursuant to any term or provision of this mortgage,
(c) performance of the covenants, conditions, and agreements
contained in this mortgage, in that certain Loan and Security
Agreement between Mortgagor and Mortgagee. dated February 3, 1997 (the
"Revolving Loan Agreement") and in any other documents securing the
indebtedness shown above;
(d) all other indebtedness and obligations of Mortgagor presently or
subsequently owing to Mortgagee, including but not limited to all
future advances under this mortgage or on the Revolving Credit Note
and under all loan agreements, security agreements, pledge agreements,
assignments, mortgages, leases, guarantees, and any other agreements,
instruments, or documents previously or subsequently signed by
Mortgagor, whether the indebtedness or obligations are direct or
indirect, absolute or contingent, primary or secondary, or related or
unrelated to the premises or the transaction of which this mortgage is
a part, and any and all partial or full extensions or renewals of this
indebtedness or other indebtedness and obligations (all of the
foregoing are collectively referred to as the "indebtedness").
Mortgagor warrants, covenants, and agrees that:
1. Mortgagor is seized of the premises. in fee simple. Mortgagor had the
right and power to mortgage and warrant the premises as set forth in
this Mortgage. The premises are free from all liens and encumbrances
except (i) the first priority mortgage of HealthCare Financial
Partners - Funding II, L.P. and (ii) easements and restrictions of
record disclosed in Lawyers Title Insurance Corporation Title
Commitment No. 60108 LTC dated October 8, 1996, relating to the
premises. Mortgagor will defend the premises against all claims and
demands.
2. Payment of Indebtedness. Mortgagor will pay all indebtedness when
due, including the principal and interest. as provided in the
Revolving Credit Note.
3. Taxes and Assessments. Until the indebtedness is fully satisfied,
Mortgagor will pay all taxes, assessments, and other similar charges
and encumbrances levied on the premises before they become delinquent,
and will promptly deliver to Mortgagee, without demand, receipts
showing the payment.
4. Tax and Insurance Escrow. On request, at the option of Mortgagee,
Mortgagor will pay to Mortgagee monthly, in addition to each monthly
payment required by this mortgage or under the Revolving Credit Note,
a sum equivalent to one-twelfth of the amount estimated by Mortgagee
to be sufficient to enable Mortgagee to pay, at least 30 days before
they become due, all taxes, assessments, and other similar charges
levied against the premises, and all insurance premiums on any policy
or policies of insurance required by this mortgage. The additional
payments may be commingled with the general funds of Mortgagee, and no
interest shall be payable on those payments. On demand by Mortgagee,
Mortgagor will deliver and pay over to Mortgagee any additional sums
necessary to make up any deficiency in the amount necessary to enable
Mortgagee to fully pay when due any of the preceding items. In the
event of any default by Mortgagor in performing any of the terms of
this mortgage, Mortgagee may apply against the indebtedness, in the
manner that Mortgagee may determine, any funds of Mortgagor then held
by Mortgagee under this paragraph.
5. Change of Law. If, after the date of this Mortgage, any statute or
ordinance is passed that changes in any way the laws now in force for
the taxation of mortgages or mortgaged debts or the manner in which
those taxes are collected, so as to affect this mortgage or the
interest of Mortgagee, the whole of the principal sum secured by this
mortgage, with all interest and charges, if any, at the option of
Mortgagee, shall become due and payable.
6. Insurance. Mortgagor will procure, deliver to, and maintain for the
benefit of Mortgagee during the term of this Mortgage:
(a) a policy of hazard insurance, providing an all-risk extended
coverage endorsement, in an amount equal to the highest
replacement value of the premises;
(b) a policy of comprehensive public liability insurance insuring
against bodily injury, with a coverage limit of at least $
1,000,000, and against property damage, with a coverage limit of
at least $250,000, from any accident or occurrence with respect
to the premises.
All policies of insurance required by this paragraph shall be in a
form, with companies, and in amounts acceptable to Mortgagee, and
shall contain a mortgagee endorsement clause acceptable to Mortgagee,
with loss payable to Mortgagee. Mortgagor will pay when due the
premiums on any policy of insurance required by Mortgagee, and will
deliver to Mortgagee renewals of all policies at least 10 days before
their expiration date(s). Duplicates of all policies shall be
delivered to Mortgagee.
In the event of any loss or damage to the premises, Mortgagor
will give immediate written notice to Mortgagee, and Mortgagee may
then make proof of the loss or damage, if it is not promptly made by
Mortgagor. All proceeds of insurance shall be payable to Mortgagee.
and any affected insurance company is authorized and directed to make
payment directly to Mortgagee. Mortgagee is authorized to settle,
adjust, or compromise any claims for loss, damage, or destruction
under any policy of insurance.
7. Maintenance and Repair. Mortgagor will not cause or permit the
commission of waste on the premises and will keep the premises in good
condition and repair. No building or other improvement on the
premises shall be removed, demolished. or materially altered without
the prior written consent of Mortgagee. Mortgagor will comply with
all laws. ordinances, regulations. and orders of all public
authorities having jurisdiction over the premises. If the premises,
in the sole judgment of Mortgagee, require inspection or repair,
Mortgagee may enter upon the premises and inspect and/or repair the
premises as Mortgagee may deem advisable, and may take other action as
Mortgagee may deem appropriate to preserve the premises. Mortgagor
will pay when due all charges for utilities or services contracted for
by Mortgagor.
<PAGE>
8. Environmental Matters. No use, exposure, release, generation,
manufacture, storage, treatment, transportation or disposal of
Hazardous Material (as defined) has occurred or is occurring on or
from the property. All Hazardous Material used, treated, stored,
transported to or from, generated or handled on the property has been
disposed of on or off the property by or on behalf of Borrower in a
lawful manner. There are no underground storage tanks present on or
under the property. No other environmental, public health or safety
hazards exist with respect to the property. "Hazardous Material"
means any substances defined or designated as hazardous or toxic
waste, hazardous or toxic material. hazardous or toxic substance, or
similar term, by any environmental statute, rule or regulation or any
federal, state or local governmental authority.
9. Waste. The failure of Mortgagor to meet its maintenance obligations
or to pay any taxes assessed against the premises or any insurance
premium on policies covering any property located on the premises
shall constitute waste as provided by MCLA 600.2927, MSA 27A.2927, and
shall entitle Mortgagee to appoint a receiver of the property for the
purpose of preventing the waste. The receiver may collect the rents
and income from the premises.
10. Condemnation. If the premises, or any part, are taken under the power
of eminent domain, the entire award, to the full extent of the
indebtedness, shall be paid to Mortgagee. Mortgagee is empowered in
the name of Mortgagor to receive and give acquittance for any award,
whether it is joint or several. However, Mortgagee shall not be held
responsible for failing to collect any award.
11. Mortgagee Expenses. If Mortgagor fails to meet any of its obligations
under this mortgage, Mortgagee shall have the right, but not the
obligation, to perform in the place of Mortgagor. If Mortgagee incurs
or expends any sums, including reasonable attorney fees, whether or
not in connection with any action or proceeding, to (a) sustain the
lien of this mortgage or its priority, (b) protect or enforce any of
Mortgagee's rights, (c) recover any part of the indebtedness, (d) meet
an obligation of Mortgagor under this mortgage, or (e) collect
insurance or condemnation proceeds, then those sums shall become
immediately due, and payable by Mortgagor with interest at the default
rate set forth in the Revolving Credit Note from the date of
Mortgagee's payment until paid by Mortgagor. The sums expended in
this manner by Mortgagee shall be secured by this mortgage and be a
lien on the premises prior to any right, title, or interest on the
premises attaching or accruing subsequent to the lien of this mortgage.
12. Assignment of Contracts and Licenses. Mortgagor assigns to Mortgagee,
as further security for payment of the indebtedness, Mortgagor's
interest in all agreements, contracts (including any contracts for the
lease or sale of the premises), licenses, and permits affecting the
premises. The assignment shall not be construed as a consent by
Mortgagee to any agreement, contract, license or permit so assigned,
or to impose any obligations on Mortgagee. Mortgagor shall not
cancel. amend. permit, or cause a default or termination of any of the
agreements, contracts, licenses, and permits used in conjunction with
the operation of the premises without the written approval of
Mortgagee.
13. Assignment of Rents and Leases. As additional security for the
payment of the indebtedness, Mortgagor assigns and transfers to
Mortgagee, pursuant to 1953 PA 210, as amended by 1966 PA 151 (MCLA
554.231 et seq.), MSA 26.1137(l) et seq.), all the rents, profits, and
income under all leases, occupancy agreements, or arrangements upon or
affecting the premises (including any extensions or amendments) now in
existence or coming into existence during the period this mortgage is
in effect. This assignment shall run with the land and be good and
valid as against Mortgagor and those claiming under or through
Mortgagor. This assignment shall continue to be operative during
foreclosure or any other proceedings to enforce this mortgage. If a
foreclosure sale results in a deficiency, this assignment shall stand
as security during the redemption period for the payment of the
deficiency. This assignment is given only as collateral security and
shall not be construed as obligating Mortgagee to perform any of the
covenants or undertakings required to be performed by Mortgagor in any
leases.
In the event of default in any of the terms or covenants of this
mortgage, Mortgagee shall be entitled to all of the rights and benefits
of MCLA 554.231B.233, MSA 26.1137(1)B(3))and 1966 PA 151, and Mortgagee
shall be entitled to collect the rents and income from the premises, to
rent or lease the premises on the terms that it may deem best, and to
maintain proceedings to recover rents or possession of the premises
from any tenant or trespasser.
<PAGE>
Mortgagee shall be entitled to enter the premises for the purpose
of delivering notices or other communications to the tenants and
occupants. Mortgagee shall have no liability to Mortgagor as a result
of those acts. Mortgagee may deliver all of the notices and
communications by ordinary first-class U.S. mail.
If Mortgagor obstructs Mortgagee in its efforts to collect the
rents and income from the premises or unreasonably refuses or neglects
to assist Mortgagee in collecting the rent and income, Mortgagee shall
be entitled to appoint a receiver for the premises and the income,
rents, and profits, with powers that the court making the appointment
may confer.
Mortgagor shall at no time collect advance rent in excess of one
month under any lease pertaining to the premises, and Mortgagee shall
not be bound by any rent prepayment made or received in violation of
this paragraph. Mortgagee shall not have any obligation to collect
rent or to enforce any other obligations of any tenant or occupant of
the premises to Mortgagor. No action taken by Mortgagee under this
paragraph shall cause Mortgagee to become a "mortgagee in possession."
14. Performance of Leases. Mortgagor shall observe and perform all
obligations contained in any lease affecting the premises. Mortgagor
shall not default in performing any of the obligations imposed on
Mortgagor by any lease; such a default gives the lessee the right to
terminate or cancel the lease or offset against rentals. Upon request,
Mortgagor shall furnish to Mortgagee a statement, in any reasonable
detail that Mortgagee may request, of all leases relating to the
premises and executed counterparts of any and all leases.
15. Records. With respect to the premises and its operations, Mortgagor
shall keep proper books in accordance with generally accepted
accounting principles consistently applied. Mortgagee shall have the
night to examine the books at reasonable times as Mortgagee may elect.
Upon request, Mortgagor shall furnish to Mortgagee within 60 days after
the end of each calendar year, a financial statement of Mortgagor for
the calendar year, in reasonable detail and stating in comparative form
the figures as of the end of the previous calendar year, including
statements of income and expense relating to operations of the
premises, certified by an independent certified public accountant
acceptable to Mortgagee. In addition, Mortgagor shall furnish to
Mortgagee, in a form acceptable to Mortgagee, interim financial
statements that Mortgagee may request, certified by Mortgagor.
16. Waiver. If Mortgagee (a) grants any extension of time with respect to
the payment of any part of the indebtedness, (b) takes other or
additional security for the payment of the indebtedness, (c) waives or
fails to exercise any right granted by this mortgage, the Revolving
Credit Note, (d) grants any release on any part of the security held
for the payment of the indebtedness, or (e) amends any of the terms and
provisions of this mortgage or the Revolving Credit Note, that act or
omission shall not release Mortgagor under any covenant of this
mortgage or the Revolving Credit Note, nor preclude Mortgagee from
exercising any right or power granted, nor impair the lien or priority
of this mortgage.
17. Use of Premises. Mortgagor shall not make, or permit, without the
prior written consent of Mortgagee, (a) any use of the premises for any
purpose other than that for which they are now used; (b) any
alterations of the buildings. improvements, and fixtures located on the
premises; (c) any purchase, lease of, or agreement for any fixtures to
be placed on the premises under which title is reserved in the vendor.
Mortgagor shall execute and deliver documents that may be requested by
Mortgagee to confirm the lien of this mortgage on any fixtures,
machinery, and equipment.
18. Events of Default. The occurrences listed below shall be deemed events
of default and shall entitle Mortgagee, at its option and without
notice except as required by law, to exercise any one or any
combination of remedies under this mortgage or permitted by law:
(a) the failure by Mortgagor to (i) make any payment when due under
the Revolving Credit Note, (ii) make any payment required be made
under the Revolving Loan Credit Note, (ii) make any payment
required under the Revolving Loan Agreement, or (iii) fail to
perform any of the other terms, covenants, or conditions of this
mortgage, or conditions of this mortgage within a period of 10
days after written notice from Mortgagee of Mortgagor's failure
to perform an obligation;
(b) the institution of foreclosure or other proceedings to enforce
any junior lien or encumbrance on the premises;
(c) the appointment by a court of a receiver or trustee of Mortgagor or
for any property of Mortgagor; (d) a decree by a court adjudicating
Mortgagor a bankrupt or insolvent, or for the sequestration of any
of Mortgagor's property;
(e) the filing of a petition in bankruptcy by or against Mortgagor
under the federal Bankruptcy Code or any similar statute that is
in effect,
(f) an assignment by Mortgagor for the benefit of creditors or a
written admission by Mortgagor of the inability to pay debts
generally as they become due;
(g) the failure to comply with all of the terms and covenants of any
leases or other agreements, documents, or restrictions that now
encumber, affect, or pertain to the premises;
(h) Mortgagor, without the written consent of Mortgagee, sells,
conveys, or transfers the premises, any interest in the premises,
or any rents or profits from the premises, or causes or allows
any mortgage, lien, or other encumbrance, or any writ of
attachment, garnishment, execution, or other legal process to be
placed on the premises, or any part of the premises is
transferred by operation of law;
(i) all or any part of the premises is damaged or destroyed by fire
or other casualty, regardless of insurance coverage, or is taken
by power of eminent domain.
19. Default Remedies. Upon the occurrence of any event of default of this
mortgage, Mortgagee shall have the option, in addition to and not in
lieu of all other rights and remedies provided by law, to do any or
all of the following:
(a) Without notice, except as expressly required by law, to declare
the principal sum secured by the Mortgage, together with all
interest and all other sums secured by this mortgage, to be
immediately due and payable; to demand any installment payment
due under the Revolving Credit Note; and to institute any
proceedings that Mortgagee deems necessary to collect and
otherwise to enforce the indebtedness and obligations secured by
this mortgage and to protect the lien of this mortgage.
(b) Commence foreclosure proceedings against the premises pursuant
to applicable laws. Mortgagee's commencement of a foreclosure
shall be deemed an exercise by Mortgagee of its option to
accelerate the due date of all sums secured by this mortgage.
Mortgagor grants to Mortgagee, in the event of the occurrence of
an event of default, the power to sell the premises at public
auction by advertisement, without notice or hearing, except as
required by Michigan statutes.
<PAGE>
(c) To enter into peaceful possession of the premises and/or to
receive the rent, income, and profits, and to apply those in
accordance with paragraph 13.
Mortgagor acknowledges having been advised that Mortgagee
believes that the value of the security covered by this mortgage
is inextricably intertwined with the effectiveness of the
management, maintenance, and general operation of the premises,
and that Mortgagee would not make the loan secured by this
mortgage unless it could be assured that it would have the right
to take possession of the premises in order to manage, control
management, and enjoy the income, rents, and profits,
immediately upon default by Mortgagor, notwithstanding that
foreclosure proceedings may not have been instituted, or are
pending, or that the redemption period may not have expired.
Accordingly, Mortgagor knowingly and voluntarily waives all
right to possession of the premises from and after the date of
default, upon demand for possession by Mortgagee.
20. Sale of Premises as a Whole or in Parcels. Upon any foreclosure sale
of the premises, the premises may be sold either as a whole or in
parcels, as Mortgagee may elect, and if in parcels, to be divided as
Mortgagee may elect, or, at the election of Mortgagee, the premises
may be offered first in parcels and then as a whole, with the offer
producing the highest price for the entire property to prevail.
21. Assignment. Mortgagor shall not make a conveyance of any interest in
the premises. A "conveyance" of Mortgagor's interest in the premises
shall include without limitation any voluntary or involuntary
disposition or dilution of legal or beneficial title to the premises
by any means. If ownership of the premises, or any part, becomes
vested in a person other than Mortgagor (with or without Mortgagee's
consent), Mortgagee may, without notice to Mortgagor, deal with the
successors in interest with reference to this mortgage or the Secured
Term Note without in any way releasing or otherwise affecting
Mortgagor's liability under the Revolving Credit Note and mortgage.
22. Application of Proceeds. In the event of the payment to Mortgagee,
pursuant to this mortgage, of any rents or profits, or proceeds of any
insurance or condemnation award, or proceeds from the sale of the
premises upon foreclosure, Mortgagee shall have the right to apply the
rents, profits, or proceeds, in amounts and proportions that Mortgagee
shall, in its sole discretion, determine, against the cost and
expenses incurred by Mortgagee in exercising its fights under this
mortgage, payment of the interest and principal due under the
Revolving Credit Note, payment of any other portion of the
indebtedness, and payment of expenses incurred in preserving the
premises. Application by Mortgagee of any proceeds toward the last
maturing installments of principal and interest to become due under
the Secured Term Note shall not excuse Mortgagor from making the
regularly scheduled payments due under the Revolving Credit Note and
this mortgage, nor shall the application reduce the amount of the
payments. In the event of the payment of proceeds as a result of an
insurance or condemnation award, Mortgagee shall have the right, but
not the obligation, to require all or part of the proceeds of any
insurance or condemnation award to be used to restore any part of the
premises damaged or taken by reason of the occurrence which gave rise
to the payment of the proceeds.
<PAGE>
CAUTION: PARAGRAPH 23 CONTAINS A WAIVER OF
IMPORTANT LEGAL RIGHTS
23. Waiver of Rights. This mortgage contains a power of sale which
permits Mortgagee to cause the premises to be sold in the event of a
default. Mortgagee may elect to cause the premises to be sold by
advertisement rather than pursuant to court action, and Mortgagor
voluntarily and knowingly waives any right Mortgagor may have by
virtue of any applicable constitutional provision or statute to any
notice or court hearing prior to the exercise of the power of sale,
except as may be expressly required by the Michigan statute governing
foreclosures by advertisement. In addition, Mortgagor knowingly and
voluntarily waives any right Mortgagor may have to remain in
possession of the premises or to collect any rents or income therefrom
during the pendency of any foreclosure proceedings and during any
applicable redemption period. Also, paragraphs 18 and 21 above
entitle Mortgagee to require immediate payment of the balance of the
indebtedness in full if the premises are sold or otherwise
transferred. By execution of this mortgage, Mortgagor represents and
acknowledges that the meaning and consequences of these paragraphs
have been discussed as fully as desired by Mortgagor with Mortgagor's
legal counsel.
24. Environmental Indemnity. Mortgagor agrees to indemnify Mortgagee
against, and hold it harmless from, all obligations and liabilities
relating to the premises arising out of claims made or suits brought
for investigation, study, remedial work, monitoring, or other costs
and expenses arising from or associated with response to any
environmental matters, including but not limited to any (a) water
pollution, air pollution, noise, odor, spills, leaks. or inadvertent
discharges. emissions, or releases, or the generation, transportation,
storage. treatment, or disposal of solid waste. including hazardous
waste, hazardous substances. pollutants and contaminants; (b) injury,
sickness, disease, or death of any person; or (c) damage to any
property, regardless of whether the cause of the injury or damage
occurred before or after the date of this mortgage. Mortgagor further
agrees that Mortgagee shall have no liability for any environmental
contamination associated with Mortgagees business or the premises, and
that any involvement of Mortgagee with Mortgagor's business to protect
its security interest in the premises shall not constitute Mortgagor
as an "owner or operator" of Mortgagor's business for purposes of
determining environmental liability. In any event, if Mortgagee
becomes obligated, by judicial or administrative judgment or
settlement of a claim, to pay any amounts for response to any
environmental contamination associated or connected with Mortgagor's
business or the premises, any payment by Mortgagee shall be deemed
additional indebtedness secured by the lien of this mortgage, shall be
immediately due and payable to Mortgagee, and shall bear interest
until paid at the default interest rate specified in the Revolving
Credit Note.
25. Covenants Run with Land. All of the terms and covenants of this
mortgage shall run with the land and shall be binding on and inure to
the benefit of the respective legal representatives and successors of
the parties.
26. Release of Mortgage. If Mortgagor pays to Mortgagee the money
required by the Revolving Credit Note, in the manner and at the times
provided in the Revolving Credit Note, and all other sums of the
indebtedness payable by Mortgagor to Mortgagee, and keeps and performs
the terms, covenants, and agreements of Mortgagor with Mortgagee, then
this mortgage shall be satisfied, and Mortgagee shall release the
mortgage.
27. Notice. All notices, demands, and requests required or permitted to
be given to Mortgagor or by law shall be deemed delivered when
deposited in the United States mail, with postage prepaid, addressed
to Mortgagor or Mortgagee at their last known addresses.
28. Severability. If any provision of this mortgage is in conflict with
any statute or rule of law of the State of Michigan or is otherwise
unenforceable for any reason, then that provision shall be deemed null
and void to the extent of the conflict or unenforceability, but shall
be deemed separable from and shall not invalidate any other provision
of this Mortgage.
29. Venue and Jurisdiction. All provisions of this mortgage shall be
governed by and construed in accordance with the laws of the State of
Michigan. Venue shall be in Macomb County, Michigan for any action
brought with regard to this mortgage. Mortgagor consents to personal
jurisdiction over it by any Michigan courts to the extent that
personal jurisdiction may be necessary to enforce any of the
provisions of this mortgage.
<PAGE>
Exhibit 10.119
SUBMISSION NOT AN OPTION
THE SUBMISSION OF THIS LEASE FOR EXAMINATION AND NEGOTIATION DOES NOT
CONSTITUTE AN OFFER TO LEASE, A RESERVATION OF, OR OPTION OF THE PREMISES AND
SHALL VEST NO RIGHT IN ANY PARTY. TENANT OR ANYONE CLAIMING UNDER OR THROUGH
TENANT SHALL HAVE THE RIGHTS TO THE PREMISES AS SET FORTH HEREIN AND THE
LEASE BECOMES EFFECTIVE AS A LEASE ONLY UPON EXECUTION,
ACKNOWLEDGMENT AND DELIVERY THEREOF BY LANDLORD AND TENANT, REGARDLESS OF ANY
WRITTEN OR VERBAL REPRESENTATION OF ANY AGENT, MANAGER OR EMPLOYEE OF
LANDLORD TO THE CONTRARY.
LANDLORD: CONESTOGA CORP.
TENANT: PIONEER HEALTHCARE INC.
PREMISES: APPROXIMATELY 1200 S.F. OF SPACE LOCATED AT
200 LAKE STREET, PEABODY, MASSACHUSETTS
FROM THE OFFICE OF:
MARY C. MAZZIO, ESQUIRE
BROWN, RUDNICK, FREED & GESMER
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
<PAGE>
ARTICLE I - BASIC LEASE PROVISIONS
Each reference in this Lease to titles or terms contained in Article I
shall be deemed to incorporate the applicable definitions or data. The
Exhibits attached to this Lease are incorporated by reference.
Date of Lease: 11/09/95
Commencement Date: 12/01/95
Rent Commencement Date: 12/01/95
Landlord: CONESTOGA CORP.
Landlord's Mailing
Address: 22 Carriage Way
Topsfield, MA 01983
Attention: Lawrence J. Glynn, Director
Tenant: Pioneer Healthcare
Tenant's Mailing 200 Lake Street suite 101b
Address: Peabody, MA 01960
Premises: Approximately 1200 rentable square feet of space, as
shown on Exhibit A, in the building ("Building"),
currently containing a total of approximately 14,400
rentable square feet of space, located in Peabody,
Essex County, Massachusetts, with an address of 200
Lake Street, and situated on the property
("Property") legally described in the metes and
bounds description as shown on Exhibit A-1.
Term: Twelve (12) months plus any partial month at the
commencement of the Term, unless sooner terminated as
provided herein.
Extension Option: At end of lease period (12/l/96) the above defined
space may be extended at the same rates and dates as
lease dated 07/11/94 (3,600 square feet, suite 101b,
102a & b, 200 Lake Street)
Permitted Use: Office, and for no other use or purpose.
Base Rent: Lease Year Annually Monthly
12/01/95 -11/30/96 13,200 1,100
<PAGE>
Extension Period
Base Rent: None
Lease Year: 12 full month period beginning on the Commencement
Date (plus any partial month).
Additional Rent: All sums, other than Base Rent, due
from Tenant pursuant to the terms of the Lease.
Pro Rata Share: zero percent (00.00%).
Utilities: Tenant shall have the right to use the utilities
which service the Premises as of the Commencement
Date provided all costs relating to the furnishing
and use of the utilities except water and sewer
shall be paid by Tenant.
Security Deposit: 1,100.00
Tenant's Guarantor:
Build out cost: None
ARTICLE II - PREMISES
2.1 Premises. On the terms of this Lease, Landlord leases to
Tenant, and Tenant accepts from Landlord the Premises.
2.2 Common Areas. The term "Common Areas: shall mean all areas
within the Property which are available for the common use of the tenants
of the Property from time to time, as designated by Landlord, including but
not limited to, parking areas, driveways, sidewalks, loading areas, access
roads, corridors, landscaping and planted areas. Landlord may, from time
to time, change the size, location, nature and use of any of the Common
Areas, in any manner whatsoever. Tenant acknowledges that such activities
may result in an inconvenience or interruption to Tenant, but Tenant shall
not be entitled to any reduction in rent, or damages resulting from such
interference or interruption.
Tenant shall have the non-exclusive right to use the Common
Areas for the intended purposes, subject to reasonable rules and
regulations established by Landlord from time to time.
<PAGE>
Tenant shall abide by such rules and regulations, shall cause others who use
the Common Areas with Tenant's express or implied permission to abide by
Landlord's rules and regulations, and shall not interfere with the rights of
Landlord, other tenants or any other person entitled to use the Common Area.
At any time, Landlord may close any Common Area, improve the Property or to
protect Landlord's rights with respect to the Property. Landlord shall
maintain the Common Areas in good condition, subject to reasonable wear and
tear.
2.3 Parking. Tenant shall be entitled to the nonexclusive use of the
parking area depicted on Exhibit A, attached hereto. Tenant's parking shall
be limited to vehicles no larger than standard size automobiles or pick-up
utility vehicles. Tenant shall not cause large trucks or other vehicles to
be parked within the Property or on adjacent public street. Vehicles shall
be parked only in striped parking spaces and not in driveways, loading areas
or other locations not specially designated for parking.
ARTICLE III - TERM; LANDLORDS AND TENANT'S WORK
3.1 Term. This Lease is for the Term beginning on the Commencement
Date. If Landlord is unable to deliver possession on the Commencement Date,
Tenant's sole remedy shall be an abatement of rent until delivery, provided
there shall be no abatement if Landlord's failure results from Tenant's acts
or omissions.
3.2 INTENTIONALLY OMITTED
3.3 Landlord's Work. Except for Landlord's Work, if any, as set
forth in Exhibit B, the Premises shall be delivered "AS IS", subject to-all
title matters, all applicable zoning, and Laws and Insurance Regulations, as
defined in Section 5.1(a), and Landlord shall not be required to make any
repairs or replacements (hereafter jointly "Repairs") or improvements,
alterations or additions (hereafter collectively "Improvements") to the
Premises. Tenant acknowledges the Tenant has inspected (or had the
opportunity to inspect) the Premises, is satisfied with the condition thereof
and waives any existing defect in the condition of the Premises or Property
(latent or otherwise). Tenant agrees that all claims with respect to
Landlord's Work, if any, (latent or otherwise) shall be made within thirty
(30) days of the Commencement Date or, in the case of latent defects, not
later than ninety (90) days after the Commencement Date, and that all claims
not made within such periods shall be forever waived.
3.4 Tenant's Work. Upon delivery of possession, Tenant shall (a)
promptly perform Tenant's Work set forth in Exhibit C and equip the Premises
with all necessary trade fixtures and personal property, and (b) open for
business as soon after Commencement Date as possible. Tenant's Work and all
work performed by Tenant hereunder shall be done in a good and workmanlike
manner using first-class new materials and equipment, and in accordance with
the requirements of all applicable Laws and Insurance Regulations. If Tenant
fails to commence Tenant's Work within 10 days after delivery of possession
or open within 60 days after the Commencement Date, Landlord may terminate
the Lease.
ARTICLE IV - RENT
4.1 Base Rent and Additional Rent. Tenant shall pay Base Rent
monthly, in advance, on the Rent Commencement Date and on the first day of
each calendar month thereafter. Any additional Rent, (except Base Rent)
payable by Tenant, shall be paid when due. If (i) Base Rent and/or any
Additional Rent is not received by Landlord or otherwise paid by the due
date, or (ii) Tenant's check is not honored, and because actual damages
result from late payments and dishonored checks are more difficult to fix,
Tenant agrees to pay all direct charges for each late payment or dishonored
check. In addition, Landlord may charge interest from the initial due date
at the rate of the lesser of 18% or the maximum legal rate on all amounts not
paid or received by Landlord within 5 days of the due date.
4.2 Net Lease. Tenant's rent payments shall be completely net to
Landlord so that this Lease yields to Landlord the net annual Base Rent, and
Tenant shall pay all Base Rent, Additional Rent and costs of every kind
relating to the Premises without notice, demand, setoff, deduction,
counterclaim, defense or abatement except as specifically provided in the
Lease.
4.3 Additional Rent. Tenant shall pay Tenant's Pro Rata Share of the
following: Zero percent (00.00%)
(i) "Tax Rent" which shall include real estate taxes,
assessments, sales or use taxes, sewer entrance fees, and
other public charges on or relating to the Property
including, without limitation, the Building other
improvements, land and personalty, (together called
"Taxes"). Tenant also shall pay before the due date all
taxes attributable to its signs or personal property, and
all Tax increases resulting from Tenant's Improvements to
the Premises, if any.
Landlord shall have sole control of all tax abatement
proceedings, and the pendency of abatement proceedings or
Landlord's.
ARTICLE V -
TENANT'S CONVENTS AND LANDLORD'S OBLIGATIONS
5.1 General Convenants. In addition to Tenant's other Lease
convenants, Tenant shall, as its expense:
(a) use the Premises solely and continuously for the Permitted
Use and for no other purpose, procure all required licenses and permits, and
not use the Premises or Property in violation of any laws, ordinances, orders
or regulations of any public authority or of any insurer, Board of Fire
Underwriters, or similar insurance rating bureau having jurisdiction over the
Premises (hereafter collectively "Laws and Insurance Regulations"), or in a
manner which may be injurious to or adversely affect the general character of
the Property and not conduct any auction, bankruptcy or similar sale thereon;
(b) comply with Landlord's sign criteria, if any, and sign
criteria imposed by applicable governmental authorities:
(c) pay, as they become due, all charges for utilities for the
Premises and contract for same in Tenant's name or if any such utilities are
not separately metered, pay Tenet's Pro Rata Share of same;
(d) keep the Premises in a neat, clean, sanitary condition and
in good order and repair (making replacements as necessary) including,
without limitation, doors, windows, plumbing and electrical systems; and all
fixtures and equipment appurtenant to the Premises; replace broken glass with
the same quality glass; paint and refurbish the Premises and restore or
replace the floor covering at reasonable intervals, and in any event at such
times as may reasonably be required to keep the Premises attractive in
appearance; not overloaded, damage or deface the Premises; and properly store
and dispose of all trash using services (if any) on a Pro Rata Share as
designated by Landlord:
(e) make Improvements and Repairs of whatever nature required
by Laws and Insurance Regulations, except that Tenants shall not be required
to make any structural Improvements unless required as a result of Tenant's
Improvements to or use of the Premises:
(f) pay for all repairs and replacements to the Premises, the
Building and the Property required by Tenant's misuse or negligence;
(g) not act in any manner which prevents Landlord or Tenant
from obtaining, or makes void or voidable, any insurance, or creates extra
premiums for or increases the rate of, insurance, and if Tenant causes extra
premiums or increased rates, Tenant will pay the increased cost to Landlord
upon demand;
<PAGE>
(h) not act in any manner, which prevents Landlord or Tenant
from obtaining, or causes the revocation of, any government license, permit,
authority, and if as a direct or indirect result of Tenant's business an
addition to or change in the same is required by Laws or Insurance
Regulations. Tenant shall pay for the addition or change;
(i) INTENTIONALLY OMITTED
(j) abide by reasonable rules and regulations made by Landlord
from time to time.
5.2 Environmental Convenants.
(a) Definition. As used in this Lease, the term "Hazardous
Material" means any flammable items, explosives, radioactive materials,
hazardous or toxic substances, material or waste or related materials,
including any substances defined as or including in the definition of
"hazardous substances", "hazardous wastes", "infectious wastes", "hazardous
materials" or "toxic substances" now or subsequently regulated under any
federal, state or local laws, regulations or ordinances including, without
limitation, oil, petroleum-based products, paints, solvents, lead, cyanide,
DDT, printing inks, acids, pesticides, ammonia compounds and other chemical
products, asbestos, PCB's and similar compounds, and including any different
products and materials which are subsequently found to have adverse effects
on the environment or the health and safety of persons.
(b) General Prohibition. Tenant shall not cause or permit any
Hazardous Material to be generated, produced, brought upon, used, stored,
treated, discharged, released, spilled or disposed of on, in, under or about
the Premises, Building, or Property by Tenant, its affiliates, agents,
employees, contractors, sublessees, assignees or invitees. Tenant shall
indemnify, defend and hold Landlord harmless from and against any and all
actions (including, without limitation, remedial or enforcement actions of
any kind, administrative or judicial proceedings, and orders or judgments
arising out of or resulting therefrom), costs, claims, damages (including,
without limitation, attorneys', consultants' and experts' fees, court costs
and amounts paid in settlement of any claims or actions), fines, forfeitures
or other civil, administrative or criminal penalties, injunctive or other
relief (whether or not based upon personal injury, property damage, or
contamination of, or adverse effects upon, the environment, water tables or
natural resources), liabilities or losses arising from a breach of this
prohibition by Tenant, its affiliates, agents, employees, contractors,
sublessees, assignees or invitees (collectively, "Tenant's Affiliates").
(c) Notice. In the event that Hazardous Materials are discovered
upon, in, or under the Property, and any governmental agency or entity having
jurisdiction over the Property requires the removal of such Hazardous
Materials, Tenant shall be responsible for removing those Hazardous Materials
arising out of or related to the use or occupancy of the Property by Tenant
or Tenant's Affiliates. Notwithstanding the foregoing, Tenant shall not take
any remedial action without first notifying Landlord of Tenant's intention to
do so and affording Landlord the opportunity to protect Landlord's interest
with respect thereto. Tenant immediately shall notify Landlord in writing
of: (i) any spill, release, discharge or disposal of any Hazardous Material
in, on or under the Property, the Premises or any portion thereof, (ii) any
notice, enforcement, clean-up, removal or other governmental or regulatory
action instituted, contemplated, or threatened (if Tenant has notice thereof)
pursuant to any Hazardous Materials Laws; (iii) any claim made or threatened
by any person against Tenant, the Property, relating to Hazardous Materials;
and (iv) any reports made to any governmental agency or entity arising out of
or in connection with any Hazardous Materials in, on, under or about or
removed from the Property, including any complaints, notices, warnings,
reports or asserted violations in connection therewith.
(d) Survival. The respective rights and obligations of
Landlord and Tenant under this subsection shall survive the expiration or
earlier termination of this Lease.
ARTICLE VI - CONDITION OF PREMISES
6.1 Improvements. Tenant may not make structural or non-structural
Improvements to the Premises without Landlord's prior written consent. At
the end of the Term, except to the extent Tenant is directed by Landlord to
remove and Improvements and to repair damage relating to such removal, the
Premises shall remain in the altered condition with all Improvements.
Consent will in no way be unreasonably withheld delayed on any non-structural
Improvements providing that they are in complete compliance with all laws and
regulations.
6.2 Fixtures; Yield-up. Except as Landlord directs in writing,
Tenant shall remove its personal property, signs and trade fixtures, and
peaceably yield-up the Premises, broom-clean and in good order repair and
condition at the end of the Term, with all Repairs, including painting and
patching to the Premises required by such removal, having been made and all
utility lines left exposed or unconnected having been capped. If Tenant
fails to remove its property or to make the Repairs by the end on the Term,
Landlord may remove and store Tenant's property in a public warehouse at
Tenant's expense or sell same at public auction, and make the Repairs, and
Tenant promptly shall reimburse Landlord for its costs.
6.3 Mechanic's Lien. Tenant shall immediately discharge any
mechanic's, materialmen's or other lien against the Premises and/or
Landlord's interest therein arising out of any payment due, or purported to
be due, for any labor, services, materials, supplies, or equipment alleged to
have been furnished to or for Tenant.
ARTICLE VII - INSURANCE
7.1 Insurance. Throughout the duration of this Lease, Tenant shall
maintain, at its sole expense, casualty property insurance for the premises
in the amount of $1 million, in addition to coverage sufficient for full
replacement value of Lessee's contents and improvements, and general
liability insurance with limits of $1 million per incident for bodily injury
or property damage and $2 million single limit coverage aggregate. Lessee
shall use reasonable effort to obtain coverage which meets the following
requirements of Lessor.
All insurance policies shall be with companies qualified to do business in
Massachusetts and acceptable to Landlord, and shall name Landlord, and if
Landlord so requests, Landlord's mortagee(s) and any other party, as insured
parties on casualty policies and additional named insured on liability
policies. In addition, all liability insurance obtained by Tenant shall be
(a) primary insurance as to all claims thereunder and provide that any
insurance of Tenant; (b) contain cost liability endorsements or a
Severability of interest clause acceptable to Landlord; (c) be written on an
occurrence basis; and (d) specifically cover the liability assumed by Tenant
under this Lease.
Tenant shall provide Landlord with a Certificate of Insurance showing
Landlord as Additional insured, or loss payee, as the case may be. The
Certificate shall provide for a ten-day written notice to Landlord in the
event of cancellation or material change of coverage. Landlord and Tenant
release each other and each other's officers, directors, employees and agents
from liability or responsibility for any loss or damage covered by insurance,
or which would have been covered if the party complied with the provisions of
this lease.
7.2 Tenant's Risk. Except as modified by statue, all merchandise,
furniture, fixtures and property which may be on or about the Premises,
Building or Property shall be at the sole risk and hazard of Tenant.
7.3 INTENTIONALLY OMITTED
7.4 INTENTIONALLY OMITTED
<PAGE>
7.5 INTENTIONALLY OMITTED
ARTICLE VIII - CASUALTIES AND EMINENT DOMAIN
8.1 Damage. If the Premises become untenantable in whole or part
because of fire or other casualty covered by insurance, or as the result of a
taking of, or damage to, the Premises or the Building as a result of the
exercise of any power of eminent domain, condemnation, or purchase under
threat or in lieu thereof ("Talking"), then unless the Lease is terminated in
accordance with Section 8.2, Landlord, with reasonable dispatch (but subject
to delays for adjustment of insurance proceeds and causes beyond Landlord's
reasonable control), shall repair the damage so that the Premises are in
substantially the same condition as on delivery of possession subject to
rights of mortgagees, zoning laws, and building codes then in existence, and
provided Landlord shall not be required to expend more than the net insurance
proceeds Landlord receives for damage to the Premises of the net Taking award
attributable to the Premises. "Net" means the insurance proceeds or award
less all costs and expenses, including adjusters and attorney's fees, of
obtaining the same. Not withstanding the foregoing to the contrary, Tenant
shall be required to pay Landlord the amount of any deductible under
Landlord's insurance policy if the casualty is the result of the acts or
omissions of Tenant or Tenant's Affiliates. Tenant immediately shall give
written notice to Landlord of any damage to the Premises.
8.2 Termination Rights. If (a) any of the Premises or Building are
damaged to the extent of 10% or more of its insurable value, or by risk not
covered by Landlord's insurance, of the cost of repair would excess
1,000,000.00, or the damage is of a character that it cannot reasonably be
repaired within sixty (60) days of the date on which repair work commences,
or (b) if 25t or more of either (i) the floor area of the Building, or (ii)
the land which constitutes the Premises is Taken, Landlord may elect to
terminate this Lease by written notice to Tenant within 30 days after the
damage or within 6 months of the date on which the condemning authority has
the right to possession ("Taking Date") in which case the Lease shall
terminate as of the Taking Date. If the entire Premises are taken by eminent
domain, except for temporary use, the Lease shall terminate automatically as
of the Taking Date. If causality occurs within the last six (6) months of
lease term, lessee may elect to terminate remainder of lease term by
notifying leasor with 30 day notice of intent.
8.3 Abatement. If a portion of the Premises is damaged or Taken,
except for temporary use, and the Lease is not terminated, the Base Rent and
Tenant's Pro Rata Share shall be reduced proportionately based on the area of
the Premises damaged and therefore not used by Tenant or Taken until the
earlier of when Landlord's Repairs to the Premises are completed or Tenant
begins using the damaged area.
8.4 Taking for Temporary Use. If the Premises is Taken for temporary
use, this Lease and Tenant's obligations shall continue, except to the extent
the Taking renders compliance impossible or impracticable.
8.5 Disposition of Award. Except for any separate award for Tenant's
movable trade fixtures or relocation expenses which does not reduce
Landlord's award, all Taking awards to Landlord or Tenant shall be Landlord's
property without Tenant's participation.
ARTICLE IX
DEFAULTS AND REMEDIES
9.1 Tenant's Default. The following conditions shall be considered a
"Default" by Tenant: (a) failure to pay Base Rent, Additional Rent, or any
other charge if not paid within five (5) days of time due;
<PAGE>
(b) Tenant's leasehold estate is taken by execution or other
process of law; or Tenant is liquidated, dissolved, commits an act of
bankruptcy, is declared bankrupt or insolvent according to law or admits in
writing its inability to pay debts generally as they become due, or an
assignments of Tenant's property is made for the benefit of creditors or a
receiver , guardian, conservator, trustee or assignee, or any other similar
officer or person is appointed to take charge of any part of Tenant's
property; or any reorganization or similar proceedings are commenced by or
against Tenant under ant bankruptcy or insolvency law and not dismissed
within 30 days from its commencement; or any court enters an order providing
for the modification of rights of Tenant's creditors;
(c) vacating of the Premises or closing for business for an
aggregate period during the Term exceeding 30 days except for fires and
unavoidable casualties;
(d) a Transfer without Landlord's prior written consent;
(e) failure to perform or observe any other Lease terms or
convenants for a period of 30 days after notice, or if same shall reasonably
take longer than 30 days, of Tenant fails to commence same promptly and to
complete same with due diligence and in any event within 60 days from the
notice; or
(f) any other breach for which the Lease gives Landlord the
right of termination.
<PAGE>
If Tenant Defaults, Landlord may at any time until the Default
is cured either (1) terminate the Lease by written notice effective on the
date of the notice or on any date specified in the notice, or (2) without
demand or notice, re-enter, take possession and repossess the Premises and,
with a court order and at Tenant's risk, expel Tenant and those claiming
under Tenant and remove, store and sell their effects at public action, all
without prejudice to any remedies for arrearages or preceding Defaults. The
net proceeds of any sale shall be applied to sums due to Landlord from Tenant
and the balance paid to Tenant. Tenant waives all statutory right (including
rights of redemption) to the extent such rights may be lawfully waived. With
or without terminating this Lease, Landlord may re-let all or any part of the
Premises from time to time for periods, at such renewal and upon the terms
and conditions as Landlord deems advisable, and may make Improvements and
Repairs to the Premises. No re-entry or taking of possession by Landlord
shall terminate this Lease unless Landlord gives a written notice of such
intention to Tenant, nor shall Landlord's right to re-let constitute an
obligation to re-let or to mitigate damages.
9.2 Damages. Tenant's liability and obligations under the Lease
shall survive termination or repossession, and Tenant shall pay as current
damages the Base Rent, Additional Rent and other sums up to what would have
been the end of the Term in the absence of the termination or repossession,
with a credit for the net proceeds, if any, Landlord receives from any
reletting of the Premises, after deducting all of Landlord's expenses in
connection with the reletting including, without limitation, expenses of
preparing the Premises for the reletting. Tenant shall pay the current
damages to Landlord on the days Base Rent would have been payable if not for
the termination or repossession. In addition, and notwithstanding any Lease
provision or the termination of this Lease, Tenant shall reimburse Landlord
for any free rent and construction allowance, and all expenses and
liabilities incurred by Landlord in connection with Tenant's Default
including brokerage commissions, reasonable attorneys, fees and alteration
costs.
After any termination or repossession, whether or not Landlord
has collected any current damages, Tenant shall pay to Landlord, at
Landlord's option and on demand, liquidation final damages in lieu of all
current damages beyond the date final damages are paid. The final damages
shall be the amount by which (i) all rent and other charges which would be
payable from the date to which Tenant paid current damages through what would
have been the expired Term exceeds (ii) the then fair market rental value of
the Premises for the same period. If any law validly limits the amount of
final liquidated damages to less than described above, Landlord shall be
entitled to the maximum amount legally allowed.
<PAGE>
9.3 Landlord's Self Help. If Tenant Defaults, Landlord may, at its
option, without waiving its right to terminate this Lease or its claim for
damages, cure the Default and Tenant shall reimburse Landlord in doing so;
provided Landlord may immediately cure any. Default or failure by Tenant to
perform any Lease obligation if the cure or performance is reasonably
necessary to protect the Premises or Landlord's interests, or to prevent
injury or damage to persons or property.
9.4 Landlord's Default. Landlord shall not be deemed to be in
default hereunder unless its default continues for 30 days, or such
additional time as is reasonably required to correct its default, after
Tenant has given written notice to Landlord specifying the nature of the
alleged default.
ARTICLE X - SUBORDINATION
10.1 Subordination. Tenant's rights and interests under this Lease
shall be (i) subject and subordinate to any existing or future mortgages,
deeds of trust, overlease, or similar instruments covering the Premises and
to all advances, modifications, renewals, replacements, and extension
("Mortgages"), or (ii) if the Mortgagee elects, prior to the lien of any
present or future Mortgagee. Tenant further shall attorn to and recognize
any successor landlord, whether through foreclosure or otherwise, as if the
successor landlord were the originally named Landlord. Tenant concurrently
shall give Mortgagee the same notices given to Landlord, and Mortgagee shall
have the same opportunity and rights to cure as is available to Landlord to
cure default provided Mortgagee shall have an additional thirty (30) days
after the expiration of Landlord's cure period within which to commence a
cure or such longer period as may be reasonably necessary. Mortgagee's
curing of any of Landlord's default shall be treated as performance by
Landlord.
10.2 Reguest BY Mortgagee. If a Mortgagee or prospective Mortgagee
requests any Lease modification which do not have a material adverse effect
on Tenant's rights, Tenant will enter into a written modification agreement
in recordable form (which shall have the same force as a Lease amendment) if
the Mortgagee forecloses or takes similar action.
ARTICLE XI - MISCELLANEOUS PROVISIONS
11.1 Parties Bound. Except as otherwise provided, the Lease
agreements and conditions to be performed and observed by Landlord or Tenant
shall bind and inure to the heirs, legal representatives, successors and
assigns of each, provided no reference to Tenant's successors and assigns
will constitute a consent to a Transfer by Tenant. If Tenant consists of
more than one person or entity, or if there is a guarantor, then all such
persons, entitles and guarantors shall be jointly and severally liable and
the word "Tenant," as used in this Lease, including Article IX, includes such
person, entities, and guarantors. The word "Landlord" means only the owner,
or the lessee if this Lease becomes subject to an overlease, or the mortgages
in possession of the Premises such that, all prior landlords, including
Landlord, shall be relieved of all landlord covenant's and obligations
accruing after the transfer. If the entity which holds Landlord's interest
in the Lease is a trust, then the Landlord obligations shall be binding upon
the trustees of said trust, as trustees and not individually, and not upon
the trust estate.
11.2 Landlord's Liabilities and Additional Rights.
(a) Landlord shall have no obligations or liability with
respect to or in any way connected with the Premises or the Building, or
services to be provided from same, except to the extent specifically set
forth in the Lease. Landlord shall not be deemed to have committed a breach
of any repair obligations unless it makes repairs negligently or fails to
commence repairs within a reasonable time after Landlord receives notice from
Tenant, and Landlord's liability in any case shall be limited to the cost of
making the required repairs.
(b) Landlord shall not be liable for indirect or consequential
damages for any reason, or for any inconvenience, interruption or
consequences resulting from the failure of utilities or any service, making
repairs, improvements or resulting from leaks of steam, gas, electricity,
water, or any other substance from pipes, wire or other conduits, or from the
bursting or stoppage thereof, or from leaks of water, snow, or rain.
(c) Tenant agrees for itself and each succeeding holder of
Tenant's interest, or any portion thereof, that any judgment, decree or award
obtained against Landlord, or and succeeding owner of Landlord's interest,
which is related to this Lease or the Premises, whether at law or in equity,
shall be satisfied out of Landlord's equity in the Premises, and further
agrees to look only such assets and to no other asses of Landlord for
satisfaction.
(d) Landlord reserves the right at any time or times during the
Term and without charge, abatement or reduction in rent (i) to examine and to
show the Premises at reasonable times; (ii) to put up "For Sale" or "For
Rent" signs; (iii) to perform such works as may be required by the Lease, any
public authority, or to facilitate making repairs or improvements to the
Building, the Property or any portion thereof, provided that unless any such
work is of an emergency nature, Landlord shall give reasonable notice and
shall use reasonable efforts to minimize interference with Tenant's
operations; and (iv) to enter upon, and use portions of, the Premises for the
foregoing purposes.
11.3 Holding Over. If Tenant or anyone claiming under its holds over
after end of the Term, the party shall, prior to Landlord's acceptance of
rent, be a tenant at sufferance, and, after Landlord's acceptance of rent, be
a tenant at will subject to the provisions of this Lease insofar as the same
may be made applicable to a tenancy at will; provided that Tenant shall pay
Base Rent for the period of such tenancy at 150% of the highest rate of Base
Rent payable during the Term, and, in addition, Tenant shall be liable for
all damages incurred by Landlord (including consequential damages) as a
result of the holding over.
11.4 Quiet Enjoyment. Provided Tenant timely pays all rent and
performs and observe the terms, conditions and covenants of the Lease, Tenant
may peaceably and quietly have, hold and enjoy the Premises as provided in
the Lease, without hindrance or molestation from Landlord or anyone claiming
legally under Landlord, subject to the terms of the Lease and any instruments
having priority.
11.5 No Brokerage. Tenant warrant and represents that it has
dealt-with no broker in connection with this Lease except the Broker (if
any). Tenant agrees to defend and indemnify Landlord against any brokerage
claims related to this Lease other than by the Broker.
11.6 Certificates. Within 10 days after Landlord's request, Tenant
shall deliver to Landlord or to any prospective Mortgagee or purchaser (a) an
estoppel certificate in recordable form stating such information as Landlord
reasonably requests, and (b) such financial statements as Landlord reasonably
requires to verify the net worth of Tenant or any Transferee of Guarantor of
Tenant, and Tenant represents and warrants that each such financial statement
shall be true and accurate as of the date thereof.
11.7 Notices. Any notice, consent, or other communication relating to
this Lease shall be given in writing and by hand, by registered or certified
mail or overnight express mail such as "Federal Express", postage or charges
prepaid, to the other party's Notice Address or for Tenant to the Premises,
to such other address or addresses as may be designated by the party by
notice, and if to a Mortgagee, to such address as the Mortgagee shall
designate.
1.8 No Waiver. Landlord's failure to complain of any Tenant act or
omission shall not be deemed a waiver of any of Landlord's rights.
Landlord's waiver, express or implied, of any breach f the Lease shall not be
deemed a waiver of a breach of any other provision or a consent to any
subsequent breach of the same or any other provision. Landlord's consent to
or approval to any action on one occasion shall not be deemed a consent to or
approval of any other action or to such action on any subsequent occasion.
Tenant's payment or Landlord's acceptance of a lesser amount than is due from
Tenant to Landlord shall not be deemed anything but payment on account and
Landlord's acceptance of a check for a lesser amount with an endorsement or a
statement thereon or upon a letter accompanying the check that the lesser
amount is payment in full shall not be deemed an accord and satisfaction, and
Landlord may accept the check without prejudice to recover the balance due or
pursue any other remedy. All of Landlord's rights and remedies under this
Lease or by operation of law, either at law or in equity, for any breach
shall be distinct, separate, cumulative and non-exclusive and shall not be
deemed inconsistent with each other.
11.9 Force Majure. With the exception of the payment of money, if any
party's performance of any act is delayed, or prevented because of strikes,
lockouts, labor troubles, inability to procure materials, power failures,
restrictive Laws, riots, insurrection, war, or other causes beyond such
party's reasonable control, then said performance shall be excused for the
period of the delay and any time period shall be extended for an equivalent
period.
11.10 Recording. Tenant shall not record this Lease for a notice
thereof.
11.11 Paragraph Headings. All paragraph headings are for convenience
and reference only, and shall not be held to explain, modify, amplify or aid
in the construction, interpretation or meaning of the provisions of this
Lease.
11.12 Governing Law. This Lease shall be governed by the laws of the
Commonwealth of Massachusetts.
1.13 Separability; Construction and Interpretation. If any Lease term
or provision or the application thereof to any person or circumstance is
invalid or unenforceable, the remainder of this Lease, or the application of
the term or provision to other persons or circumstances shall not be
affected, and the Lease shall be valid and be enforced to the fullest extent
permitted by law. If any Lease provision is capable of two constructions,
then the provision shall have the meaning which renders it valid.
11.14 When Lease Becomes Binding - Entire Agreement. Landlord's
employees or agents have no authority to make or agree to make a lease or any
other agreement or undertaking, and the submission of this document for
examination and negotiation does not constitute and offer to lease, or a
reservation of, or option for, the Premises, and this document shall become
effective and binding only upon the execution and delivery by both Landlord
and Tenant-. All negotiations, considerations, representations, and
understandings between Landlord and Tenant are incorporated herein, and no
oral statements or prior or contemporaneous written matter, whether by the
parties or otherwise, which is not specifically incorporated herein shall be
of any force or effect.
11.15 Execution. This Lease may be executed in any number of original
counterparts. Each fully executed counterpart shall be deemed an original.
EXECUTED AS A SEALED INSTRUMENT.
ATTEST/WITNESS: LANDLORD: CONESTOGA CORP.
___________________________ By: _________________________
(Authorized Officer)
Print Name: ______________________ Print Name: __________________
Title: ______________________
ATTEST/WITNESS: TENANT: PIONEER HEALTHCARE
___________________________ By: ________________________
(Authorized Officer)
Print Name: __________________ Print Name: Bruce A. Shear
Title: President
<PAGE>
EXHIBIT A
Plans of Premises and Property
<PAGE>
EXHIBIT A-1
Legal Description of the Property
<PAGE>
EXHIBIT B
Landlord's Work
Remove and replace foyer rug, color toast 35752. Shampoo office rug. Fix and
repair woodwork and ceilings as
needed. Wax parquet floor.
<PAGE>
EXHIBIT C
Tenant's Work
<PAGE>
EXHIBIT D
Rules and Regulations
<PAGE>
Exhibit 10.120
AGREEMENT
THIS AGREEMENT is entered into as of this 1st day of July, 1996, by and
between PHC of Michigan, Inc. d/b/a/ Harbor Oaks Hospital ("Hospital"), a
Massachusetts Corporation, and New Life Treatment Centers, Inc., a Delaware
Corporation ("NLTC").
A. Hospital is the licensee and operates a hospital in New
Baltimore, Michigan that is licensed under the laws of the State of Michigan
(such hospital is herein referred to as the "Hospital" or "Facility");
B. NLTC is in the business of providing contract management
services for the treatment and care of psychiatric adult and adolescent
patients with Christian principles (such services are herein referred to as
the "Program");
C. The parties desire to cooperate in providing treatment
services with Christian principles to adult and adolescent psychiatric
patients at the Facility so that such patients may return to a useful life in
the community;
D. The Hospital will provide a minimum of twelve (12) contiguous
beds in a separate wing for the Program's use during the initial term of this
Agreement and any subsequent terms (s);
E. The parties hereto, after considering appropriate
methods of compensation for the services rendered hereunder and having
reviewed the matter with independent advisors knowledgeable in the field,
have determined that the compensation provided for herein reflects fair value
for the services provided hereunder and will contribute to the cost efficient
delivery of health care services;
THEREFORE, it is mutually agreed as follows:
1. Term and Termination.
(a) Term. This Agreement shall have an
initial term of two (2) years, commencing on July 25, 1995 and shall
terminate at the end of such initial term, unless extended for an agreed upon
time period, with the written approval of Hospital and NLTC.
(b) Termination. This Agreement may be
terminated as follows:
(i) Mutual Agreement. This Agreement may be
terminated upon the mutual written consent of the parties on the date and
time specified in the writing.
(ii) Default. In the event either party defaults in
the performance of any material obligation under this Agreement and such
default is not cured to the reasonable satisfaction of the other party within
thirty (30) days after written notice is given to the defaulting party, this
Agreement may be terminated by the non-defaulting party in its sole
discretion immediately upon the expiration of such thirty (30) day period.
If, however, the nature of the default is such that the same cannot
reasonably be cured within such thirty (30) day period, the defaulting party
shall not be deemed to be in default if it, within such thirty (30) day
period commences cure of such default and notifies the other party that a
cure has been commenced and thereafter diligently prosecutes the same to
completion to the reasonable satisfaction of the non-defaulting party within
a reasonable period of time as determined by the non-defaulting party. Any
defaults subsequently cured must be so stated in writing by the
non-defaulting party.
<PAGE>
(iii) Litigation. In the event that Hospital becomes
subject to a temporary restraining order, preliminary injunction, permanent
injunction or other legal process which cannot be stayed or discharged except
by terminating or suspending this Agreement, Hospital may terminate this
Agreement to the extent reasonably necessary to comply with or resolve the
terms of such legal process.
(iv) Written Notice. Either
party may, by giving written notice of at least thirty (30) days, elect to
terminate this Agreement without cause by delivering notice to the other of
its desire to cause such termination.
2. Appointment. Facility does hereby exclusively designate
and appoint NLTC to manage a psychiatric treatment program with Christian
Principles at the Facility, and NLTC does hereby accept such exclusive
appointment and agree to provide services in accordance with the terms of
this Agreement. NLTC agrees not to manage or operate another Program for the
provision of inpatient or partial day treatment within 50 miles of Hospital
during the term of this Agreement. NLTC further agrees that it will not
operate a Program for the provision of outpatient treatment within 30 miles
of Hospital during the term of this Agreement except with the prior written
approval of Hospital. Such approval is not to be unreasonably withheld and
the scope of services is to be clearly defined. Hospital hereby grants
approval for the outpatient Program in Southfield, Michigan.
3. Covenants of the Hospital. Hospital shall:
(a) Furnish twelve (12) contiguous licensed
adult psychiatric beds in a separate wing of the facility and furnish
adolescent beds on an as needed and as available basis in the adolescent wing
of the facility.
(b) Furnish reasonably necessary equipment, nursing
services as agreed by the parties, support services, and inpatient and
partial hospitalization services to patients, including available diagnostic
facilities, as directed by each patient's attending physician or psychologist
within the scope of his/her licensure and privileges granted at Hospital.
Such support services will include, but not necessarily be limited to
clinical ancillary services, such as laboratory, radiology and pharmacy;
recreational therapy, dietary, linen, security, social services,
housekeeping, admitting, medical records, utilization review and assistance
with insurance verification. These do not include Extraordinary Ancillary
Services such as: Emergency Room visits, EEG'S, CT scans, NM's and any
outside physician consultations. Additionally, it is understood that properly
equipped offices for the NLTC employees, and adequate consultation and group
space will be provided. Extraordinary Ancillary Services must have prior
approval of NLTC except in emergencies.
(c) Invoice and collect all charges for services (other than
professional services including history and physicals, individual
psychotherapy, hospital rounds and psych testing which are billed by NLTC or
its designee) rendered to patients by Hospital in the Program. All rates for
Program patients shall be established by Hospital after consulting with NLTC.
This section shall in no way restrict members of the medical staff or allied
health professional staff from lawfully invoicing and collecting fees for
professional services rendered to patients in the Program.
(d) Provide for all Hospital and NLTC employees in the Program
all necessary pre-employment and periodic diagnostic and health screening
procedures as are customary or required for Hospital employees. The
provision of such examinations shall not be deemed to affect the status of
any employee as being an employee of NLTC rather than the Hospital. NLTC is
responsible for the reasonable costs associated with said screening as it
relates to NLTC employees.
(e) Maintain accreditation of the Hospital by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO") and pay
all related application fees, and assist in the preparation of any and all
information, data and material relating to the Program required in
connection with application for such accreditation.
<PAGE>
(f) Use reasonable efforts to facilitate the processing of
application for appointment and/or privileges, including temporary
privileges, to the Medical Staff and Allied Health Professional Staff of
qualified applicants presented by NLTC.
(g) Use reasonable efforts to enter into agreements with
managed care providers and contractors for the provision of Program services.
(h) In non-emergency cases, after a medical
determination of clinical criteria for admission, Hospital, after
consultation with NLTC, shall at Hospital's discretion determine whether or
not patients meet financial guidelines for admission.
(i) Hospital will prepare cost reports for the Medicare and
Medicaid programs as soon as is practicable and will provide copies of same
to NLTC.
4. Covenants of NLTC. NLTC shall:
(a) Provide intensive, specialized, Christian-oriented services in the care
and treatment of Program patients and ongoing program management and support
services. In addition, NLTC shall be responsible for obtaining insurance
verification and pre-certification for all prospective patients in the Program.
(b) Provide for the Program a (i) Program Manager, (ii)
Medical Director (who shall be a psychiatrist duly licensed by the State of
Michigan and shall be a member of the Hospital Medical Staff) and staff
doctors for Program, (iii) Clinical Coordinator, (iv) Case Manager(s), (v)
Intake Counselor(s); and (vi) Chaplain to provide for the professional
treatment and counseling of patients and to supervise and operate the Program
adequately. All medical personnel employed or contracted by NLTC to render
services in the Program must be credentialed in the appropriate categories
in accordance with the Hospital's policies and procedures. Such personnel
shall not be deemed employees or agents of HospitaL and NLTC shall have full
responsibility for compensating such personnel. NLTC will adjust staffing as
census requires and as mutually agreed to between the parties. AU NLTC
staff shall be subject to the prior and continuing approval of the Hospital.
(c) Consult with the Hospital for the purpose of developing
nursing coverage necessary for the Program.
(d) Provide comprehensive marketing services for the
Program, including advertising and sales. All advertisements which mention
the Hospital or its address must be approved prior to publication by Hospital.
(e) Assist in the preparation of any and all information, data and
materials required in connection with application and maintenance of
accreditation and licensure of the Program and the Hospital by the JCAHO, the
State of Michigan and any third party payors.
5. Compensation.
(a) Hospital shall pay to NLTC a monthly fee for professional and
administrative services (the "Program Fee") an amount equal to fifty (50)
percent of net receipts from the Program exclusive of receipts from Medicare,
Medicaid, CHAMPUS and other federally funded programs. This amount shall be
subject to a minimum amount of Fifty-two Thousand Five Hundred dollars
($52500) per month.
(b) The monthly Program Fee shall be calculated by multiplying the net
revenue for all NLTC program billings for a given month excluding Medicare,
Medicaid, CHAMPUS and other federally funded program revenue, as determined by
the Hospital billing reports and with contractual and bad debt allowances
estimated in accordance with the standard accounting practices of the Hospital
and Generally Accepted Accounting Principles, by 0.5. The product will then be
multiplied by 0.9 to determine the amount of money that the Hospital will pay to
NLTC for that month's services. This calculation is subject to the minimum
payment of Fifty-two Thousand Five Hundred dollars ($52,500) per month (per
paragraph 5.(a)).
(c) The terms of 5.(a) and 5.(b) shall not apply to Medicare,
Medicaid, CHAMPUS, or other patients whose treatment is paid in whole or in
part by any federally funded programs. The program fee for these patient
classes shall be a fixed fee in the amount of Seven Thousand Five Hundred
dollars ($7,500) per month. This amount is to be considered independent of
the amounts calculated and paid per the terms of paragraph 5.(a) and 5.(b).
(d) Payment of the Program Fee shall be due within day
sixty (60) days following the month of service.
(e) Nine (9) months following a given month of service, the accounts for
patients that were discharged during the given month will be audited to
determine the actual net receipts exclusive of receipts from Medicare, Medicaid,
CHAMPUS and other federally funded programs. The audited net receipts amount
will be multiplied by 0.5 to determine the actual amount that should have been
paid to NLTC for that month's services. To the extent that such audit results in
additional payments by Hospital to NLTC, such payments shall be made within
sixty (60) days of the above referenced audit. To the extent that such audit
results in a refund of payments by NLTC to Hospital, such payments shall be made
within sixty (60) days of the above referenced audit. This calculation is
subject to the minimum payment of Fifty-two Thousand Five Hundred dollars
($52,500) per month (per paragraph 5.(a)).
(f) If any amount due hereunder is not paid on or
within thirty (30) days of its due date, the outstanding balance shall bear
simple interest from the due date at a rate of ten percent (10%) per annum
until such amount shall be paid in full. In addition, the parties agree that
a failure to pay within thirty (30) days of the due date shall be a material
breach of this Agreement, subject to the termination and cure provisions at
Section l(b)(ii). Any such termination of this Agreement shall not affect a
party's obligation to pay amounts due under this Agreement, but no such
payment after the cure period shall affect the effectiveness of such
termination. additionally, both parties may attempt to cure any payment
defaults by off-setting their respective obligations.
(g) Hospital shall provide NLTC with copies of all
reports showing charges billed, collections received and any adjustments made
to the accounts of patients within the Program. In addition, Hospital will
provide NLTC with detailed aging reports by account and payor type for those
accounts of patients who participated in the Program. Such reports will be
provided to NLTC within thirty (30) days of the end of a given month.
(h) Exhibit A.1 and A.2 shall provide an example of
the calculation of the Program Fee, the application of the minimum base fee
and the reconciliation process at the nine (9) month audit of the accounts.
(i) Hospital or its duly authorized agent shall have the
exclusive and sole right to invoice and collect all charges for services
(other than professional services including histories and physicals,
individual psychiatric therapy, hospital rounds and psych testing which are
billed by NLTC or its designee) rendered by NLTC to patients in the Program.
All rates for Program patients shall be established by Hospital after
consultation with NLTC. This paragraph shall in no way restrict the medical
director or other members of the Hospital Professional Staff and allied
health professional staff from invoicing and collecting fees for professional
services rendered to patients in the Program. All amounts collected by
Hospital or its duly authorized agents pursuant to such invoices shall belong
to Hospital and New Life shall have no right or interest in the same, except
as provided herein. Hospital will notify NLTC if it uses program receivable
to finance working capital needs.
(j) For the period of August 1, 1995 through March 31,
1996, the total Program Fees shall not exceed the Fifty-two Thousand Five
Hundred Dollars ($52,500) minimum variable Program Fee, per section 3.(a),
and the Seven Thousand Five Hundred Dollars ($7,300) fixed Program Fee, per
section 5.(c). This period shall not be subject to the audit of actual
receipts per section 5.(e).
<PAGE>
6. Liability Insurance. NLTC shall at its sole cost and expense,
maintain in full force and effect during the term of this Agreement,
comprehensive general liability and malpractice (errors and omissions)
insurance issued by insurance companies reasonably acceptable to Hospital.
The minimum amount shall be One Million Dollars ($1,000,000) per occurrence,
One Million Dollars ($1,000,000) in the aggregate for bodily injury and
Twenty-Five Thousand Dollars ($25,000) for property damage, with an umbrella
policy for Three Million Dollars ($3,000,000). The deductible will not exceed
Ten Thousand Two Hundred Dollars ($10,200) per occurrence. Hospital shall be
named as an additional insured on all such insurance. NLTC shall cause
certificates evidencing such insurance to be delivered to Hospital upon
Hospital's request. NLTC shall give Hospital thirty (30) days' prior written
notice of any cancellation or reduction of coverage, change in deductible,
material change in the terms or conditions of the policies, or addition or
deletion of endorsements.
Hospital shall carry insurance covering losses relating to general
liability and malpractice (errors or omissions) in amounts of One Million
Dollars ($1,000,000) per occurrence, Three Million Dollars ($3,000,000) in the
aggregate. Certificates of Hospital's insurance shall be delivered to NLTC upon
NLTC's request. Hospital shall give NLTC thirty (30) days' prior written notice
of any cancellation or reduction of coverage, change in deductible, material
change in the terms or conditions of the policies, or addition or deletion of
endorsements.
The insurance coverage required by this paragraph shall be in full force
and effect throughout the term of this Agreement and, if written on a claims
made basis, for it period of four (4) years after the termination of this
Agreement; provided, however, that insurance coverage for the period following
the termination of this Agreement may be "tail" coverage mutually acceptable to
the parties.
7. Confidential Information. For purposes of this Agreement, the
term "Confidential Information" shall include the following: (i) all
documents and other materials, including but not limited to memoranda,
manuals, handbooks, production books and audio or visual recordings, which
are developed by NLTC and contain written information relating to the Program
(excluding written materials distributed to patients in the Program or as
promotion for the Program); (ii) all methods, techniques and procedures
developed by NLTC and utilized in providing psychiatric and chemical
dependency care and treatment services to patients in the program at the
Hospital which are not readily available through sources in the public
domain; and (iii) all trademarks, trade names and service marks of NLTC; (iv)
all financial, operational and related information of Hospital not readily
available through sources in the public domain; and (v) the terms of third
party payor agreements entered into by the Hospital.
Both parties agree and acknowledge that the Confidential Information is
disclosed to it in confidence and with the understanding that it constitutes
valuable business information developed by the other party at great expenditure
of time, effort and money. Each party agrees it shall not, without the express
prior written consent of the other party, use Confidential Information for any
purpose other than the performance of this Agreement. Each party further agrees
to keep strictly confidential all Confidential Information and not disclose or
reveal such information to any third party without the prior written consent of
the other party.
Each party acknowledges that the disclosure of Confidential Information to it by
the other party is done in reliance upon the representations and covenants in
this Agreement. Upon termination of this Agreement by either party for any
reason whatsoever, each party shall forthwith destroy or return to the other
party all material constituting or containing Confidential Information and
will not thereafter use, appropriate, or reproduce such information or
disclose such information to any third party.
NLTC shall protect the confidentiality of patient information at the Facility
and will comply with all Facility policies and procedures and Federal and State
laws, rules and regulations concerning the release of information about
patients.
<PAGE>
8. Recruitment of Employees. Hospital acknowledges that NLTC has
expended and will continue to expend substantial time, effort and money in
training its employees and independent contractors in the operation of the
Program. The employees and independent contractors of NLTC who will work in
the Program at the Facility will have access to and possess Confidential
Information of NLTC. Hospital acknowledges that to employ or contract with
former employees or independent contractors of NLTC would likely result in
the use by Hospital of NLTC Confidential Information in violation of Section
7 hereof. hospital therefore, agrees that it will not, through its efforts or
through the efforts of person(s) acting as Hospital's agent, during the
initial term or any extended term of this Agreement, and during an
additional one (1) year thereafter, unless this agreement is terminated by
Hospital for reason of default by NLTC, employ, solicit the employment of, or
in any way retain the services of any employee or former employee of NLTC to
work in a psychiatric treatment program if such individual has been employed
or retained by NLTC at any time during the immediately preceding one (1) year
unless NLTC gives its prior written consent thereto. NLTC similarly agrees it
will not, during the same period or periods, employ or solicit the employment
of any employee or former employee of Hospital who has been employed or
retained by Hospital at any time during the preceding one (1) year without
Hospital's prior written consent thereto. Nothing in this Section 8 shall be
construed to prevent any psychiatrist from being granted Medical Staff
privileges and treating patients in the Facility in their private practices.
During the term of this agreement, Hospital agrees that it will not solicit
nor agree to the formation of private practice treatment relationships with
NLTC's independent contractors for the purpose of excluding NLTC from the
continuance of its relationship with the Hospital, m which case, such
relationships between Hospital and former independent contractors NLTC would
constitute a violation of this Section 8.
9. Compliance with Regulations. NLTC will conduct its activities
and operations in strict compliance with all rules and regulations of the
Hospital and its Medical Staff, applicable state and other governmental
authorities and applicable accreditation standards promulgated by the Joint
Commission on Accreditation of Healthcare Organizations. NLTC's employees
and representatives shall comply with and observe all such rules and
regulations.
10. Service Mark License. Hospital acknowledges that New Life, New
Life Treatment Centers, Inc., Minirth-Meier, Meier Clinics, and Minirth Meier
New Life Clinics, Inc. are registered service marks belonging exclusively to
NLTC, and that during the term of this Agreement only, Hospital is
licensed to utilize these service marks in the marketing of professional
services for the treatment and care of psychiatric patients in the Program.
Hospital's use of these service marks shall inure to the benefit of NLTC, and
shall not give Hospital any right or title therein, and any common law
service marks rights acquired as a consequence of Hospital's use thereof are
hereby assigned exclusively to NLTC. At the termination of this Agreement,
Hospital shall immediately terminate the use of these service marks unless a
separate written service mark license agreement, specifically authorizing
continued use of such service marks, is entered into by the parties hereto at
that time. Hospital will not cause any documents to be printed bearing such
service marks without an accompanying mark indicating that such service marks
are registered service marks. NLTC will not cause any documents to be printed
that reference the Hospital without prior written consent of Hospital.
11. Access to Records.
(a) Each party hereto agrees to maintain such records and provide such
information relating to the Program, the services and supplies provided
thereunder, the cost thereof and payments received in connection therewith, to
the other, contracting payors, and to applicable state and federal regulatory
agencies for compliance, as may be required. Such obligations shall not be
terminated upon termination of this Agreement. Each party agrees to permit the
other party or its authorized representatives at all reasonable times to have
access upon request to books, records and other papers relating to the cost
thereof and to the amounts of any payments received in connection therewith.
<PAGE>
(b) NLTC shall until the expiration of four (4) years after the
furnishing of Medicare/Medicaid reimbursable services pursuant to this
Agreement allow the Comptroller General of the United States, the Secretary
of Health and Human Services, and their duly authorized representatives
access to this Agreement and NLTC books, documents and records necessary to
certify the nature and extent of costs of Medicare / Medicaid reimbursable
services provided by NLTC under this Agreement. Any subcontract between NLTC
and another organization for the provision of services related to this
Agreement shall contain a clause comparable to this section 11(b).
12. Governing Law. The validity of this Agreement, the
interpretation of the rights and duties of the parties hereunder and the
construction of the terms hereof shall be governed in accordance with the
laws and regulations of the State of Michigan.
13. Force Majeure. If either of the parties hereto is delayed or prevented
from fulfilling any of its obligations under this Agreement by force majeure,
said party shall not be liable under this Agreement for said delay or
failure. "Force Majeure" means any cause beyond the reasonable control of a
party, including but not limited to act of God, act of omission of civil or
military authorities of a state or a nation, fire, strike, flood, riot, war,
delay of transportation, or inability due to the aforementioned causes to
obtain necessary labor, materials or facilities.
14. Waiver. A waiver by either party of a breach of failure to
perform shall not constitute a waiver of any subsequent breach or failure.
15. Severability. If any part of this Agreement should be held to be void
or unenforceable, such part will be treated as severable, leaving valid the
remainder of this Agreement notwithstanding the part or parts found void or
unenforceable.
16. Binding Effect. This Agreement shall be binding on the heirs,
executors, administrators, successor and assigns of the respective parties.
17. Arbitration. Any controversy or claim arising out of or relating
to this Agreement shall be settled by binding arbitration in accordance with
the rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction therefore, subject to the following terms, conditions and
exceptions:
(a) The demand for arbitration shall be initiated in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
in the form existing at the time the arbitration is initiated.
(b) There shall be a single arbitrator who shall be an attorney and whose
selection shall be made in accordance with the procedures then existing for the
selection of such arbitrators by the American Arbitration Association.
(c) The jurisdiction of the arbitrator and the arbitrability of
any issue raised by the parties shall be decided by the arbitrator in the
first instance.
(d) The venue of any arbitration shall be Macomb County, Michigan and the
arbitration shall be conducted in accordance with the laws of the State of
Michigan.
(e) Notwithstanding any provisions of the Michigan Code of
Civil Procedure or the Commercial Arbitration Rules of the American
Arbitration Association to the contrary, each party shall have all of the
rights of discovery pertaining to civil litigation as provided in the
Michigan Code of Civil Procedure. Unless the parties otherwise agree in
writing, any arbitration hereunder shall be conducted in accordance with the
rules of evidence existing in the State of Michigan at the time of the
arbitration.
(f) Insofar as possible, sufficient time shall be designated in
consecutive business days to allow for completion of he arbitration
proceedings without interruptions or adjournments.
(g) Each of the parties will share equally in the costs and expenses of
arbitration unless the arbitrator finds that the position of the non-prevailing
party in such arbitration was without substantial justification or frivolous, in
which event the arbitrator may assess all of such costs and expenses together
with reasonable attorneys' fees against the non-prevailing party.
18. Complete Agreement. This Agreement constitutes the complete
understanding of the parties and supersedes any and all other agreements,
either oral or in writing, between the parties hereto with respect to the
subject matter hereof , and no agreement, statement, or promise relating to
the subject matter of this Agreement which is not contained herein shall be
valid or binding. This Agreement may be modified only by a writing signed by
both parties.
19. Counterparts. This Agreement may be executed in one (1) or more
counterparts, all of which together shall continue only one (1) Agreement.
20. Notice. All notices hereunder shall be in writing delivered personally
or by Certified or Registered postal mails and shall be deemed given when
delivered personally or when deposited in the United States mail, addressed as
below and with proper postage affixed:
If to NLTC: Burt T Wilson
Minirth Meier New Life Clinics
/ New Life Treatment Centers, Inc.
570 Glenneyre Ave
Suite 107
Laguna Beach, CA 92651
<PAGE>
If to Hospital: Bruce A Shear, President
PHC of Michigan, Inc.
200 Lake Street
Peabody, MA 01960
21. Indemnify.
(a) NLTC shall defend, indemnify and hold Hospital and its officers,
employees and agents harmless from and against any and all liability, loss,
expense, attorneys' fees, or claim for injury or damages arising from any act
or omission in connection with this Agreement, but only in proportion
to and to the extent such liability, loss, expense, attorneys' fees, or claim
for injury or damages is caused by or results from the negligent or
intentional acts or omissions of NLTC or its officers, physician chaplain,
mental health professional contractors, agents, or employees.
(b) Hospital shall defend, indemnify and hold NLTC and its officers,
employees and agents harmless from and against any and all liability, loss,
expense, attorneys' fees, or claim for inquiry or damages arising from any
act or omission in connection with this Agreement, but only in proportion
to and to the extent such liability loss, expense, attorneys' fees or claim
for injury or damages is caused by or results from the negligent or
intentional acts or omissions of Hospital or its officers, agents, or
employees.
22. Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their respective successors and assigns;
provided, however, that neither party shall have the right to assign this
Agreement without the prior written consent of the other party hereof, which
consent may be withheld for any or no reason. Notwithstanding the foregoing
Hospital may assign this Agreement to an affiliated corporation or upon a
transfer of Hospital's operations at the Facility.
23. Independent Contractor. The parties hereto acknowledge and agree
that the relationship created between them is that of independent contractor.
Nothing contained herein shall be construed as creating a partnership or
joint venture or any other type of relationship between the parties other
than one of independent contractor. It is expressly understood that each
party hereto shall be responsible for its own employees and shall make no
claims to the other for work and vacation pay, sick leave, retirement
benefits, social security, worker's compensation, disability or unemployment
insurance benefits or employee benefits of any kind. Nothing contained herein
shall create any equity or leasehold interest in the Facility on the part of
NLTC. In the absence of express authorization of the Hospital in each
instance, NLTC shall not enjoy the use of (i) any trademark, trade secrets,
trade name, service mark, proprietary information, or other intangible
property belonging to hospital or (ii) any transportation, credit card,
letterhead or other perquisite owned by the Hospital. Nothing in this
Agreement shall be construed to confer upon NLTC any authority, express or
implied, to bind or commit the Hospital to any third party in any way.
24. Illegality. Notwithstanding anything to the contrary contained
herein in the event performance by either party hereto of any term, covenant,
condition or provision of this Agreement should jeopardize the licensure of
hospital its participation in Blue Cross or other reimbursement or payment
programs, or its full accreditation by the JCAHO or any other state or
nationally recognized accrediting organization, or if for any other reason
said performance should be in violation of any statute, ordinance, or be
otherwise deemed illegal or unethical by a recognized body, agency, or
association in the medical or hospital fields, Hospital may at its option
terminate this Agreement forthwith, provided, however, in the event of any
such termination under this Section, the parties hereto agree to make good
faith efforts to enter into a new Agreement within thirty (30) days
incorporating the terms and provisions of this Agreement which are consistent
with any statute, ordinance or other requirements in effect at such time.
<PAGE>
25. No Requirement to Refer. Nothing in this Agreement,
whether written or oral, nor any consideration in connection herewith
contemplates or requires the referral of any patient. This Agreement is not
intended to influence the judgment of any physician contracting with Hospital
in choosing the medical facility appropriate for the proper treatment and
care of his or her patients. No physician shall receive any compensation or
remuneration for referrals, if any. The parties hereto support a patient's
right to select the medical facility of his or her choice.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as of the
day and year first above written.
HARBOR OAKS HOSPITAL
By: __________________________________
Bruce A. Shear
President
NEW LIFE TREATMENT CENTERS, INC.
By: __________________________________
Burt T. Wilson
Executive Vice President
<PAGE>
Exhibit A.1
Example of Calculation of Program Fee
Month 1, 1996
Gross Charges $ 125,000 Per hospital billing reports
Estimated Contractuals and Bad Debt (31,250)Per hospital billing reports
Net Revenue 93,750
Multiplied by 0.5 0.50
46,875
Multiplied by 0.9 0.90
Calculated amount due to NLTC $ 42,188
Minimum Base Amount (per 5.(a)
and 5.(b)) $ 52,500
Program Fee for Medicare/Medicai
/Champus (per 5.( c)) $ 7,500
NLTC would be paid $60,000 for Month 1.This amount is due on the 5th of Month 3.
Month 2,1995
Gross Charges $ 220,000 Per hospital billing reports
Estimated Contractuals and Bad Debt (55,000) Per hospital billing reports
Net Revenue 165,000
Multiplied by 0.5 0.50
82,500
Multiplied by 0.9 0.90
Calculated amount due to NLTC $ 74,250
Minimum Base Amount (per 5.(a) and
5.(b)) $ 52,500
Program Fee for Medicare/Medicaid
/Champus (per 5.( c)) $ 7,500
NLTC would be paid $81,750 ($74,250 + $7,500) for Month 2. This amount is due on
the 5th of Month 4.
Month 3, 1995
Gross Charges $ 275,000 Per hospital billing reports
Estimated Contractuals and Bad Debt (68,750)Per hospital billing reports
Net Revenue 206,250
Multiplied by 0.5 0.50
$ 103,125
Multiplied by 0.9 0.90
Calculated amount due to NLTC $ 92,813
Minimum Base Amount (per 5.(a) and
5.(b)) $ 52,500
Program Fee for Medicare/Medicaid
/Champus (per 5. (c)) $ 7,500
NLTC would be paid $100,313 ($92,813 + $7,500) for Month 3. This amount is due
on the 5th of Month 5.
Month 4,1996
Gross Charges $ 205,000 Per hospital billing reports
Estimated Contractuals and Bad
Debt (51,250)Per hospital billing reports
Net Revenue 153,750
Multiplied by 0.5 0.50
76,875
Multiplied by 0.9 0.90
Calculated amount due to NLTC $ 69,188
Minimum Base Amount (per 5.(a) and
.(b)) $ 52,500
Program Fee for Medicare/Medicaid
/Champus (per 5.( c)) $ 7,500
NLTC would be paid $76,688 ($69,188 + $7,500) for Month 4. This amount is due on
the 5th of Month 6.
Gross Charges does not include amounts billed to Medicare, Medicaid, CHAMPUS
or other federally funded programs.
<PAGE>
Exhibit A.2
Example of Audit of Not Receipts
- ------------------------------------------------------------------------------
In all examples below, the audit and subsequent calculations refer to
non-Medicaid, Medicaid and Champus patients only. The fixed Program Fee
of $7,500 is not to be included in the total receipts paid to NLTC for
the purpose of doing the actual audited division of the net receipts.
- ------------------------------------------------------------------------------
-------------------------------------------------------------
Audit for All accounts for patients discharged in month 1 will be
Month 1 audited in Month 10, 9 months following month of service,
to determine the total actual receipts
-------------------------------------------------------------
.
Calculated Fee For Month 1 (per Exhibit A. 1)42,188
Actual Program Fee Paid in Month 1 (per Exhibit A. 1) 52,500
Audited Net Receipts for Patients Discharged in Month 1* 47,000
Multiplied by 0.5 0.50
Audited Program Fee for Month 1 23,500
Excess of Actual Program Fee Paid Over Audited Program Fee 29,000
Amount Due Hospital 0
Note:No refund is due to Hospital as the minimum monthly Program Fee is $52,500.
------------------------------------------------------------
Audit for AR accounts for patients discharged in month 2 will
Month 2 be audited in Month 11, 9 months folllowing month of
service, to determine the total actual receipts
------------------------------------------------------------
. Calculated Fee For Month 2 (per Exhibit A.1)74,250
Actual Program Fee Paid in Month 2 (per Exhibit A. 1) 74,250
Audited Net Receipts for Patients Discharged in Month 2* 182,000
Multiplied by 0.5 0.50
Audited Program Fee for Month 2 91,000
Shortfall of Actual Program Fee Paid From Audited Program Fee (16,750)
Amount Due to NLTC 16,750
This amount would be due Month 1, 1996 (60 days from audit in month 11)
------------------------------------------------------------
Audit for Month 3 All accounts for patients discharged in month 3 will be
audited in Month 12, 9 months following month of service,
to determine the total actual receipts
------------------------------------------------------------
Calculated Fee For Month 3 (per Exhibit A. 1)92,813
Actual Program Fee Paid in Month 3 (per Exhibit A. 1) 92,813
Audited Net Receipts for Patients Discharged in Month 3' 162,000
Multiplied by 0.5 0.50
Audited Program Fee for Month 3 81,000
Excess of Actual Program Fee Paid Over Audited Program Fee11,813
Amount Due Hospital 11,813
This amount would be du March 2, 1996 (60 days from audit in month 12)
------------------------------------------------------------
Audit for Month 4 All accounts for patients discharged in month 4 will be
audited in Month 1, 9 months following month of service,
to determine the total actual receipts
------------------------------------------------------------
Calculated Fee For Month 4 (per Exhibit A. 1)69,188
Actual Program Fee Paid in Month 4 (per Exhibit A-1)69,188
Audited Net Receipts for Patients Discharged in Month 4* 95,000
Multiplied by 0.5 0.50
Audited Program Fee for Month 4 47,500
Excess of Actual Program Fee Paid Over Audited Program Fee 21,688
<PAGE>
Amount Due Hospital 16,688
This amount would be due March 3, 1996 (60 days from audit in Month 1)
The full amount of the excess is nonrefundable to the Hospitals it would
lower the Program Fee below
the $52,5 minimum. Therefore, the difference between what was paid and the
minimum fee is refunded.
69,188 - 52,500 = 16,688.
Audited net receipts do not include amounts Coined from Medicare, Medicaid,
CHAMPUS and other federally funded programs.
<PAGE>
Exhibit 10.121
LINC GROUP
The LINC Group, Inc. 303 East Wacker Drive Chicago Illinois 60601 Tel
312-946-1000 Fax 312-946-7304
Martin E.
Zimmerman
VIA
FACSIMILE
Chairman and Chief Executive Officer
March 18, 1997
Mr. Bruce Shear
President
Pioneer Health Care, Inc.
200 Lake Street
Suite 102
Peabody, MA 01960
Dear Bruce:
It was a pleasure talking to you last week. We are pleased to propose on a
lease line of credit for your needs through March 31, 1998, as outlined
below. As we discussed, due to the size of the overall financing, we have
used a term of 42 months for all the equipment, inclusive of computers.
Lessee: Pioneer Health Care, Inc. and its subsidiaries
200 Lake Street, Suite 102
Peabody, MA 01960
Lessor: LINC Capital Partners
303 East Wacker Drive, Suite 1000
Chicago, IL 60601
Lease Line Amount: $200,000
Equipment: The "Equipment" shall consist of new and used movable
assets per attached "Schedule A."
A detailed list of the Equipment including locations
to be provided by Lessee.
"Equipment Cost" shall be equal to the lowest of (1)
manufacturer' s net invoice price exclusive of taxes,
freight and installation costs; (2) net book value
(determined in accordance with generally accepted
accounting principles); and (3) fair market value.
No more than 25% of the total lease line shall be
used Equipment.
<PAGE>
Mr. Bruce Shear
March 18, 1997
Page 2
The "Amount Advanced" shall be equal to 100% of
Equipment Cost for new Equipment. No Equipment with
an Equipment Cost less than $1,000 shall be financed.
Term and Rate: The "Initial Lease Term" shall be for 42 months. The
applicable "Monthly Lease Rate Factor" shall be
2.8307% of Equipment Cost per month, reflecting an
annual implicit rate of 10.5% for the monthly rental
payments only ("Lease Rate").
The above rates are equal to an annual implicit rate
of 10.5% per year for the monthly rent payments only.
Rate Adjustment: The rate will be adjusted at the time of takedown to
the extent of any increase in the yield of 48 month
Treasury Notes which yielded 5.78% on October 25,
1995.
Progress Payments: If requested, progress payments will be made at the
request of the lgssee. Progress payments may be for
any amount over $1,000 per invoice. Interim rent
shall be payable from the date progress payments are
made to the Commencement Date of the corresponding
Equipment Schedule. Interim rent shall be calculated
at the daily equivalent of the Monthly Lease Rate
Factor.
Commencement Date: Commencement of each Equipment Schedule will occur on
the first day of the calendar quarter following
Lessee's acceptance of all Equipment listed on such
Equipment Schedule. Equipment shall be funded on
Equipment Schedules of at least $50,000 each.
Payment Terms: Monthly, in advance. In addition, the last month's
rent on the entire Lease Line Amount shall be due on
the Commencement Date of the first Equipment
Schedule. Such rent shall be applied to the last
month's rent for each Equipment Schedule on a
pro-rata basis. If Lessee does not utilize the
entire lease line described herein, any such
unapplied rent balance shall be retained by Lessor.
End of Term Options: At the end of the Initial Lease Term of the first
Equipment Schedule, Lessee shall choose one of the
following options:
Purchase all, but not less than all, of the
Equipment for Fair Market Value.
<PAGE>
Mr. Bruce Shear
March 18, 1997
Page 3
Renew the lease for a period of 12 months at Fair Rental Value not to
exceed 50% of the monthly lease race factor payable monthly in advance. Return
the Equipment to LINC in accordance with the Master Lease.
The option must be exercised on an "all or none" basis, prior to the
expiration of the Initial Lease Term of the first Equipment Schedule and shall
apply to all Equipment on all Equipment Schedules.
Takedown Period: All Equipment Schedules shall takedown prior to March
31, 1998.
Maintenance, Taxes,
and Insurance: For the account of the Lessee.
Reports: So long as there are amounts due LINC under the
Master Lease, Pioneer shall supply LINC with
financial and operating performance data as is
provided to Board Members and investors and the
S.E.C., and shall immediately notify LINC of any
material adverse change in its financial condition
or business prospects.
Transaction Costs: Lessee shall reimburse LINC for its out-of pocket due
diligence costs, on-site documentation preparation
costs (if such service is requested by Lessee) and
other reasonable expenses related to this
transaction, including a documentation fee of $2,000.
Earnest Money Deposit: Upon acceptance of this proposal, Pioneer will
provide an Earnest Money Deposit of $5,000 which
shall be applied first to Transaction Costs and then
to the first lease rental payment.
In the event that this transaction is not approved by
Lessor's Commitments Committee, the Earnest Money
Deposit shall be returned within thirty (30) days of
such decision net of Transaction Costs (if any)
incurred to that date.
If Pioneer and Lessor do not execute final
documentation acceptable to Lessor or if Pioneer
elects not to proceed with transactions contemplated
herein, then the deposit amount will be retained by
Lessor.
<PAGE>
Mr. Bruce Shear
March 18, 1997
Page 4
Conditions Precedent: 1. Mutually acceptable documentation, the form of
which will be provided by LINC.
2. No material adverse change in Borrower's or
Partnership's financial condition prior to each
takedown.
3. Formal approval of the Section by LINC Capital
Partner's Commitments Committee.
Commitment: This proposal is valid until the close of business April
2, 1997.
If you are in agreement with the terms and conditions of this proposal,
please indicate your acceptance by signing and returning it to my attention
with a check made payable to LINC Capital Partners in the amount of $5,000.
Upon receipt of this signed proposal and check, together with the requested
financial information, we will immediately commence documentation.
Please do not hesitate to call if you have any questions. We took forward to
working with you in the future.
Sincerely,
Martin E. Zimmerman
MEZ/mec
Acknowledged and Agreed:
PIONEER HEALTH CARE, INC.
By: ___________________________
Title: __________________________
Date: __________________________
EXHIBIT 21.1
STATE OF
NAME OF SUBSIDIARY DOING BUSINESS AS (NAME) 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 Healthcare Nevada
Northpoint-Pioneer, Inc. Pioneer Health 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
Virginia, Inc. Massachusetts
Counseling Associates of
Virginia, Inc. Massachusetts
BSC-NY, Inc. Behavioral Stress Center New York
STL, Inc. Massachusetts
Professional Health Associates, Inc. New York
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form SB-2 of
our report dated September 6, 1996 on our audit of the consolidated financial
statements of PHC, Inc. as at June 30, 1996 and June 30, 1995 and for each of
the years then ended. We also consent to the reference to our firm under the
captions "Selected Consolidated Financial Data" and "Experts".
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
April 15, 1997
