U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997.
|_| TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ___________
Commission file number 0-23524
PHC, INC.
(Exact name of small business issuer as specified in its charter)
Massachusetts 04-2601571
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Lake Street, Suite 102, Peabody MA 01960
(Address of principal executive offices) (Zip Code)
978-536-2777
(Issuer's telephone number)
_______________________________________________________________________________
(Former Name, former address and former fiscal year, if changed since last
report) Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes _ No_X__
In a no action letter, the U. S. Securities and Exchange Commission indicated
that the company's failure to file a report on Form 8-K in connection with its
acquisition of Behavioral Stress Centers, Inc. in November 1, 1996 will not
preclude stockholders from selling under Rule 144.
Applicable only to corporate issuers
Number of shares outstanding of each class of common equity, as of January 31,
1998:
Class A Common Stock 4,690,174
Class B Common Stock 730,331
Transitional Small Business Disclosure Format
(Check one):
Yes______ No X
<PAGE>
PHC, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - December 31, 1997 and June 30, 1997.
Condensed Consolidated Statements of Operations - Three months ended December
31, 1997 and December 31, 1996; Six months ended December 31, 1997 and December
31, 1996.
Condensed Consolidated Statements of Cash Flows - Six months ended December 31,
1997 and December 31, 1996.
Notes to Condensed Consolidated Financial Statements - December 31, 1997.
Item 2. Management's Discussion and Analysis of Plan of Operation
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
PHC INC. AND SUBSIDIARIES (UNAUDITED)
CONSOLIDATED BALANCE SHEETS
Dec. 31 June 30
1997 1997
ASSETS
Current assets:
Cash & Cash Equivalents..........................$ 57,503 $ 844,471
Accounts receivable, net of allowance for
bad debts of $2,410,045 at Dec. 31, 1997,
$ 1,942,602 at June 30, 1997.................... 8,973,466 9,066,763
Prepaid expenses................................ 292,401 346,091
Other receivables and advances.................. 585,636 249,218
Deferred Income Tax Asset....................... 515,300 515,300
Other Receivables, related party 10,000 80,000
__________ __________
Total current assets.......................... 10,434,306 11,101,843
Accounts Receivable, noncurrent.................... 645,000 605,000
Loan Receivable.................................... 118,284 134,284
Property and equipment, net........................ 3,420,232 3,525,195
Deferred income taxes 154,700 154,700
Deferred financing costs, net of amortization 92,272 60,575
Goodwill, net of accumulated amortization 2,111,361 1,644,252
Other assets........................................ 213,448 214,150
Other receivables, noncurrent, related party 3,097,740 2,983,177
Total...............................................$20,287,343 $20,423,176
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... 3,735,290 $ 2,529,126
Notes payable--related parties ................... 51,600 51,600
Current maturities of long term debt.............. 645,811 560,914
Revolving credit note and secured term note 1,226,014 1,789,971
Current portion of obligations under capital leases 96,862 97,038
Accrued Payroll, Payroll Taxes and Benefits 400,365 303,731
Accrued expenses and other liabilities...... 659,355 672,154
Net current liabilities of discontinued operations 666,945 334,349
Total Current liabilities...................... 7,482,242 6,338,883
Long-term debt....................................... 3,162,542 3,021,540
Obligations under capital lease..................... 1,409,035 1,434,816
Notes payable related parties........................ 9,515 23,696
Convertible debentures -- 2,734,375
Net long term liabilities of discontinued operations 1,185,187 1,145,285
Total noncurrent liabilities...................... 5,766,279 8,359,712
Total liabilities................................. 13,248,521 14,698,595
Stockholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, 500 shares issued and outstanding June
30, 1997 (liquidation preference $504,333) -- 5
Class A common stock, $.01 value; 20,000,000 shares
authorized, 4,690,174 and 2,877,836 shares
issued Dec. 97 and June 97 46,902 28,778
Class B common stock, $.01 par value; 2,000,000 shares
authorized, 730,331 and 730,360 issued Dec. 97 and
June 97 convertible into one share of Class A
common stock 7,303 7,304
Class C common stock, $.01 par value; 200,000 shares
authorized, 199,816 issued and outstanding June -- 1,998
Additional paid-in capital....................... 13,711,425 10,398,630
Treasury stock, 8,656 shares at cost (37,818) (37,818)
Accumulated Deficit............................. (6,688,990) (4,674,316)
Total Stockholders' Equity...................... 7,038,822 5,724,581
Total............................................ 20,287,343 $ 20,423,176
See Notes to Consolidated Financial Statements
<PAGE>
PHC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Patient Care, net ..................... $ 5,196,280 $4,963,793 10,140,492 $9,309,869
Management Fees........................ 229,410 ___140,060 462,693 140,060
Total revenue................... 5,425,690 5,103,853 10,603,185 9,449,929
Operating expenses:
Patient care expenses.................. 2,912,131 2,432,597 5,686,348 4,467,786
Contract expenses...................... -- 70,005 -- 139,898
Provision for doubtful accounts 515,471 279,937 999,249 549,880
Administrative expenses................ 2,392,919 2,260,136 4,627,498 4,143,191
Total operating expenses........ 5,820,521 5,042,675 11,313,095 9,300,755
____________ ___________ ___________ ___________
Income (loss) from operations............ (394,831) 61,178 (709,910) 149,174
Interest income.......................... 102,951 29,612 200,598 32,049
Other income............................. 52,499 129,172 121,749 210,636
Interest expense....................... (271,614) (421,524) (598,202) (554,625)
Gain (loss) from operations held
for sale............................. -- 37,202 -- 36,478
Total other income (expense).... (116,164) (225,538) (275,855) (275,462)
____________ __________ ____________ _________
Loss before Provision for Taxes... (510,995) (164,360) (985,765) (126,288)
Provision for Income Taxes (Benefit)..... -- (42,669) 7,200 1,464
Loss from Continuing Operations.......... $(510,995) $(121,691) $(992,965) $ (127,752)
Discontinued Operations:
Income (Loss) from Operations $(585,038) $ 59,367 $(1,021,706) $ 131,170
Net Income (Loss) $(1,096,033) $ (62,324) $(2,014,671) $ 3,418
Basic & Diluted Earnings (loss) per common share:
Income (Loss) from continuing
operations.................. (.09) (.04) (.20) (.04)
Income (Loss) from discontinued
operations................. (.11) .02 (.21) .04
Total.......................... (.20) (.02) (.41) .00
Basic & Diluted Weighted average number
of shares outstanding ................... 5,404,251 3,183,908 4,924,479 3,175,775
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
PHC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended
December 31
1997 1996
Cash flows from operating activities:
Net income (loss)................................ $(2,014,671) $ 3,418
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization.................... 225,932 191,349
Increase in accounts receivable.................. (311,684) (3,871,437)
Compensatory Stock options & warrants issued for
obligations 125,000
Increase (Decrease) in prepaid expenses and other
current assets................................. 53,690 (431,620)
Decrease in other assets......................... 38,245 40,035
Decrease in net assets of operations held for
sale........................................... 55,288
Increase in accounts payable...................... 1,039,614 949,016
Increase in accrued and withheld taxes........... 16,736
Increase (decrease) in accrued expenses and other
liabilities........................................ 250,385 (364,652)
Net cash provided (used) by discontinued operations 372,498 (625,717)
__________ _________
Net cash used in operating activities............... (345,991) (3,912,584)
__________ _________
Cash flows from investing activities:
quisition of property and equipment............. (41,045) (149,935)
Costs related to business acquisition.......... (616,276) (647,318)
Net cash used in investing activities........... (657,321) (797,253)
Cash flows from financing activities,
Issuance of Common Stock....................... 3,328,915 688,471
Net debt activity.............................. (378,196) 1,337,872
Convertible debt............................... (2,734,375) 2,578,125
___________ _________
Net cash provided by financing activities....... 216,344 4,604,468
NET INCREASE (DECREASE) IN CASH................... (786,968) (105,369)
Beginning cash balance............................ 844,471 284,044
ENDING CASH BALANCE............................... 57,503 $178,675
See Notes to Consolidated Financial Statements
<PAGE>
PHC, Inc.
PHC, INC. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 1996
Note A - The Company
PHC, Inc. ("PHC") operates substance abuse treatment centers in several
locations in the United States, a psychiatric hospital in Michigan, out-patient
psychiatric centers in Nevada, Kansas and Michigan and a long-term care facility
in Massachusetts. PHC, Inc. also manages a psychiatric practice in New York
through BSC-NY, Inc. The consolidated financial statements include PHC and its
subsidiaries, all of which are 100% owned except Pioneer Counseling of Virginia,
Inc. which is owned 80% by PHC, Inc. (collectively the "Company"):
PHC's subsidiaries, PHC of Utah, Inc., ("PHU"), PHC of Virginia, Inc.
("PHV"), and PHC of Rhode Island, Inc. ("PHRI") provide treatment of addictive
disorders and chemical dependency. PHC of Michigan, Inc. ("PHM"), operates
Harbor Oaks Hospital. PHM provides inpatient psychiatric care to children,
adolescents and adults and operates a partial hospitalization program that
includes outpatient treatment services. PHC of Nevada, Inc. ("PHN"), operates
Harmony Healthcare which was purchased on November 1, 1995. PHN provides
outpatient psychiatric care to children, adolescents and adults. PHC of Kansas,
Inc. ("PHK"), operates Total Concept EAP which was purchased on March 15, 1996.
PHK operates Employee Assistance Programs and provides outpatient behavioral
health care to children, adolescents and adults. North Point-Pioneer, Inc.
("NPP"), operates five outpatient behavioral health centers under the name of
Pioneer Counseling Centers. Pioneer Counseling of Virginia, Inc., ("PCV")
provides psychiatric services to adults, adolescents and children through an
outpatient clinic located in Salem, Virginia. Pioneer Counseling of Virginia,
Inc. is owned 80% by PHC, Inc., 10% by Dr. H. Patel and 10% by Dr. M. Patel.
BSC-NY, Inc. ("BSC"), is a provider of management and administrative services to
psychotherapy and psychological practices in the greater New York City
Metropolitan Area. Quality Care Centers of Massachusetts, Inc. ("Quality Care")
operates a long-term care facility known as the Franvale Nursing and
Rehabilitation Center. This facility is currently under a Purchase and Sale
Agreement (see Note C). STL, Inc. ("STL") operated day care centers prior to
July, 1993. Since that time, PHC has phased out its day care center operations
and the operating results of STL have been classified as "gain from operations
held for sale" in the Condensed Consolidated Financial Statements.
<PAGE>
Note B - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six months ended December 31, 1997
are not necessarily indicative of the results that may be expected for the year
ending June 30, 1998. The accompanying financial statements should be read in
conjunction with the June 30, 1997 consolidated financial statements and
footnotes thereto included in the Company's 10-KSB filed on October 14, 1997 and
amended on October 29, 1997.
Note C - Subsequent Events
On January 15, 1998 a Registration Statement filed on Form SB-2 became
effective. With this Registration Statement shares of Class A Common Stock
previously issued to ProFutures in a private placement, to Leon Rubenfaer as a
part of a purchase and sale agreement and warrants issued to Brean Murray &
Company for services rendered were registered.
On January 29. 1998, the Company's Franvale Nursing and Rehabilitation
Center ("Franvale") was cited for patient care and safety deficiencies by the
Massachusetts Department of Public Health as a result of a routine survey. A
civil penalty of $6,050 per day was imposed. 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 citation the Company was notified by the
Department of Public Health and by the federal agency, HCFA, that Franvale will
be terminated from the Medicare and Medicaid programs unless Franvale is in
substantial compliance with regulatory requirements by February 21, 1998. As a
result of this statement of deficiencies Franvale was precluded from readmitting
patients or admitting new patients. As of February 13, 1998 the ban from
readmission has been removed. Franvale is still unable to admit new patients
until after the resurvey has been completed and the facility is found to be in
substantial compliance with Federal requirements. The State is scheduled to
resurvey on February 17, 1998.
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 and the expenses that have been incurred by the
Company in an attempt to cure the cited deficiencies, the Company anticipates an
adverse financial impact on future quarters.
On February 12, 1998, the Company entered into an Asset Purchase Agreement
with Lexington Healthcare Group, Inc. to sell substantially all the assets and
liabilities of Franvale Nursing and Rehabilitation Center. The assets and
liabilities of Franvale are shown net on the accompanying balance sheet and the
loss from Franvale operations is shown separately under Loss from discontinued
operations. The Company does not anticipate a net loss from the disposal of
Franvale.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
PHC, INC. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Net patient care revenue increased 4.6% to $5,196,280 for the three months
ended December 31, 1997 from $4,963,793 for the three months ended December 31,
1996. This increase in revenue is due primarily to an increase in census at
Harbor Oaks Hospital and the inclusion of Pioneer Counseling of Virginia, Inc.
which was purchased in January 1997. The increase reflects only Patient Care
revenues for the psychiatric and substance abuse facilities since Franvale, the
long-term care facility is reported as discontinued operations.
Management fees increased by 63% to $229,410 for the three months ended
December 31, 1997 from $140,060 for the three months ended December 31, 1996.
This increase in revenue is due to the inclusion of BSC-NY, Inc. for the full
quarter ended December 31, 1997.
Net patient care revenue increased 8.9% to $10,140,492 for the six months
ended December 31, 1997 from $9,309,869 for the six months ended December 31,
1996. This increase and the management fee increase for the six months resulted
from the same changes as noted for the three months ended December 31, 1997.
Liquidity and Capital Resources
A significant factor in the liquidity and cash flow of the Company is the
timely collection of its accounts receivable. Net accounts receivable from
patient care decreased during the quarter ended December 31, 1997 by 1%,
approximately $93,000. This is a result of increased collection activity and
more aggressive bad debt write offs and higher reserve accounts. The Company
continues to closely monitor its accounts receivable balances and is working to
reduce amounts due consistent with growth in revenues.
The former owners of Behavioral Stress Centers, Inc., now BSC-NY, Inc.,
agreed to accept full payment for the earn-out consideration required to be paid
to them for the year ended October 31, 1997 pursuant to the Agreement and Plan
of Merger in PHC, Inc. common stock. The total amount of the earn-out for which
PHC, Class A Common Stock will be issued is $467,288. According to the original
agreement 50% of this would have been paid in cash.
The Company believes that it has the necessary liquidity and capital
resources and contingent funding commitments to sustain existing operations for
the foreseeable future. The Company also intends to expand its operations
through the acquisition or establishment of additional treatment facilities. The
Company's expansion plans will be dependent upon obtaining adequate financing as
such opportunities arise.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The Company recently reached a Settlement and Consent Agreement (the
"Agreement") with Pioneer Health Care, Inc., a Massachusetts non-profit
corporation which had demanded that the Company discontinue use of its PIONEER
HEALTHCARE trademark upon the grounds that the mark infringed upon the rights of
Pioneer Health Care, Inc. under applicable law. Pursuant to the terms of the
Settlement Agreement, the Company has agreed to not identify itself as Pioneer
Healthcare, or otherwise use the mark in any solicitation activities or mass
media advertising, within Massachusetts or Connecticut. Additionally, in accord
with the Agreement, the parties will seek dismissal of the Cancellation
Proceeding brought before the Trademark Trial and Appeal Board by Pioneer Health
Care, Inc. and the subsequent litigation commenced by the Company in the United
States District Court for the District of Massachusetts. The Company believes
that compliance with the terms of the Agreement will not have a material adverse
effect on the Company.
In January 1996, the Company received notice that Mullikin Medical Center,
A Medical Group, Inc. ("ullikin", located in Artesia, California, filed a
petition with the U.S. Patent Trademark Office (the "PTO" seeking cancellation
of the registration of the PIONEER HEALTHCARE mark. This cancellation proceeding
is currently pending before the PTO. Although the Company regards Mullikan's
petition to be without merit, an adverse decision could result in required
discontinuance of the PIONEER HEALTHCARE and inconsequential money damages.
Item 3. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on December 26,1997
In addition to the election of directors (with regards to which (I) proxies were
solicited pursuant to Regulation 14A under the Securities and Exchange Act of
1934, as amended, (II) there was no solicitation in opposition to the
management's nominees as listed on the proxy statement, and (III) all of such
nominees were elected), the stockholders ratified the selection by the Board of
Directors of Richard A. Eisner & Company, LLP as the Company's independent
auditors for the fiscal year ending June 30, 1998.
The stockholders also voted to amend the 1993 Employee Stock Purchase and
Option Plan to increase the number of shares of Class A Common Stock available
for issuance thereunder from 300,000 to 400,000 shares, to amend the 1995
Employee Stock Purchase Plan to increase the number of shares of Class A Common
Stock available for issuance thereunder from 100,000 to 150,000 shares, and to
amend the 1995 Non-Employee Director Stock Option Plan to increase the number of
shares of Class A Common Stock available for issuance thereunder from 30,000 to
50,000 shares.
Item 6. Exhibits
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
Exhibit No. Description
4.26 Transfer from Seacrest Capital Limited of Securities of PHC,
Inc. to Summitt Capital Limited.
10.130 Settlement and Consent Agreement by and between PHC, Inc.,
Pioneer Health Care, Inc. and Pioneer Management Systems,
Inc. dated January 22, 1997.
10.131 Promissory Note of Quality Care Center of Massachusetts,
Inc. favor of CMS Therapies, dated December 17, 1997 1997
in the amount of $312,468.94.
13.132 First Amendment to Sale and Purchase Agreement by and
betwee LINC Financial Services, Inc., LINC Finance
Corporation VII and PHC of Rhode Island dated January 20,
1995 and Sale and Purchase Agreement dated March 6, 1995.
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
PHC, Inc. Registrant
Date: February 17, 1998 /s/ Bruce A. Shear
Bruce A. Shear
President
Chief Executive Officer
Date: February 17, 1998 /s/ Paula C. Wurts
Paula C. Wurts
Controller
Assistant Treasurer
<PAGE>
Exhibit Index Description
23.1 Consent of Independent Auditors
27 Financial Data Schedule
5.1 Opinion of Arent Fox Kintner Plotkin and Kahn
99.1 Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities
Litigation Reform Act of 1995.
4.26 Transfer from Seacrest Capital Limited of Securities of PHC,
Inc. to Summitt Capital Limited.
10.130 Settlement and Consent Agreement by and between PHC, Inc.,
Pioneer Health Care, Inc. and Pioneer Management Systems,
Inc. dated January 22, 1997.
10.131 Promissory Note of Quality Care Center of Massachusetts,
Inc. favor of CMS Therapies, dated December 17, 1997 1997
in the amount of $312,468.94.
13.132 First Amendment to Sale and Purchase Agreement by and
betwee LINC Financial Services, Inc., LINC Finance
Corporation VII and PHC of Rhode Island dated January 20,
1995 and Sale and Purchase Agreement dated March 6, 1995.
<PAGE>
Exhibit 5.1
Arent Fox
1050 Connecticut Avenue, NW
Washington, DC 20036-5339
Arnold R. Westerman
Tel: 202/857-6243
Fax: 202/857-6395
[email protected]
http://www.arentfox.com
January 9, 1998
PHC, Inc.
200 Lake Street Suite 102
Peabody, Massachusetts 01960
Gentlemen:
We have acted as counsel for PHC, Inc., a Massachusetts corporation
("PHC"), in connection with the issuance by PHC under the Securities Act of
1933, as amended, of up to 429,621 shares of PHC's Class A Common Stock, par
value $.01 per share (the "PHC Common Stock"), pursuant to the Form SB-2
Registration Statement to be filed with the Securities and Exchange Commission
on January 12, 1998 (the "Registration Statement").
On the basis of such investigation as we have deemed necessary, we are of
the opinion that the 429,621 shares of PHC Common Stock will be validly issued,
fully paid and nonassessable when issued in accordance with the transactions
described in the Registration Statement and as specified therein.
We hereby consent to the filing of this opinion as an exhibit to such
Registration Statement and to the reference to our firm under the heading "Legal
Matters." In giving this consent, we do not hereby admit that we come within the
category of persons whose consent is required under Section 7 of the securities
Act of 1933, as amended.
Very truly yours,
ARENT FOX KINTNER PLOTKIN & KAHN
By: _______________________________
Arnold R. Westerman
Arent Fox Kintner Plotkin & Kahn
New York, NY - McLean, VA - Bethesda, MD - Budapest, Hungary - Jeddah, Kingdom
of Saudi Arabia
<PAGE>
Exhibit 4.26
SEACREST CAPITAL LIMITED
38 Hartford Street
London, England WIY 7TG
December 19, 1997
Summit Capital Limited
38 Hafford Street
London, England W1Y 7TG
Re: Transfer of Securities of PHC, Inc. to Summit Capital Limited
Gentlemen:
Effective as of December 19, 1997 (the "Transfcr Date"), Seacrest Capital
Limited ("Seacrest") hereby assigns, transfers, and conveys to Summit Capital
Limited ("Summit") all of Seacrest's rights and interest in that Common Stock
Purchase Warrant (the "Warrants") for 60,000 shares of Class A common stock of
PHC, Inc. (the "Company") dated March 31, 1997, together with all registration
rights granted to Seacrest in connection therewith as set forth in Registration
Agreements between the Company and Seacrest and all other agreements and related
documents executed by the Company in favor of Seacrest in connection with the
foregoing, and all rights incident thereto (collectively, the "Transaction
Documents").
Summit hereby acknowledges that neither the Warrant nor the shares
underlying the Warrant have been registered under the Secunties Act of 1933, as
amended (the "Act") or any swe securities laws, and may not be offered, sold or
otherwise transferred unless such securities are registered under the Act, and
applicable state securities laws or such offers, sales and tramsfers are made
pursuant to available exemptions from the registration requirements of those
laws. Furthermore, Summit represents that it is a sophisticated investor, as
defined in Rule 506(b)(2Xii) of Rcgulationm D under the Act, and an "accredited
investor" as defined in Rule 501 of Regulation D under the Act, and acknowledges
and understands an investment in the Warrant involves a high degree of risk,
including a possible total loss of investment and that it is able to bear the
economic risk of an investment in the Warrant. Summit represents that it is
acquiring the Warrant for its own account, for investment and not with a view to
distribution thereof.
Summit further represents that it has received and reviewed copies of the
Warrant and Transaction Documents. Summit acknowledges and agrees that it shall
accept the Warrant with all rights and privileges and subject to all conditions
and restrictions set forth in the Transactiontion Documents. Summit further
agrees to be bound by the terms of such Transaction Documents as if it were an
original signatory thereto.
<PAGE>
This letter may bc executed by facsimile signature in one or more counterparts.
Yours very truly,
SEACREST CAPITAL LIMITED
By: ________________________________
Title: ________________________________
ACKNOWLEDGED AND AGREED:
SUMMIT CAPITAL LIMITED
By: ________________________________
Title: ________________________________
PHC, INC.
By: ________________________________
Title: ________________________________
<PAGE>
Exhibit 10.130
SETTLEMENT AND CONSENT AGREEMENT
This Agreement is made as of this 22nd day of January, 1998 by and among
PHC, Inc. ("PHC"), a Massachusetts corporation with a principal place of
business at 200 Lake Street, Peabody, Massachusetts; Pioneer Health Care, Inc.
("Pioneer Health"), a Massachusetts corporation with a principal place of
business at 330 Whitney Avenue, Holyoke, Massachusetts; and Pioneer Management
Systems, Inc. ("Pioneer Management"), a Massachusetts corporation with a
principal place of business at 330 Whitney Avenue, Holyoke, Massachusetts.
WHEREAS, PHC has used the service mark PIONEER HEALTHCARE in commerce to
identify and designate the source of services which it offers for sale;
WHEREAS, Pioneer Health and Pioneer Management have used the service marks
PIONEER HEALTH CARE and PIONEER HEALTH in commerce to identify and designate the
source of services which they offer for sale;
WHEREAS, on February 16, 1993, PHC registered the PIONEER HEALTHCARE mark
upon the Principal Register of the United States Patent and Trademark Office;
WHEREAS, by letter dated December 13, 1993, Pioneer Health and Pioneer
Management demanded that PHC cease and desist from any further use of the
PIONEER HEALTHCARE mark, and threatened to commence litigation against PHC if it
refused to comply with that demand;
WHEREAS, by letter dated March 17, 1994, PHC responded to the demand of
Pioneer Health and Pioneer Management by refusing to discontinue its use of the
PIONEER HEALTHCARE mark;
<PAGE>
WHEREAS, on or about May 25, 1994, pursuant to 15 U.S.C. (Section) 1064,
Pioneer Health and Pioneer Management commenced a proceeding in the United
States Patent and Trademark Office (the "Cancellation Proceeding") seeking the
cancellation of PHC's registration of the PIONEER HEALTHCARE mark on the ground
that PHC's use of that mark is likely to cause public confusion, mistake, or
deception;
WHEREAS, on or about December 9, 1994, PHC commenced a proceeding in the
United States District Court for the District of Massachusetts (the
"Litigation") seeking a declaratory adjudication of its rights to continue to
use, and maintain its registration of, the PIONEER HEALTHCARE mark;
WHEREAS, on or about April 12, 1996, Pioneer Health and Pioneer Management
alleged counterclaims against PHC in the Litigation seeking monetary and
equitable relief upon various claims arising under the laws of the United States
and the Commonwealth of Massachusetts; and
WHEREAS, the parties have determined to resolve their dispute pertaining to
the right of PHC to continue to use and maintain the registration of the PIONEER
HEALTHCARE mark, and to settle all issues which are the subjects of the
Cancellation Proceeding and the Litigation.
NOW, THEREFORE, PHC, PIONEER HEALTH AND PIONEER MANAGEMENT AGREE AS
FOLLOWS:
1. Definitions
1. 1. A "PIONEER HEALTH Mark" shall refer to any mark, including but not
limited to PIONEER HEALTHCARE, which includes both the word PIONEER and the
word HEALTH (or any derivative of the word HEALTH), in that order, as
immediately adjoining components thereof Consequently, a PIONEER HEALTH
Mark shall not include, for example, (i) the PIONEER mark alone or in
combination with any word or symbol other than the word HEALTH, or (ii) the
PIONEER mark in combination with the word HEALTH (or any derivative of the
word HEALTH) where the word HEALTH (or its derivative, if applicable) does
not appear subsequent to and immediately adjoining the word PIONEER.
Notwithstanding the first sentence of this section 1.1, a PIONEER HEALTH
Mark shall not include a Permitted Deviation of a PIONEER HEALTH mark, as
defined in section 1.2 hereof.
2
<PAGE>
1.2 A "Permitted Deviation" of a PIONEER HEALTH Mark shall refer to any mark
which includes both a derivative of the word PIONEER (such as, for example,
PIONEERING) and the word HEALTH (or any derivative of the word HEALTH, such
as, for example, HEALTHCARE), as immediately adjoining components thereof
provided, however, that the plural or possessive forms of the word PIONEER
(i.e., PIONEERS, PIONEER'S and PIONEERS') in combination with the word
HEALTH (or any derivative of the word HEALTH) shall not be a Permitted
Derivative hereunder. Consequently, for example, PIONEERING HEALTHCARE
would be a Permitted Deviation hereunder; PIONEERS HEALTHCARE would not be
a Permitted Deviation hereunder.
1.3 A "Mass Media Advertisement" shall refer to any paid advertisement placed
by PHC which is directed toward obtaining health care business and which
appears in any mass medium (including, but not limited to, radio, print.
television, internet web sites or publicly displayed visual media, such as
billboards) originating in, or distributed primarily to, any market in the
United States.
3
<PAGE>
1.4 "Solicitation Activities" shall refer to any activity, other than a Mass
Media Advertisement, which is directed toward obtaining health care
business from any person or any group of persons to whom such activity is
directed.
1.5 "Person" shall refer to both natural persons and to business organizations.
1.6 A "care-providing facility" shall mean a center at which patients receive
health care services, including, but not limited to substance abuse,
psychiatric or other rehabilitative treatment services.
II. Limitations Upon PHC's Use Of PIONEER HEALTH Marks In Massachusetts And
Connecticut
2.1 Any care-providing facility owned or operated by PHC and located anywhere
in Massachusetts or Connecticut shall not use a PIONEER HEALTH Mark in
connection with its dealings with the public (including but not limited to
the use of such a mark in any Mass Media Advertisement and in Solicitation
Activities).
2.2 For so long as PHC uses a PIONEER HEALTH Mark as a designation of the
source of its services, it shall not open or operate a corporate office in
the Massachusetts counties of Worcester, Hamden, Hampshire, Berkshire or
Franklin or in Hartford County, Connecticut.
2.3 PHC shall not, after September 30, 1998, (i) use a PIONEER HEALTH Mark in
connection with any Solicitation Activities directed specifically to any
Person in Massachusetts or Connecticut, or (ii) use a PIONEER HEALTH Mark
in any Mass Media Advertisement which appears in any medium which is
directed or distributed primarily to the Massachusetts or Connecticut
markets. For purposes of this section 2.3, any mailing addressed to any
Person residing or located in Massachusetts or Connecticut will be deemed
to be directed specifically to that Person, regardless whether that mailing
is also sent to Persons in states other than Massachusetts or Connecticut.
4
<PAGE>
2.4 PHC shall instruct its relevant employees not to use a PIONEER HEALTH Mark
as a greeting in answering its telephone at any place of business which it
maintains in Massachusetts or Connecticut.
III. Use of Disclaimer In Certain Circumstances
3.1 For a period of time beginning on the date hereof and concluding on
September 22, 2007, PHC will include a disclaimer in any Mass Media
Advertisement in which a PIONEER HEALTH Mark appears. This disclaimer will
state that PHC is "Not affiliated with the Pioneer Health Group (of
Massachusetts) or any of its affiliates."
IV. Concurrent Use and Registration
4.1 The parties agree that, in view of the substantial differences between the
services which they sell, the relative expense of those services, the way
in which those services are marketed and distributed, differences between
the likely customers of those services and certain other factors (including
the terms of this Settlement and Consent Agreement), PHC's use of any
PIONEER HEALTH Mark does not and will not cause or be likely to cause any
confusion with any goods or services offered for sale by Pioneer Health and
Pioneer Management under a PIONEER HEALTH Mark or under any other mark
presently used by Pioneer Health or Pioneer Management. The parties further
agree that, for the same reasons, PHC's use of any Permitted Deviation of a
PIONEER HEALTH Mark would not cause or be likely to cause any confusion or
likely confusion with any goods or services offered for sale by Pioneer
Health and Pioneer Management under a PIONEER HEALTH Mark or under any
other mark presently used by Pioneer Health or Pioneer Management. In
accordance with this agreement, the parties shall forthwith terminate the
Cancellation Proceeding by executing and filing a Stipulation of Dismissal
of Cancellation identical in form to Exhibit A hereto. Pioneer Health and
Pioneer Management agree not to oppose any application by PHC to register
any Permitted Deviation of a PIONEER HEALTH mark, and to execute any such
documentation as is reasonably necessary to
5
<PAGE>
enable PHC to obtain a registration of a Permitted Deviation of a PIONEER
HEALTH Mark. PHC agrees not to oppose any application by Pioneer Health
or Pioneer Management to registe the marks PIONEER HEALTH -- THE PPO;
PIONEER HEALTH
CARE; PIONEER HEALTH; PIONEER HEALTH PLAN; and PIONEER HEALTH GROUP, and to
execute any such documentation as is reasonably necessary to enable Pioneer
Health or Pioneer Management to obtain a registration of those marks.
V. Corporate Identification of PHC
5.1 PHC shall not to refer to itself as "Pioneer Health Care, Inc." in
connection with any internal
or external references to its corporate identity.
VI. Dismissal of the Litigation
6.1 The parties shall forthwith terminate the Litigation by executing and
filing a stipulation of dismissal identical in form to Exhibit B hereto.
6.2 Pioneer Health and Pioneer Management hereby release, remise and forever
discharge PHC of and from any claim or cause of action arising or alleged
to have arisen from PHC's use of any PIONEER HEALTH Mark, or PHC's referral
to its corporate identity as "Pioneer Health Care, Inc.," at any time from
the beginning of the world to the date hereof, including but not limited to
all claims alleged against PHC by Pioneer Health and Pioneer Management in
the Litigation.
6.3 PHC hereby releases, remises and forever discharges Pioneer Health and
Pioneer Management of and from any claim or cause of action arising or
alleged to have arisen from the use by Pioneer Health and/or Pioneer
Management of any PIONEER HEALTH Mark at any time from the beginning of the
world to the date hereof, including but not limited to all claims alleged
against Pioneer Health and Pioneer Management by PHC in the Litigation.
6
<PAGE>
VII. PHC's Right To Use And Register Permitted Deviations
7.1 Nothing herein requires PHC to continue to hereafter use a PIONEER HEALTH
Mark. Pioneer Health and Pioneer Management hereby consent to the use by
PHC of any Permitted Derivation of a PIONEER HEALTH Mark, and agree that
the use by PHC of any such Permitted Derivation will not violate or
infringe upon any rights of Pioneer Health or Pioneer Management.
VIII. Miscellaneous
8.1 This Agreement shall be governed by, and construed in accordance with, the
laws of Massachusetts.
8.2 This Agreement supersedes any and all oral or written agreements,
representations or understandings heretofore made relating to the subject
matter hereof and constitutes the entire agreement of the parties relating
to the subject matter hereof.
8.3 If any provision of this Agreement shall be declared void or unenforceable
by any judicial or administrative authority, the validity of any other
provision hereof shall not be affected thereby.
PHC, Inc. PIONEER HEALTH CARE, INC.
By: /s/ Bruce A. Shear By: /s/ A......J......S......
Its: President Its: President
PIONEER MANAGEMENT SYSTEMS, INC.
By: /s/ B.....E......S......
Its: President
DS2.298395.1
7
<PAGE>
EXHIBIT A
IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
BEFORE THE TRADEMARK TRIAL AND APPEAL BOARD
- -------------------------------------------------------------------------------
PIONEER HEALTH CARE, INC. and
PIONEER MANAGEMENT SYSTEMS, INC.,
Petitioners,
V. Cancellation No. 23,013
PHC, INC.,
Respondents.
- -------------------------------------------------------------------------------
STIPULATION OF DISMISSAL OF CANCELLATION
The parties hereto, through their undersigned counsel, hereby stipulate and
agree to the dismissal with prejudice of this cancellation proceeding.
PHC, INC. PIONEER HEALTH CARE, INC. and
PIONEER MANAGEMENT SYSTEMS, INC.
BY its attorney, By their attorney,
_____________________________ __________________________________
Theodore A. Breiner Esther J. Horwich
Breiner & Breiner 100 State Street
115 North Henry Street Suite 900
Alexandria. VA 22314 Boston, MA 02109
(703) 684-6885 (617) 523-1150
Dated:
ds298942
<PAGE>
EXHIBIT B
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
- -------------------------------------------------------------------------------
PHC, INC.,
Plaintiff,
V. CIVIL ACTION
No. 94-12447-NMG
PIONEER HEALTH CARE, INC. and
PIONEER MANAGEMENT SYSTEMS, INC.,
Defendents
- -------------------------------------------------------------------------------
STIPULATION OF DISMISSAL
The parties hereto, by and through their undersigned counsel, hereby
stipulate and agree to the dismissal with prejudice of all claims and
counterclaims alleged in this acion, said dismissal to be with prejudice and
without costs.
PHC, INC. PIONEER HEALTH CARE, INC. and
PIONEER MANAGEMENT SYSTEMS, INC.
BY its attorney, By their attorney,
_____________________________ __________________________________
Michael Arthur Walsh Esther J. Horwich
Choate, Hall & Stewart 100 State Street
Exchange Place, 53 State Street Suite 900
Boston, MA 02109 Boston, MA 02109
(617) 248-5000 (617) 523-1150
Dated:
ds298856
<PAGE>
Exhibit 10.131
PROMISSORY NOTE
U. S. $312,468.94 Charlotte, North Carolina
December 17, 1997
FOR VALUE RECEIVED, the undersigned, Quality Care Centers of Massachusetts,
Inc. d/b/a Franvale Nursing and Rehabilitation Center, a Massachusetts
corporation, having an address of 200 Lake Street, Suite 102, Peabody,
Massachusetts, 01960 ("Debtor"), intending to be legally bound, hereby promises
to pay to the order of CMS Therapies, Inc., a North Carolina corporation
("Payee"), the principal sum of Three Hundred Twelve Thousand, Four Hundred
Sixty Eight Dollars, and Ninety Four Cents ($312,468.94), in accordance with the
provisions of this Note.
1. Payment of Principal.
(a) Scheduled Payment of Principal Amount. Beginning February 1, 1998 and
then continuing thereafter on each payment date set forth on the Exhibit A,
(attached hereto and incorporated by reference "Payment Schedule") during the
term of this Note, Debtor shall pay the Payee the monthly installments of
principal and interest as shown on the Payment Schedule. Debtor's final payment
shall be due on January 1, 2000, ( the "Maturity Date"), or sooner if
accelerated pursuant to the terms of this note.
(b) Interest Rate. The principal balance of this Note shall bear interest
at a rate of ten percent (10%) per annum, compounded annually.
(c) Default Interest Rate. During the continuance of an Event of Default
(as hereinafter defined), the principal balance of this Note shall bear interest
at a rate of fifteen percent (15%) per annum, compounded annually.
(d) Maturity. Unless otherwise required to be paid sooner pursuant to the
provisions of this Note, or any other agreement between Debtor and Payee, the
principal balance of this Note and all interest accrued hereunder shall be due
and payable on the Maturity Date.
(e) Prepayment. Debtor may prepay this Note in whole at any time, or in
part from time to time, without penalty or premium.
2. Form of Payment; Payments Due on Nonbusiness Days. Any payment to be
made hereunder shall be payable in lawful money of the United States of America
to the Payee to such domestic account as the Payee may designate, in same day
funds. If any payment of principal on this Note shall become due on a Saturday,
Sunday or legal holiday under the laws of the State of North Carolina, such
payment shall be made on the next business day.
3. Default.
(a) Event of Default. An "Event of Default" hereunder shall mean the
occurrence of any of the following described events:
<PAGE>
(1) Any installment of principal or interest is not paid when due
hereunder; or
(2) An involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereinafter in effect shall be commenced against Debtor
and the petition shall not be dismissed, stayed, bonded or discharged within
sixty (60) days after commencement of the case; or a court having jurisdiction
in the premises shall enter a decree or order for relief in respect of the
Debtor in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereinafter in effect; or any other similar relief
shall be granted under any applicable federal, state, local or foreign law; or
(3) A decree or order of a court having jurisdiction in the premises for
the appointment of a receiver, liquidated, sequestrator, trustee, custodian or
other officer having similar powers over the Debtor or any substantial part of
the property of the Debtor shall be entered; or an interim receiver, trustee or
other custodian of the Debtor or over all or any substantial part of the
property of the Debtor shall be appointed or a wan-ant of attachment, execution
or similar process against any substantial part of the property of the Debtor
shall be issued and any such event shall not be stayed, dismissed, bonded or
discharged within sixty (60) days after entry, appointment or issuance; or
(4) The Debtor shall: (1) commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; (2)
consent to the entry of an order for relief in an involuntary case, or to the
conversion of an involuntary case to a voluntary case, under any such law; (3)
consent to the appointment of or taking possession by a receiver, trustee or
other custodian for all or a substantial part of its property; (4) make any
assignment for the benefit of creditors; or (5) take any corporate action to
authorize any of the foregoing; or
(5) If the Debtor: (1) denies any further liability or obligation under
this Note or any other agreement with Payee; or (2) contests the validity or
enforceability of this Note or any other agreement with Payee; or (3) declares
the Note or any other agreement with Payee null and void.
(b) Rights and Remedies. Upon the occurrence and during the continuance of
an Event of Default under Section 3(a)(1) hereof, Payee may, at its option: (1)
by written notice to Debtor, declare the entire unpaid principal balance of this
Note, all accrued default interest and all other amounts owed hereunder
immediately due and payable, whereupon all such amounts shall be immediately due
and payable; and (2) exercise any and all rights and remedies available to it
under any agreement or applicable law, including, without limitation, the right
to collect from Debtor all sums due under this Note. Upon the occurrence and
during the continuance of an Event of Default under any of Section ' )(a)(2)
through 3(a)(5) hereof, the entire unpaid principal balance of this Note, all
accrued interest and all other amounts owed hereunder shall become immediately
due and payable without demand, protest or notice of any kind, all of which are
expressly waived, and the Payee may exercise any and all rights and remedies
available to it under any agreement or applicable law, including, without
limitation, the right to collect from Payor all sums due under this Note. The
rights and remedies of Payee under this Note shall be cumulative and not
alternative.
<PAGE>
(c) Waiver and Consent. The Debtor and any endorser of this Note hereby
waive protest, presentment for payment, demand for payment, notice of
nonpayment, and protest of dishonor and consent to and waive notice of any one
or more extensions, renewals, or modifications of this Note or of any
installment of principal or interest, granted by the Payee, whether on one or
more occasions.
4. Cancellation. After all principal and all other amounts at any time owed
on this Note has been paid in full, this Note shall be surrendered to Debtor for
cancellation and will not be reissued.
5. Notice. All notices and other communications provided for hereunder
shall, unless otherwise stated herein, be in writing (including facsimile
communication) and be mailed, transmitted by facsimile or delivered by a
commercial delivery service, as to each party hereto, at its address set forth
below or at such other address as shall be designated by such party in a written
notice to the parties hereto. Such notice shall be delivered:
if to the Payee, to:
Att: Legal Counsel
CMS Therapies, Inc. d/b/a RehabWorks, Inc.
4235 S. Stream Blvd., Suite 300
Charlotte, NC 28217
if to the Debtor, to:
Attn: Bruce Shear, President
Quality Care Centers of Massachusetts, Inc.
200 Lake Street, Suite 102
Peabody, MA 01960
All such notices and communications shall be effective, in the case of
notice by mail, on the earlier of the date of receipt or three business days
after being deposited in the mails, in the case of delivery by a commercial
delivery service, when delivered, and, in the case of notice by facsimile
transmission, when sent, in each case addressed as aforesaid.
6. Successors and Assigns. Whenever in this Note reference is made to the
Payee or the Debtor, such reference shall be deemed to include, as applicable, a
reference to their respective successors and assigns. The provisions of this
Note shall be binding upon and shall inure to the benefit of said successors and
assigns. The Debtor's successors and assigns shall include, without limitation,
a receiver, trustee or debtor-in-possession of or for the Debtor. Debtor may not
delegate or otherwise transfer its obligations hereunder to any other person or
entity. Payee (and any successive assignee or transferee) from time to time may
assign or otherwise transfer all or any portion of its rights hereunder to any
other person or entity.
7. Governing Law. This Note is being delivered and is intended to be
performed in the State of North Carolina. and shall be construed and enforced in
accordance with the internal substantive laws thereof, without regard to the
conflict of laws and rules thereof.
<PAGE>
8. Selection of Forum. Debtor hereby agrees that any suit to enforce any
provision of this Note shall be brought in the United States District Court or
the Mecklenburg County, North Carolina Superior Court. Debtor further agrees
that such courts have personal jurisdiction over the Debtor and Debtor submits
to the personal jurisdiction of such courts.
9. Usury Laws. It is the intention of Debtor and holder hereof to conform
strictly to the usury laws now or hereafter in force in the State of North
Carolina, and any interest payable under this Note shall be subject to reduction
to the amount not in excess of the maximum non-usurious amount allowed under the
usury laws of the State of North Carolina as now or hereafter construed by the
courts having jurisdiction over such matters. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to Debtor or credited
to the principal amount of this Note, or if this Note has been repaid, then such
excess shall be rebated to Debtor.
10. Amendment and Waiver. No amendment, modification, termination or waiver
hereof shall be effective unless the same shall be in writing, signed by Payee
and consented to in writing by Debtor, and then only in the specific instance
and for the specific purpose for which given. Neither the failure nor any delay
in exercising any right, power or privilege under this Note will operate as a
waiver of such right, power or privilege and no single or partial exercise of
any such right, power or privilege by Payee will preclude any other or further
exercise of such right, power or privilege.
11. Attorneys' Fees. Debtor shall pay, upon demand, all costs of
collection, including reasonable attorneys' fees and legal expenses, if all or
any portion of this Note is not paid when due, whether or not legal proceedings
are commenced.
12. Time is of the Essence. Time is of the essence for the performance by
Debtor of the obligations set forth in this Note.
13. Severability. If any provision of this Note is held invalid or
unenforceable by a court of competent jurisdiction, the other provisions of this
Note will remain in full force and effect. Any provision of this Note held
invalid or unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
14. Consent to Jurisdiction; Service of Process: Jury Trial.
(A) EXCLUSIVE JURISDICTION: CONSENT TO JURISDICTION; FORUM NON CONVENIENS.
THE DEBTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NORTH CAROLINA
STATE OR FEDERAL COURT SITTING IN NORTH CAROLINA, OVER ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS NOTE AND THE DEBTOR HEREBY IRREVOCABLY AGREES
THAT ALL CLAIMS IN RESPECT TO SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH NORTH CAROLINA STATE OR FEDERAL COURT. THE DEBTOR HEREBY
IRREVOCABLY WAIVES TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE
OF AN INCONVENIENT FORUM TO THE PROCEEDING, AND AGREES NOT TO BRING ANY SUCH
ACTION OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE PAYEE TO BRING ANY SUCH ACTION OR PROCEEDING IN ANY OTHER FORM. THE
DEBTOR AGREES THAT A JUDGMENT, FINAL BY APPEAL OR EXPIRATION OF TIME TO APPEAL
WITHOUT AN APPEAL BEING TAKEN, IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION 13(A) SHALL AFFECT
THE RIGHT OF THE PAYEE TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR AFFECT THE RIGHT OF THE PAYEE TO BRING ANY ACTION OR PROCEEDING AGAINST
THE DEBTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS.
(B) SERVICE OF PROCESS. THE DEBTOR WAIVES PERSONAL SERVICE OF ANY PROCESS
UPON IT AND, AS ADDITIONAL SECURITY FOR ITS OBLIGATIONS HEREUNDER, IRREVOCABLY
APPOINTS AND AGREES TO MAINTAIN AT ALL TIMES DURING THE TERM OF THIS NOTE
_________ AS ITS REGISTERED AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF
PROCESS ISSUED BY ANY COURT. THE DEBTOR IRREVOCABLY WAIVES ANY OBJECTION
(INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
IN ANY JURISDICTION SET FORTH ABOVE.
(C) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
NOTE. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY
AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
NOTE WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO
THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(D) WAIVER OF BOND. THE DEBTOR WAIVES THE POSTING OF ANY BOND OTHERWISE
REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH
PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER,
PRELIMINARY OR PERMANENT INJUNCTION THIS NOTE.
15. Interpretation. The parties hereto have participated jointly in the
negotiation and drafting of this note. In the event an ambiguity or question of
intent or interpretation arises, this note shall be construed as if drafted
jointly by the parties hereto and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this note.
<PAGE>
16. Authority Verification. The undersigned warrants that he/she is an
officer in the Corporation and that he/she has full authority to enter into and
complete the transactions contemplated by this Promissory Note and Confession of
Judgement.
Quality Care Centers of Massachusetts, Inc.
d/b/a Franvale Nursing and Rehabilitation Center
By: /s/ Bruce A. Shear
Name: Bruce Shear
Title: President
STATE OF MASSACHUSETTS
COUNTY OF ESSEX
I, /s/ Paula C. Wurts, a Notary Public in and for the aforesaid State and
County, do hereby certify that Bruce Shear, who is personally known to me (or
satisfactorily proven) and who acknowledged himself to be the President of
Quality Care Centers of Massachusetts, Inc. a Massachusetts corporation, the
party to the foregoing and annexed Note dated December 17, 1997, personally
appeared before me in said County and State, and, being authorized to do so,
executed and delivered this Note on behalf of said corporation in its capacity
as President and acknowledged the same to be the act and deed of the said
corporation.
GIVEN UNDER MY HAND AND SEAL this 27th day of January, 1998.
/s/ Paula C. Wurts
Notary Public
My Commission Expires: Paula C. Wurts
Notary Purlic
My Commission Expires November 29, 2002
[NOTARIAL SEAL]
<PAGE>
Exhibit A
QUALITY CARE CENTERS OF MASSACHUSETTS, INC.
d/b/a FRANVALE NURSING & REHABILITATION CENTER
PAYMENT SCHEDULE
Amount of Note $312,468.94
Term (months) 40
Interest Rate 10%
DATE PAYMENT INTEREST PRINCIPAL NOTE BALANCE
2/l/98 $ 8,000.00 $ 2,603.91 $ 5,396.09 $307,072.85
3/l/98 $ 8,000.00 $ 2,558.94 $ 5,441.06 $301,631.79
4/l/98 $ 8,000.00 $ 2,513.60 $ 5,486.40 $296,145.39
5/l/98 $ 8,000.00 $ 2,467.88 $ 5,532.12 $290,613.26
6/1/98 $ 8,000.00 $ 2,421.78 $ 5,578.22 $285,035.04
7/l/98 $ 8,000.00 $ 2,375.29 $ 5,624.71 $279,410.33
8/l/98 $ 8,000.00 $ 2,328.42 $ 5,671.58 $273,738.75
9/l/98 $ 8,000.00 $ 2,281.16 $ 5,718.84 $268,019.91
10/1/98 $ 8,000.00 $ 2,233.50 $ 5,766.50 $262,253.41
11/1/98 $ 8,000.00 $ 2,185.45 $ 5,814.55 $256,438.85
12/l/98 $ 8,000.00 $ 2,136.99 $ 5,863.01 $250,575.84
1/1/99 $ 8,000.00 $ 2,088.13 $ 5,911.87 $244,663.98
2/l/99 $ 10,000.00 $ 2,038.87 $ 7,961.13 $236,702.84
3/l/99 $ 10,000.00 $ 1,972.52 $ 8,027.48 $228,675.37
4/l/99 $ 10,000.00 $ 1,905.63 $ 8,094.37 $220,580.99
5/1/99 $ 10,000.00 $ 1,838.17 $ 8,161.83 $212,419.17
6/l/99 $ 10,000.00 $ 1,770.16 $ 8,229.84 $204,189.33
7/l/99 $ 10,000.00 $ 1,701.58 $ 8,298.42 $195,890.91
8/1/99 $ 10,000.00 $ 1,632.42 $ 8,367.58 $187,523.33
9/1/99 $ 10,000.00 $ 1,562.69 $ 8,437.31 $179,086.03
10/1/99 $ 10,000.00 $ 1,492.38 $ 8,507.62 $170,578.41
11/1/99 $ 10,000.00 $ 1,421.49 $ 8,578.51 $161,999.90
12/l/99 $ 10,000.00 $ 1,350.00 $ 8,650.00 $153,349.90
1/1/00 $154,627.81 $ 1,277.92 $153,349.89 $ 0.00
___________ __________ ___________ ___________
TOTALS $360,627.81 $48,158.87 $312,468.94
<PAGE>
Exhibit 10.132
FIRST AMENDMENT TO SALE AND PURCHASE AGREEMENT
DATED JANUARY 20, 1995 AND SALE AND PURCHASE AGREEMENT
DATED MARCH 6, 1995
I. Introduction & Recitals
A. LINC FINANCIAL SERVICES, INC. ("Link" or "Administrative Agent"), LINC
FINANCE CORPORATION VII (Purchaser" or "LFC"), and PHC of RHODE ISLAND, INC.
D/B/A/ GOOD HOPE CENTER ("Good Hope") entered into that certain Sale & Purchase
Agreement dated January 20, 1995 (The "Good Hope Agreement"), under which Good
Hope agreed to sell and Purchaser agreed to purchase certain healthcare
receivables, subject to those terms and conditions as specified in the Good Hope
Agreement.
B. LINC, LFC AND PHC OF VIRGINIA, INC. D/B/A/ MOUNT REGIS CENTER ("Mount
Regis"), also entered into a certain Sale & Purchase Agreement dated March 6,
1995 (the "Mount Regis Agreement"), under which Mount Regis agreed to sell and
Purchaser agreed to purchase certain healthcare receivables, subject to those
terms and conditions as specified in the Agreement.
C. LFC is now known as FINOVA MEDICAL RECEIVABLES, INC., and in 1996, LFC
and LINC were acquired and merged into FINOVA Capital Corporation. FINOVA
Capital Corporation is the successor in interest to LINC and LFC in all respects
relating to the Good Hope and Mount Regis Agreements. Good Hope acknowledges
that all references to "Purchaser" in the Good Hope and Mount Regis Agreements
are now deemed to refer to FINOVA Capital Corporation.
D. Good Hope and FINOVA now wish to amend certain terms and conditions of
the Good Hope Agreement (and, where specified, the Mount Regis Agreement).
Therefore, for good and valuable consideration which is acknowledged by all
parties, Good and Hope and FINOVA hereby agree to the terms and conditions set
forth in this First Amendment. All Capitalized terms used in this First
Amendment (and not otherwise defined herein) shall have the respective meanings
ascribed in the Good Hope Agreement.
II. Amendment to Good Hope and Mount Regis Agreements.
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree to amend Good Hope and Mount
Regis Agreements to provide as follows: A. Section 12 of the Good Hope Agreement
and Mount Regis Agreement captioned "Term and Termination", is hereby amended to
provide that the term of the Good Hope Agreement and Mount Regis Agreement shall
be from the date of this First Amendment until March 31, 1998. B. Section (3a)
of the Good Hope Agreement and Mount Regis Agreement captioned "Procedures for
Offers and Purchases", is hereby amended to provide that the Advance Limit shall
be $350,000.00. C. The obligation of the Good Hope Agreement shall be
cross-collataralized with those obligations under Mount Regis Agreement, such
that any and all security interest, rights, title, obligations and remedies
granted pursuant to the Good Hope Agreement shall also be deemed granted with
respect to the Mount Regis Agreement. Likewise, any and all security interest
rights, title, obligations, and remedies granted pursuant to the Mount Regis
Agreement shall also be deemed granted with respect to the Good Hope Agreement.
Page 1 of 2
<PAGE>
D. In order to evidence this First Amendment, Good Hope and Mount Regis
agree to execute such amendments to each of the UCC financing statements filed
by Purchaser, as Secured Party, against either Good Hope or Mount Regis as
Debtor, and to execute such other documents as may be required by Purchaser in
connection herewith.
E. The Good Hope and Mount Regis Agreements, Prior Amendments and all
agreements, instruments and documents executed and delivered in connection with
any of the foregoing shall each be deemed to be amended and supplemented hereby
to the extent necessary to give effect to the provisions of this First
Amendment. Except as expressly amended hereby, the Good Hope and Mount Regis
Agreements shall remain in full force and effect in accordance with their
respective terms.
III. Effective Date; Representations and Warranties.
A. The Effective Date of this First Amendment shall be January 1, 1998 and
shall be deemed effective upon the payment of an extension fee of 1% of the
Advance Limit by Good Hope and Mount Regis.
B. By this First Agreement, Good Hope and Mount Regis each hereby restates
and affirms all representations and warranties as of the Effective Date
specified above.
The parties hereby acknowledge their acceptance of and agreement to the
terms and conditions of the First Amendment below.
PHC OF RHODE ISLAND, INC. FINOVA CAPITAL CORPORATION
D/B/A/GOOD HOPE CENTER SUCCESSOR IN INTEREST BY MERGER WITH FINOVA
MEDICAL RECEIVABLES, INC.
By: /s/ Bruce A. Shear By: /s/ Tina L. Hughes
Title: President Title: Vice President
Date 01/09/87 Date 01/09/87
PHC OF VIRGINIA, INC.
D/B/A/ MOUNT REGIS CENTER
By: /s/ Bruce A. Shear
Title: President
Date 01/09/87
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form SB-2 of
our report dated January 15, 1998 on our audit of the consolidated financial
statements of PHC, Inc., as at June 30, 1997 and June 30, 1996 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
, 1998
<PAGE>
Exhibit 99.1
CAUTIONARY STATEMENT FOR PURPOSES
OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE LITIGATION REFORM ACT OF 1995
PHC, Inc. (the Company) desires to take advantage of the new "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this Exhibit 99.1 in its Form 10-QSB in order to do so.
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual consolidated
results for the Company's current quarter and beyond, to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company.
During its last fiscal year and in certain other fiscal years of its
operation, the Company has generated losses and there can be no assurance that
future losses will not occur.
The Company has experienced a significant increase in accounts receivable
in recent years and there can be no assurance that this trend will not continue,
and that if it does, that it will not have a material adverse effect on the
Company's cash flow and financial performance.
The Company historically experiences and expects to continue to experience
a decline in revenue in its fiscal quarters ending December 31 due to a
seasonality decline in revenue from the Company's substance abuse facilities
during such period.
Payment for the company's substance abuse treatment is provided by private
insurance carriers and managed care organizations; payment for long-term and
subacute care is provided by private insurance carriers, managed care
organizations and the Medicare and Medicaid programs; payment for psychiatric
services is provided by private insurance carriers, managed care organizations
and the Medicare and Medicaid programs. In general, revenues derived from the
Medicare and Medicaid programs in connection with the long-term and subacute
care services provided by the Company have been less profitable to the Company
than revenues derived from private insurers and managed care organizations in
connection with the substance abuse treatment provided by the Company and
changes in the sources of the Company's revenues could significantly alter the
Company's profitability. Additionally, the Company experiences greater delays in
the collection of amounts reimbursable by the Medicare and Medicaid programs
than in the collection of amounts reimbursable by private insurers and managed
care organizations. Accordingly, a change in the Company's service mix from
substance abuse to long-term care could have a materially adverse effect on the
Company as would an increase in the percentage of the Company's patients who are
insured by Medicare or Medicaid.
Cost containment pressures from private insurers in the Medicare and
Medicaid programs may begin to restrict the amount that the Company can charge
for its services.
There can be no assurance that the Company's existing facilities will
continue to meet, or that proposed facilities will meet, the requirements for
reimbursement by third party or government payors.
The Company has substantial receivables from Medicare and Medicaid which
constitute a concentration of credit risk should these agencies defer or be
unable to make reimbursement payments as due.
<PAGE>
The Company often experiences significant delays in the collection of
amounts reimbursable by third-party payors. Although the Company believes it
maintains an adequate allowance for doubtful accounts, if the amount of
receivables which eventually becomes uncollectible exceeds such allowance, the
Company could be materially adversely affected.
If a growing number of managed care organizations and insurance companies
adopt policies which limit the length of stay for substance abuse treatment, the
Company's business would be materially adversely affected.
There can be no assurance that occupancy rates at the Company's facilities
will continue at present levels. Similarly, there can be no assurance that the
patient census will not decrease in the future.
There can be no assurance that the Company will be successful in
identifying appropriate acquisition opportunities, or if it does, that the
Company will be successful in acquiring such facilities or that such acquired
facilities will be profitable. The failure of the company to implement its
acquisition strategy could have a materially adverse effect an the Company's
financial performance. Moreover, the inherent risks of expansion could also have
a material adverse effect on the Company's business.
Additionally, the company's acquisition program will be directed by the
President and Chief Executive officer of the Company and the Company does not
intend to seek stockholder approval for any such acquisitions unless required by
applicable law or regulations. Accordingly, investors will be substantially
dependent upon the business judgment of management in making such acquisitions.
Furthermore, the company's acquisition strategy is highly dependent on access to
capital, of which there can be no assurance.
The Company and the healthcare industry in general are subject to extensive
federal, state and local regulation with respect to licensure and conduct of
operations. There can be no assurance that the Company will be able to obtain
new licenses to affect its acquisition strategy or maintain its existing
licenses and reimbursement program participation approvals.
It is not possible to accurately predict the content or impact of future
legislation and regulations affecting the healthcare industry. In addition, both
the Medicare and Medicaid programs are subject to statutory and regulatory
changes and there can be no assurances that payments under those programs to the
Company will, in the future, remain at a level comparable to the present level
or be sufficient to cover the cost allocable to such patients.
Bruce A. Shear the President and Chief Executive officer of the Company
together with his affiliates is able to control all matters requiring approval
of the stockholders, including the election of a majority of the directors, as a
result of his ownership of the Company's stock.
There can be no assurance that the Company will be successful in hiring or
retaining the personnel it requires for continued growth, or that the Company
will be able to continue to attract and retain highly qualified personnel,
particularly skilled healthcare personnel. The healthcare business is highly
competitive and subject to excess capacity.
The Company has entered into relationships with large employers, healthcare
institutions, labor unions and other key clients to provide treatment for
chemical dependency and substance abuse as well as other services and the loss
of any of these key clients would require the Company to expend considerable
effort to replace patient referrals and would result in revenue losses to the
Company and attendant loss in income.
Existing environmental contamination at certain of the Company's facilities
and potential future environmental contamination at facilities acquired by the
company could have a materially adverse effect on the Company's operations.
<PAGE>
On October 31, 1994, the Company was served with a summons for a Civil
Action in the Superior Court Department of the Trial Court of the Commonwealth
of Massachusetts by NovaCare, Inc. ("NovaCare"), an entity which contracted with
the Company in 1992 to provide rehabilitation therapy and related administrative
services to the Company's long-term care facility (the "Action"). The complaint
alleged that the Company owed NovaCare contractual damages in the amount of
approximately $587,000, plus interest, attorney fees, costs of collection, and
double or triple damages pursuant to a Massachusetts statute prohibiting unfair
and deceptive trade practices. The Company filed a counterclaim alleging that
NovaCare breached the contract in question and that the Company may be owed
damages in excess of the amount sought by NovaCare.
On February 13, 1996, the company settled the Action by agreeing to pay
NovaCare an amount less than its claim. The Company is not paying NovaCare
accrued interest, attorney's fees, costs of collection, or multiple damages. A
portion of the settlement amount has already been paid. The balance of the
settlement amount is payable over twelve (12) months with interest on the unpaid
balance at 9.5%. In the event that the Company defaults on its obligation to pay
the settlement amount, it has agreed to entry of judgment against it in the
amount of $457, 637.46 (the "Judgment"). The Judgment represents the full unpaid
balance of NovaCare's claim against the Company, including interest, attorney's
fees, and costs of collection. Any amounts paid by the Company to NovaCare after
February 9, 1996 shall be deducted from the Judgment. Until the settlement
amount is paid, NovaCare will continue to hold a mortgage on a day care property
owned by the Company in Saugus, Massachusetts. As of Fiscal Year Ended June 30,
1997, this obligation has been paid in full.
Interruption by fire, earthquakes or other catastrophic events, power
failures, work stoppages, regulatory actions or other causes to any of the
Company's operations could have a materially adverse impact on the Company.
The company has and in the future may enter into transactions in which it
acquires businesses or obtains financing for a consideration that includes the
issuance of stock, warrants, options or convertible debt at a price less than
the value at which the Company's stock may then be trading in the public markets
or which are convertible into or exercisable for Common Stock at a conversion
rate or exercise price less than such value. Such transactions may result in
significant dilution to the existing holders of the Company's stock.
The Company has authorized 1,000,000 shares of Preferred Stock, the terms
of which may be fixed and which may be issued by the Company's Board of
Directors, without stockholder approval. The issuance of the Preferred Stock
could have the effect of making it more difficult for a third party to acquire
the Company and may result in the issuance of stock that dilutes the existing
stockholders and has liquidation, redemption, dividend and other preferences
superior to the Company's outstanding Class A Common Stock.
NOTE:
THIS DOES NOT DISCUSS PREFERRED STOCK, REDEMPTION OF WARRANTS, THE EFFECTS
OF DE-LISTING FROM NASDAQ, PENNY STOCK RULES OR THIN FLOAT. THOSE SUBJECTS ARE,
HOWEVER, INCLUDED IN THE RISK-FACTOR SECTION OF THE 06/97 S-3.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the
consolidated balance sheet and the consolidated statement of income filed as
part of the report on Form 10-QSB and is qualified in its entirety by reference
to such report on Form 10-QSB.
</LEGEND>
<CIK> 0000915127
<NAME> PHC, Inc
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<PERIOD-START> JUL-1-1997
<PERIOD-END> DEC-31-1997
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