As filed with the Securities and Exchange Commission on July 24, 1998
Registration No. __________
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 (Primary Standard (IRS Employer
of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
200 Lake Street
Suite 102
Peabody, MA 01960
(978) 536-2777
(Address and telephone number of principal executive offices)
200 Lake Street
Suite 102
Peabody, MA 01960
(978) 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
(978) 536-2777
(Name, address and telephone number of agent for service)
Copies to:
ARNOLD WESTERMAN
ARENT FOX KINTNER PLOTKIN & KAHN, PPLC
1050 Connecticut Avenue, NW
Washington, DC 20036
(202) 857-6000
Approximate date of proposed sale to the public: As soon as practicable
after this registration statement becomes effective.
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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|
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Title of Each Class Amounts Proposed Proposed Amount of
of Securities to be Maximum Maximum Registration
to be Registered(1) Offering Aggregate Fee(1)
Registered Price Per Offering
Share (2) Price (2)
Class A Common 2,211,491 $1.75 3,870,109 $840
Stock
(1) The number of shares of Common Stock covered by this Registration Statement
includes, pursuant to rule 429, 627,207 shares of Common Stock previously
registered in registration statement nos. 333-71418, 333-44045 and 333-2246
for which the filing fees were previously paid.
(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>
====================================
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
====================================
PROSPECTUS
2,211,491 Shares of Class A Common
Stock of
PHC, INC.
PIONEER BEHAVIORAL HEALTH
This Prospectus relates to the public offering that may be made from time
to time of up to 2,211,491 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 those persons who acquired such shares in connection with
acquisitions or upon the exercise of warrants or conversion of Preferred Stock
issued in connection with financings. See "Selling Security Holders."
The shares offered pursuant to this Prospectus may be sold from time to
time by the Selling Security Holders. 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 other than on exercise of warrants to
purchase shares of Common Stock. Any proceeds received by the Company will be
added to working capital. 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 $62,500.
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 (currently 3) 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 Class A Common Stock and the
Class B Common Stock are sometimes collectively referred to herein as the
"Common Stock.") 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 87.1% of the outstanding Common Stock and hold approximately 55.5%
of the total voting power, and the holders of Class B Common Stock own
approximately 12.9% of the outstanding Common Stock and hold approximately 44.5%
of the total voting power. Bruce A. Shear, the President and Chief Executive
Officer and a Director of the Company owns approximately 11.9% of the
outstanding Common Stock and holds approximately 37.8% of the total voting
power.
The Class A Common Stock is traded on the NASDAQ SmallCap Market under the
symbol PIHC. On July 10, 1998, the closing bid price of the Class A Common Stock
was $ 1.75.
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.
The date of this Prospectus is ___________________________
<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 prescribed 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.
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.
FORWARD LOOKING STATEMENTS
This registration statement contains certain forward-looking statements
regarding the Company, its business prospects and results of operations that are
subject to certain risks and uncertainties posed by many factors and events that
could cause the Company's actual business, prospects and results of operations
to differ materially from those that may be anticipated by such forward-looking
statements.
Factors that may affect such forward-looking statements include, without
limitations; the Company's ability to successfully and timely develop and
finance new projects, the impact of competition on the Company's revenues, and
changes in reimbursement rates, patient mix, and demand for the Company's
services, negative cash flow, need for additional financing as a result of
significant and increasing amounts of accounts receivable due in part to
acquisitions and expansion and delays in reimbursement by third-party payors,
variable patient census, seasonality and fluctuation in quarterly results
regulations, control of the Company by Bruce A. Shear, dependence upon
attraction and retention of key personnel, potential staffing shortages,
competition and reliance on kay clients.
When used, words such as believes," "anticipates," "expects," "intends" and
similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this report. The Company undertakes no obligation
to revise any forward-looking statements in order to reflect events or
circumstances that may subsequently arise.
<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.
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. The Company
currently operates two substance abuse treatment facilities: Highland Ridge
Hospital, located in Salt Lake City, Utah, ("Highland Ridge"); and Mount Regis
Center, located in Salem, Virginia, near Roanoke ("Mount Regis") and eleven
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;" 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 BSC-NY, Inc. ("BSC") which provides management and
administrative services to psychotherapy and psychological practices in the
greater New York City metropolitan area.
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. BSC is a manager of psychological service providers
with contracts at over 35 long-term care facilities. 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.
In May, 1998 the Company closed Good Hope Center, a substance abuse
treatment facility located in West Greenwich, Rhode Island ("Good Hope") and
entered into an agreement terminating the lease for the facility. Under the
agreement the Company is obligated to pay approximately $125,000. The Company
estimates that it will incur aggregate costs of closing this facility, in
addition to the lease agreement cost, of approximately $120,000. In June, 1998
the Company's sub acute long-term care facility, Franvale Nursing and
Rehabilitation Center ("Franvale"), in Braintree, Massachusetts was closed in a
State Receivership action which was precipitated when the Company caused the
owner of the Franvale facility, Quality Care Centers of Massachusetts, Inc., to
institute a proceeding under Chapter 11 of the Federal Bankruptcy Code. All
patients have been transferred from Franvale and the assets of the facility are
being liquidated. The Company does not anticipate a negative impact as a result
of the closing of this facility.
The Company intends to limit its business operations to behavioral health
and substance abuse facilities providing services to particular markets through
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 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" and "Pioneer Behavioral
Health." 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.
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 (978) 536-2777.
<PAGE>
The Offering
Securities Offered:... 2,211,491 shares of Class A Common Stock. See
"Description of Securities."). The number of shares of Common Stock covered by
this Registration Statement includes, pursuant to rule 429, 627,207 shares of
Common Stock previously registered in registration statement nos. 333-71418,
333-44045 and 333-2246.
Securities Outstanding as of June 30, 1998 (1):
Class A Common Stock 4,935,267 Class B Common Stock 727,328 Class C Common
Stock 0 Preferred Stock 950
NASDAQ Symbol Common Stock: PIHC
Use of Proceeds. The Company will only receive proceeds from the exercise
of warrants and will use such proceeds, if any, as working capital.
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."
(1) Unless otherwise indicated, the information in this Prospectus does not
give effect to (i) 3,334,710 shares of Class A Common Stock issuable upon the
exercise of outstanding warrants, (ii) 312,550 shares of Class A Common Stock
issuable upon the exercise of the Unit Purchase Option and attached warrants,
(iii) 600,000 shares issuable upon the exercise of options granted or reserved
for issuance under the Company's 1993 Stock Purchase and Option Plan (the "Stock
Plan"), 1995 Employee Stock Purchase Plan (the "Stock Purchase Plan"), and 1995
Non-Employee Director Stock Option Plan (the "Non-Employee Director Plan"), and
(iv) an indeterminable number of 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. See "Note K" and "Note L" of
the accompanying Financial Statements and "Selling Security Holders" for
additional information.
<PAGE>
Summary Consolidated
Financial Data
Nine Months Ended
March 31, Year Ended June
30,
1998 1997 1997 1996
----------------------------------------------
Statements of Operations
Data:
Revenue.................. $16,148,430 $15,694,971 $21,927,655 $16,758,836
Operating expenses....... 16,748,046 14,765,648 21,887,070 16,187,596
Income (loss) from (599,616) 929,323 40,585 571,240
operations...............
Other expense............ 466,113 475,056 724,182 158,884
Income (loss) from (1,171,238) 424,267 (880,908) 631,517
continuing operations
Income (loss) from (1,829,508) (341,486) (1,958,756) (1,216,832)
discontinued operations
Net income (loss) (3,000,746) 82,781 (2,839,664) (585,315)
Basic Earnings (Loss)per
common share:
Continuing Operations (.23) .13 (.27) .23
Discontinued Operations (.36) (.11) (.60) (.45)
Total (.59) .02 (.87) (.22)
Basic Weighted average
number of
shares outstanding 5,090,919 3,170,222 3,270,175 2,709,504
Diluted Earnings (loss)
per common share:
Continuing Operations (.23) .09 (.27) .18
Discontinued Operations (.36) (.07) (.60) (.34)
Total (.59) .02 (.87) (.16)
Diluted Weighted average
number of shares outstanding 5,090,919 4,855,753 3,270,175 3,615,514
As of March
31,1998
Balance Sheet Data:
Total assets...................... $20,716,982
Working capital................... $3,605,006
Long-term obligations............. $5,867,966
Stockholders' equity.............. $7,507,687
<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
$3,000,746 during the first three fiscal quarter of 1998, a loss of $2,839,664
during fiscal year 1997 and a loss of $585,315 during fiscal year 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 March 31, 1998
the Company had an accumulated deficit of $7,727,411. The Company experienced a
significant increase in accounts receivable from $6,734,997, as of June 30, 1996
to $10,023,264 as of March 31, 1998 excluding accounts receivable due to Quality
Care Centers of Mass, Inc. of $908,960 which is included in liabilities of
discontinued operations. Primarily as a result of the losses noted above, in
part due to a decline in census, and the increase in accounts receivable, the
Company has had negative cash flow from operations in recent periods. Although
the Company has entered into various accounts receivable funding facilities,
there can be no assurance that the Company will be able to obtain any additional
required financing on terms acceptable to the Company. 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 or
incorporated herein by reference.
Lack of Access to Capital to Achieve Acquisition Strategy. 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 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. Ten percent of revenues from continuing operations for the quarter
ended March 31, 1998 was related to Government Payors. This amount excludes
revenue from Franvale Nursing and Rehabilitation Center, the long term care
facility, which is reported as discontinued operations. 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 $946,000, excluding discontinued operations, at March 31, 1998,
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. On May 31, 1998
the Company closed its Rhode Island facility which has lost approximately
$85,000 per month over the last nine months due to the cost involved in
operating in the heavy managed care environment of Rhode Island. 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 $10,023,264 at March 31, 1998,
compared with $9,671,763 at June 30, 1997 and $6,734,997 at June 30, 1996
excluding discontinued operations. Those changes are due primarily to an
increase in patient census in connection with acquisitions. If the Company
expands, 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.
In the June 30, 1997 year end detailed review of the Company's allowance for
doubtful accounts, the reserve was deemed to be inadequate to cover future
potential bad debt and was adjusted accordingly. This adjustment resulted in an
increase in allowance for doubtful accounts to $1,942,602 at June 30, 1997 from
$1,059,774 at June 30, 1996 excluding discontinued operations. The Company
further increased this allowance to $2,062,093 at March 31, 1998 in line with
its more aggressive reserve policy. 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 at fixed reimbursement rates. 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 or if the reimbursement rate is not adequate to cover the
cost of providing the service.
Acquisition and Expansion Risks. The Company intends to expand its business
through acquisition. The acquisitions will be 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. Moreover, the
attendant risks of expansion could 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 patient census at the Company's substance
abuse and psychiatric facilities decreased from 63.4% to 58.8% occupancy from
fiscal year 1996 to fiscal year 1997 and to 49.5% for the nine months ended
March 31, 1998. 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 and/or
psychiatric 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, 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. 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 over 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.
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 or
preferred stock, at May 31, 1998 the holders of the Class B Common Stock
beneficially own 12.9% of the Company's Common Stock, but have 44.5% of the
total voting power. Bruce A. Shear and his affiliates own and control 11.9% of
the Common Stock, but hold 37.8% of the total voting power
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.
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 tradable 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 July 10, 1998 the closing price of the Company's
stock as reported on Nasdaq was $1.75. 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 on common stock
since its inception and does not anticipate paying cash dividends on common
stock in the foreseeable future. The Company has a series of Preferred Stock
outstanding which would preclude the Company from paying dividends on Common
Stock until all Preferred Stock dividends have been paid.
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. In May 1997 the Company issued 1,000 shares of Convertible
Preferred Stock for $1,000,000. As of June 30, 1997 half of the Convertible
Preferred Stock had been converted into 229,964 shares of Class A Common Stock.
On August 20, 1997, 246,305 shares of Class A Common Stock were issued upon
conversion of the remaining shares of Convertible Preferred Stock. In accordance
with the Preferred Stock agreement, these shares were issued at a discount of
$200,000 from fair market value which was reflected as additional dividend in
the June 30, 1997 Financial Statements. On March 18, 1998 the Company issued 950
shares of Convertible Preferred Stock for $950,000, convertible for Class A
Common Stock at 80% of the average closing bid price five days prior to the
conversion date but not less than $1.88 or more than $3.50 per share, and
Warrants to purchase 49,990 shares of the Company Class A Common Stock for $2
5/16 per share.
Thin Float. The average weekly trading volume of the Company's Class A
Common Stock for the period from July 1, 1997 to March 31, 1998 was 339,441
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.
<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 $ 4 3/8 $ 2 1/8
1998
First Quarter....................... $ 3 9/16 $ 2 1/4
Second Quarter...................... $ 3 $ 1 7/8
Third Quarter....................... $ 2 13/16 $ 1 7/8
Fourth Quarter...................... $ 2 7/16 $ 1 5/8
On June 30, 1998, the last reported sale price of the Class A Common Stock
on the Nasdaq SmallCap Market was $2.00. As of June 30, 1998, there were 449
holders of record of the Company's Class A Common Stock and 315 holders of
record of the Company's Class B Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares
offered pursuant to this Prospectus other than on exercise of warrants to
purchase shares of Common Stock. Any proceeds received by the Company will be
added to working capital.
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998. This table should be read in conjunction with the Consolidated
Financial Statements and related notes appearing elsewhere in this Prospectus.
As of
March
31, 1998
Long-term debt, Including Current Maturities........... $4,049,569
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares
authorized; 950 shares issued and outstanding .......... 10
Class A Common Stock; $.01 par value; 20,000,000
shares authorized; 4,932,303 shares issued(1)........... 49,323
Class B Common Stock, $.01 par value; 2,000,000
shares authorized; 730,292 shares issued................ 7,303
Additional paid-in capital..................... 15,216,280
Treasury Stock 8,656 common shares at cost.... (37,818)
Accumulated deficit........................... (7,727,411)
Total stockholders' equity.................... 7,507,687
Total capitalization................................... $11,557,256
(1) Does not include: (i) 3,334,710 shares of Class A Common Stock
issuable upon the exercise of outstanding warrants, (ii) 312,550 shares of
Class A Common Stock issuable upon the exercise of the Unit Purchase Option
and attached warrants, (iii) 600,000 shares issuable upon the exercise of
options granted or reserved for issuance under the Company's 1993 Stock
Purchase and Option Plan (the "Stock Plan"), 1995 Employee Stock Purchase
Plan (the "Stock Purchase Plan"), and 1995 Non-Employee Director Stock Option
Plan (the "Non-Employee Director Plan"), and (iv) an indeterminable number of
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. See "Note K" and "Note L" of the accompanying
Financial Statements and "Selling Security Holders" for additional
information.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of the
two years ended June 30, 1997 and 1996 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, 1997 and June 30, 1996. 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.
Nine Months Ended
March 31, Year Ended June
30,
1998 1997 1997 1996
-------------------------------------------
Statements of Operations
Data:
Revenue.................. $16,148,430 $15,694,971 $21,927,655 $16,758,836
Operating expenses...... 16,748,046 14,765,648 21,887,070 16,187,596
Income (loss) from (599,616) 929,323 40,585 571,240
operations...............
Other expense............ 466,113 475,056 724,182 158,884
Income (loss) from (1,171,238) 424,267 (880,908) 631,517
continuing operations
Income (loss) from (1,829,508) (341,486) (1,958,756) (1,216,832)
discontinued operations
Net income (loss) (3,000,746) 82,781 (2,839,664) (585,315)
Basic Earnings (Loss)per
share:
Continuing Operations (.23) .13 (.27) .23
Discontinued Operations (.36) (.11) (.60) (.45)
Total (.59) .02 (.87) (.22)
Basic Weighted average
number of
shares outstanding 5,090,919 3,170,222 3,270,175 2,709,504
Diluted Earnings (loss)
per share:
Continuing Operations (.23) .09 (.27) .18
Discontinued Operations (.36) (.07) (.60) (.34)
Total (.59) .02 (.87) (.16)
Diluted Weighted average
number of
shares outstanding 5,090,919 4,855,753 3,270,175 3,615,514
As of March
31,1998
Balance Sheet Data:
Total assets...................... $20,716,982
Working capital................... $3,605,006
Long-term obligations............. $5,867,966
Stockholders' equity.............. $7,507,687
<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 nine months ended March 31, 1998 and March 31,
1997 and the two years ended June 30, 1997. 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 two substance abuse
treatment centers, a psychiatric hospital and several outpatient psychiatric
centers (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. The extent of any
regulatory changes and their impact on the Company's business is unknown.
Results of Operations
Nine months ended March 31, 1998 Compared to the nine months ended March 31,
1997
Net patient care revenue increased 2.8% to $16,148,430 for the nine months ended
March 31, 1998 from $15,694,971 for the nine months ended March 31, 1997. This
increase in revenue is due to the acquisition of Pioneer Counseling of Virginia
in January 1997. The Company recorded a loss from continuing operations of
$1,171,238 for the nine months ended March 31, 1998 as compared to income from
continuing operations of $424,267 for the nine months ended March 31, 1997. This
loss is due in part to a decline in census in the chemical dependency facilities
and an overall increase in provision for bad debts. Good Hope, the Company's
chemical dependency facility in Rhode Island, continued to operate at a loss
because of a decline in length of stay and lower reimbursements from third party
payors. As a result of these continued losses the Company closed the facility on
May 31, 1998. On May 27, 1998, PHC of Rhode Island, Inc. ("PHRI"), the operating
Company of Good Hope Center, entered into an agreement with NMI Realty, ("NMI")
the owners of the Good Hope Center real estate. This agreement releases PHRI
from the remaining 16 years on the Good Hope Center property lease in exchange
for approximately $35,000 of the PHRI net fixed assets and a total payment of
approximately $125,000 over the next seven months.
PHRI will continue to incur some operating expenses over the next several months
as a result of the costs related to the ongoing collection of Accounts
Receivable. The closure of PHRI will eliminate approximately $65,000 in losses
each month and further enhance the profitability of PHC.
In addition to the loss from continuing operations, the Company's long term care
facility which is reported as discontinued operations recorded a loss of
$1,829,508 for the nine months ended March 31, 1998 as compared to a net loss of
$341,486 for the nine months ended March 31, 1997. The facility is currently in
State Receivership while remaining patients are being transferred to other
facilities. (See "State Receivership" Risk Factor).
Year ended June 30, 1997 Compared to Year ended June 30, 1996
The Company experienced a loss from continuing operations for fiscal year ended
June 30, 1997. This is due to the losses incurred by Good Hope Center and a
significant increase in reserve for bad debts. The environment the Company
operates in today makes collection of receivables, particularly older
receivables, more difficult than in previous years. Accordingly, the Company has
recorded an increase in its accounts receivable reserve and has adopted a more
stringent reserve policy going forward as well as instituting a more aggressive
collection policy. A substantial portion of the increase in the reserve was
recorded in the fourth fiscal quarter. The Company reviewed these adjustments to
determine if some of the adjustments should have been made in prior fiscal
quarters. The Company concluded that it is not possible to determine what
adjustments, if any, should have been made in prior fiscal quarters of 1997
because the information on which the year-end analysis was based is not
available on a quarterly basis. The Company has changed its internal systems to
make such information available on a quarterly basis in the future and will
analyze such data to determine the adequacy of its reserves for future quarterly
financial statements which commenced with the quarter ended September 30, 1997.
Total patient care revenue from all facilities increased 30.8% to
$21,927,655 for the year ended June 30, 1997 from $16,758,836 for the year ended
June 30, 1996. These revenue amounts include $1,757,763 and $1,081,864
respectively of Good Hope Center which was closed by the Company in May 1998.
This revenue excludes revenues from the long term care facility which is
reported as discontinued operations. This increase in revenue is due primarily
to acquisitions.
Total patient care expenses for all facilities increased 29.7% to
$10,346,111 for the year ended June 30, 1997 from $7,974,811 for the year ended
June 30, 1996. This increase in expenses is due primarily to acquisitions.
Patient care expenses at the Company's long-term care facility increased to
$4,090,673 for fiscal 1997 from $4,029,572 in fiscal 1996 (approximately 1.5%).
Liquidity and Capital Resources
For the two fiscal years ended June 30, 1998, the Company met its cash flow
needs through Accounts Receivable financing and by issuing a significant number
of debt and equity securities as follows:
DATE TRANSACTION NUMBER PROCEEDS MATURITY TERMS STATUS
TYPE OF DATE
SHARES
11/96 Warrant 25,000 10/7/2001 $2.00 outstanding
issued as exercise
a payment price as
of commission adjusted
on Convertible 7/97
Debentures issued
for
services
11/96 Convertible $3,125,000 12/31/98 7% Interest Converted
Debentures per Yr. 8/97
2/97 Warrant 3,000 2/18/2002 $2.80 per outstanding
issued in 1.25
exchange shares
for Investor adjusted
Relations for
services dilution
issued
for
services
3/97 Warrant 160,000 3/31/2002 exercise outstanding
issued in price
exchange $2.62
for Investor issued
Relations for
services services
3/97 Warrant 150,000 3/31/2002 $2.00 outstanding
issued in exercise
lieu of price
cash for a issued
penalty on in lieu
the late of
registration payment
of Convertible of
Preferred Stock penalty
5/97 Convertible 1,000 $1,000,000 05/31/99 6% Interest Converted
Preferred per Yr. 6/97 thru
Stock convertible 8/97
at 80%
of 5 day
average
bid
price.
6/97 Warrant 50,000 06/04/2002 exercise outstanding
issued in price
conjunction $2.75
the Private
Placement of
Convertible
Preferred
Stock 5/97
9/97 Common 172,414 $ 445,000 N/A Issued Common
Stock with Stock Sold
warrants
at a
3.3%
discount
9/97 Warrant 86,207 09/30/2002 exercise outstanding
issued in price
conjunction $2.90
the Private
Placement of
Convertible
Preferred
Stock
9/97 Warrant 150,000 05/31/2002 exercise outstanding
issued in price
exchange $2.50
for cash and
financial
advisory
services
12/97 Mortgage $ 500,000 10/31/2001 Prime outstanding
advance Plus 5%
3/98 Warrant 3,000 03/10/2003 exercise outstanding
issued as price
a penalty $2.90
for late
registration
statement
filing on
the Private
Placement
of Common
Stock
3/98 HCFP Note $ 350,000 11/10/98 Prime outstanding
as Plus 3.5%
extended
3/98 Warrants 52,500 03/10/2003 exercise outstanding
issued as price
additional $2.38
interest on
3/98 debt
7/98 Warrants 52,500 07/10/2003 exercise outstanding
issued as price
additional $1.81
interest on
extension of
3/98 debt
3/98 Convertible 950 $ 950,000 03/18/2000 6% outstanding
Preferred Interest
Stock per Yr.
convertible
at 80%
of 5 day
average
bid
price.
3/98 Warrants 49,990 03/18/2003 exercise outstanding
issued in price
connection $2.31
with the
Private
Placement of
Convertible
Preferred
Stock 3/98
A significant factor in the liquidity and cash flow of the Company is the
timely collection of its accounts receivable. Accounts receivable from patient
care increased 3.6% to $10,023,264 during the nine months ended March 31, 1998
from $9,671,763 at June 30, 1997 and 43.6% from $6,734,997 at June 30, 1996. The
increase in accounts receivable is net of the sale of certain receivables to
LINC Finance Corporation VIII (LINC). This increase in receivables is primarily
due to increase in revenues from new acquisitions. The Company continues to
closely monitor its accounts receivable balances and implement procedures and
policies, including more aggressive collection techniques, to manage this
receivables growth and keep it consistent with growth in revenues. In February
1998 the Company entered into an accounts receivable funding revolving credit
agreement with Healthcare Financial Partners-Funding II, L.P. ("HCFP"), on
behalf of five of its subsidiaries, which provides for funding of up to
$4,000,000 based on outstanding receivables. The outstanding balance on this
receivables financing on May 31, 1998 was approximately $1,450,000.
The Company believes that it will meet future financing needs through the
accounts receivable funding to sustain existing operations for the foreseeable
future. The Company also intends to renew the expansion of its operations
through the acquisition or establishment of additional treatment facilities
after the close of Franvale is completed and the residual costs of Good Hope
Center are final. The Company's expansion plans will be dependent upon obtaining
adequate financing as opportunities arise.
<PAGE>
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
services. The Company currently operates two substance abuse treatment
facilities: Highland Ridge Hospital, located in Salt Lake City, Utah, ("Highland
Ridge")and Mount Regis Center, located in Salem, Virginia, near Roanoke ("Mount
Regis"). The Company operates ten 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; 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. BSC-NY, Inc. ("BSC") provides
management and administrative services to psychotherapy and psychological
practices in the greater New York City metropolitan area. 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 Hospital, the Company's psychiatric hospital, provides
psychiatric care to adults, adolescents and children and draws patients from the
local population. This facility is also used as a mental health resource to
complement its substance abuse facilities. Harmony Healthcare ("Harmony
Healthcare") and Total Concept, EAP ("Total Concept") provide outpatient
psychiatric treatment for adults, adolescents and children with a concentration
of individuals in the gaming industry. BSC-NY, Inc. ("BSC") provides management
and administrative services to Perlow Physicians, PC which provides psychiatric
services under contract to over 35 psychotherapy and psychological practices in
the greater New York City metropolitan area. Additionally, BSC provides billing
and administrative services for the Company's Joint Venture with Lexington
Healthcare Group, Inc., Behavioral Rehab Services of Connecticut, Inc. North
Point - Pioneer, Inc. ("NPP") operates five outpatient psychiatric centers which
provide psychiatric treatment for adults, adolescents and children in the
Metropolitan Detroit area. Pioneer Counseling of Virginia, Inc. ("PCV") is a
physicians' practice specializing in the treatment of behavioral disorders in
adults, adolescents and children in the Roanoke Valley, Virginia area.
The Company's 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.
In May, 1998 the Company closed Good Hope Center, a substance abuse
treatment facility located in West Greenwich, Rhode Island ("Good Hope") and
entered into an agreement terminating the lease for the facility. Under the
agreement the Company is obligated to pay approximately $125,000. The Company
estimates that it will incur aggregate costs of closing this facility, in
addition to the lease agreement cost, of approximately $120,000. In June, 1998
the Company's sub acute long-term care facility, Franvale Nursing and
Rehabilitation Center ("Franvale"), in Braintree, Massachusetts was closed in a
State Receivership action which was precipitated when the Company caused the
owner of the Franvale facility, Quality Care Centers of Massachusetts, Inc., to
institute a proceeding under Chapter 11 of the Federal Bankruptcy Code. All
patients have been transferred from Franvale and the assets of the facility are
being liquidated. The Company does not anticipate a negative impact as a result
of the closing of this facility.
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." and "Pioneer Behavioral
Health". 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 intends to concentrate on owning and operating inpatient and
outpatient substance abuse and psychiatric treatment facilities and to expand
through the acquisition of new facilities.
<PAGE>
PSYCHIATRIC SERVICES INDUSTRY
Substance Abuse Facilities
Industry Background
The demand for substance abuse treatment services increased rapidly in the
last decade. The Company believes that the increased demand is related to
clinical advances in the treatment of substance abuse, greater societal
willingness to acknowledge the underlying problems as treatable illnesses,
improved health insurance coverage for addictive disorders and chemical
dependencies and governmental regulation which requires certain employers to
provide information to employees about drug counseling and employee
assistance programs.
To contain costs associated with behavioral health issues, in the 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 two 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). 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.
In general, 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.
Most patients are from Utah and surrounding states. Individuals typically
access Highland Ridge's services through professional referrals, family
members, employers, employee assistance programs or contracts between the
Company and health maintenance organizations located in Utah.
Highland Ridge was the first private for-profit hospital to address
specifically the special needs of chemically dependent women in Salt Lake
County. In addition, Highland Ridge has contracted with Salt Lake County to
provide medical detoxification services targeted to women. The hospital also
operates a specialized continuing care support group to address the unique
needs of women and minorities.
A pre-admission evaluation, which involves an evaluation of psychological,
cognitive and situational factors is completed for each prospective patient.
In addition, each prospective patient is given a physical examination upon
admission. Diagnostic tools, including those developed by the American
Psychological Association, the American Society of Addiction Medicine and the
Substance Abuse Subtle Screening Inventory are used to develop an
individualized treatment plan for each client. The treatment regimen
involves an interdisciplinary team which integrates the twelve-step
principles of self-help organizations, medical detoxification, individual and
group counseling, family therapy, psychological 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 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.
SPECIALIZED TREATMENT SERVICE
In the spring of 1994, the Company began to operate a crisis hotline service
under contract with a major transportation client. The hotline, Pioneer
Development Support Services, or PDS2 ("PDS2"), is a national, 24-hour
telephone service which supplements the services provided by the client's
Employee Assistance Programs. The services provided include information,
crisis intervention, critical incidents coordination, employee counselor
support, client monitoring, case management and health promotion. The
hotline is staffed by counselors who refer callers to the appropriate
professional resources for assistance with personal problems. Five major
transportation companies subscribed to these services as of June 30, 1997.
This operation is physically located in Highland Ridge Hospital, but services
are provided by staff dedicated to PDS2. PDS2 is currently operated by the
parent entity, PHC, Inc.
Mount Regis Center
Mount Regis is a 25-bed, free-standing alcohol and drug treatment center
located in Salem, Virginia, near Roanoke. The center, which was acquired in
1987, is the oldest of its kind in the Roanoke Valley. Mount Regis is
accredited by the JCAHO, and licensed by the Department of Mental Health,
Mental Retardation and Substance Abuse Services of the Commonwealth of
Virginia. In addition, Mount Regis operates Changes, a free standing
outpatient clinic. The Changes clinic provides structured intensive
outpatient treatment for patients who have been discharged from Mount Regis
and for patients who do not need the formal structure of a residential
treatment program. The program is licensed by the Commonwealth of Virginia
and approved for reimbursement by major insurance carriers.
The programs at Mount Regis are designed to be sensitive to needs of women
and minorities. The majority of Mount Regis clients are from Virginia and
surrounding states. In addition, because of its relatively close proximity
and accessibility to New York, Mount Regis has been able to attract an
increasing number of referrals from New York-based labor unions. Mount Regis
has established programs which allow the Company to better treat dual
diagnosis patients (those suffering from both substance abuse and psychiatric
disorders), cocaine addiction and relapse-prone patients. The
multi-disciplinary case management, aftercare and family programs are
designed to prevent relapse.
General 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.
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.
Until March, 1998, Harbor Oaks Hospital worked 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. The contract with New Life had an initial term of two years
commencing on July 25, 1995 and was terminated on May 22, 1998 by mutual
agreement.
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. On May 1, 1998 the State authorized the addition of
four beds to the adjudicated residential unit and on June 26, 1998 the State
authorized an additional eight beds for a total of 20 beds currently
available in this unit.
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.
Additionally, BSC provides billing and administrative services for the
Company's Joint Venture with Lexington Healthcare Group, Inc., Behavioral
Rehab Services of Connecticut, Inc.
<PAGE>
Operating Statistics
The following table reflects selected financial and statistical information
for all psychiatric services.
Nine Months Ended Year Ended June 30,
March 31,
1998 1997 1997 1996
Inpatient*
Net patient service
revenues $9,013,937 $10,882,545 $13,557,703 $13,000,822
Net revenues per
patient day(1) $ 408 $ 457 $ 414 $ 385
Average occupancy 52.3% 58.5% 58.8% 63.4%
rate(2)
Total number of
licensed beds
at end of
period 172 172 172 172
Source of Revenues:
Private(3) 86.1% 90.5% 91.6% 90.0%
Government(4) 13.9% 9.5% 8.4% 10.0%
Partial
Hospitalization
and Outpatient
Net Revenues:*
Individual
$5,337,916 $3,573,211 $5,629,760 $3,021,486
Contract $ 597,563 $ 523,093 $1,459,580 $ 503,365
Sources of revenues:
Private 98.2% 97.7% 98.4% 93.9%
Government 1.8% 2.3% 1.6% 6.1%
Other
Psychiatric services
PDSS(5) $ 554,031 $ 441,525 $ 629,761 $ 233,164
Practice
Management(6)$ 644,983 $ 274,597 $ 650,852
* Includes Good Hope Center revenue of:
Inpatient $ 835,916 $1,016,297 $ 1,300,745 $2,119,052
Outpatient $ 340,586 $ 321,276 $ 457,018 $ 451,265
(1) Net revenues per patient day equals net patient service revenues divided
by total patient days. (2) Average occupancy rates were obtained by
dividing the total number of patient days in each period by the number of
beds available in such period.
(3) Private pay percentage is the percentage of total patient revenue
derived from all payors other than Medicare and Medicaid.
(4) Government pay percentage is the percentage of total patient revenue
derived from the Medicare and Medicaid programs.
(5) PDSS, Pioneer Development and Support Services, provides clinical
support, referrals management and professional services for a number of the
Company's national contracts.
(6) Practice Management revenue is produced through BSC-NY.
<PAGE>
Closed and Discontinued Operations
Franvale
On February 19, 1997, the Company's Franvale Nursing and Rehabilitation
Center ("Franvale") was cited for serious patient care and safety
deficiencies by the Massachusetts Department of Public Health as the result
of a routine survey. A civil penalty of $3,050 per day was imposed which was
reduced to $2,250 per day on March 12, 1997. After an appeal the fine was
reduced to $90,545 in total. At the time of the original citation, the
Company was notified by the Department of Public Health and by the federal
agency, HCFA, that Franvale would be terminated from the Medicare and
Medicaid programs unless Franvale was in substantial compliance with
regulatory requirements by March 14, 1997. Franvale submitted a plan of
correction to the Department of Public Health and on March 12, 1997, as the
result of a resurvey by the Department of Public Health, a new statement of
deficiencies was issued, which contained a significant number of violations
but recharacterized the level of seriousness of the deficiencies to a lower
degree of violation and which extended the threatened date of termination to
April 30, 1997.
As a result of the new statement of deficiencies, the Department of Public
Health had precluded the Company from admitting new patients to its Franvale
facility until at least April 30, 1997. However, on April 11, 1997, the
Company received authority to admit new patients on a case by case basis.
Previous patients were readmitted to the Franvale facility from a hospital
only after a case by case review by the Department of Public Health. The
Company was obligated to notify the attending physician of each resident of
Franvale who was found to have received substandard care of the deficiency
notice and was obligated also to notify the Massachusetts board which
licenses the administrator of Franvale.
On April 19, 1997 the Department of Public Health, Division of Health Care
Quality completed a follow-up survey of the Franvale Nursing Home. As a
result of this survey it was determined that all deficiencies cited from the
April 17, 1997 visit had been corrected and the restrictions on Franvale's
ability to admit patients were lifted.
The Company replaced the management team at Franvale and expended
significant sums for staffing and programmatic improvements in order to bring
the facility into substantial compliance at the earliest possible date. The
Company engaged Oasis Management Company ("Oasis") on November 1, 1996 to
June 30, 1997 to provide management services to Franvale. The Company
conducted an intensive staff review which resulted in a total
reorganization. The present staff was provided with in-service training.
The Company is continuing an extensive program of review to ensure that
Franvale remains in compliance.
On January 29, 1998, Franvale Nursing and Rehabilitation Center
("Franvale") was again 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 was removed, however, 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.
On April 14, 1998 the State completed the resurvey of the Company's
Franvale Nursing and Rehabilitation Center ("Franvale") to determine if the
facility had corrected all patient care and safety deficiencies cited by the
Massachusetts Department of Public Health in its January 29, 1998 routine
survey. As a result of the resurvey the facility was found to be in
substantial compliance with regulatory requirements. In their letter of
April 23, 1998 the State Department of Public Health advised the facility
that "all deficiencies were found to have been corrected" and the facility
"is now in substantial compliance ...with the federal regulations applicable
to long term care facilities". The Department of Public Health also advised
the facility in this letter that it was withdrawing its recommendation to the
Health Care Finance Administration (HCFA) that the facility certification be
terminated, and recommending the denial of payment for new admissions and any
civil monetary penalties imposed on the facility cease as of the date the
facility alleged that it was in substantial compliance, which was March 29,
1998.
Despite the successful survey as documented in the Department's letter,
the notice continues by advising the facility that the "limitation on
admissions previously imposed ... shall remain in effect, irrespective of
whether HCFA accepts the state's recommendation to rescind its pending
Medicaid termination action, on the grounds that the Department has initiated
and there is currently pending a license revocation action against the
facility.
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. Although the agreement was still being pursued, the
inability of Franvale to admit new patients and the State's pending license
revocation made completion of the sale an impossibility.
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 correcting the cited deficiencies, continued facility cash
flow deficit of approximately $80,000 monthly, the stall of the sale of
Franvale and the probability that the State would not lift the admission
freeze on the facility the Company had no recourse but to file for protection
under Chapter 11 of the United States Bankruptcy Code for the wholly owned
subsidiary Quality Care Centers of Massachusetts, Inc. which operates
Franvale Nursing and Rehabilitation Center.
On May 26, 1998, PHC, Inc.'s wholly owned subsidiary, Quality Care
Centers of Massachusetts, Inc., doing business as Franvale Nursing and
Rehabilitation Center, filed for reorganization under Chapter 11 of the
United States bankruptcy Code in the Eastern Division of the District of
Massachusetts at Boston, Massachusetts. The case was assigned to C J
Kenner. On May 27, 1998 on motion of Franvale, the court authorized the
appointment of a Trustee and appointed Joseph Braunstein as the Chapter 11
Trustee. On May 29, 1998, the Bankruptcy Court terminated the Chapter 11
proceeding determining that there was no likelihood of reorganization since
the prospective acquirer of the facility was now imposing certain terms
unacceptable to all interested parties and that the transfer of patients and
liquidation of assets could be as readily effectuated in a state court
receivership under the aegis of the Massachusetts Health Care Statutes and
accordingly dismissed the Chapter 11 case. On June 1, 1998, on the Petition
of the Attorney General of the Commonwealth of Massachusetts on behalf of the
Department of Public Health with the acquiescence of Franvale, Robert Griffin
was appointed by J. Kottmyer as Receiver to transfer the patients and close
the facility expeditiously.
Although the full extent of the financial impact on PHC, Inc. cannot be
determined at this time, the management of PHC, Inc. does not believe that
the liquidation of the assets and liabilities of Quality Care Centers of
Massachusetts, Inc. will have a substantial negative impact on PHC's
financial position results of operations. Quality Care Centers of
Massachusetts, Inc. posted a loss from Discontinued Operations of
approximately $1.8 million in the nine months ended March 31, 1998 and $1.9
million in the previous fiscal year. The elimination of this loss will
enhance the profitability of PHC.
Good Hope Center
Good Hope Center is a 49-bed substance abuse treatment facility located in
West Greenwich, Rhode Island which, until May, 1998 was operated by the
Company's subsidiary PHC of Rhode Island, Inc.
The Good Hope Center operated at a loss for the past two years because of
a decline in length of stay and lower reimbursements from third party
payors. Efforts to increase length of stay and improve market share were
unsuccessful requiring the close of the facility.
In May, 1998 the Company closed Good Hope Center and entered into an
agreement terminating the lease for the facility. This agreement releases
PHRI from the remaining 16 years on the Good Hope Center property lease in
exchange for approximately $35,000 of the PHRI net fixed assets and a total
payment of approximately $125,000 over the next seven months. The Company
estimates that it will incur aggregate costs of closing this facility, in
addition to the lease agreement cost, of approximately $120,000.
Operating Statistics
The following table reflects closed and discontinued operations:
For the Nine Months For the Year Ended
Ended June 30,
March 31,
1998 1997 1997 1996
Discontinued
Operations-
Franvale:
Income (Loss)
from operations $(1,829,508) $(341,486) $(1,958,756) $(1,216,832)
Closed Operations
Good Hope Center:
Income (Loss)
from operations $ (771,395) $(479,858) $ (642,119) $ (661,645)
The Company does not anticipate additional costs will be incurred as a
result of the closure of Franvale; however, the Company does expect that
approximately $245,000 in additional costs will be incurred through the
closure of Good Hope Center. This amount includes approximately $125,000 to
terminate the lease, $50,000 in payment to former employees for earned time
and severance pay and $70,000 in collection and miscellaneous expenses.
Business strategy
The Company's objective is to become a leading national provider of
treatment services, specializing in substance abuse and psychiatric care.
The Company focuses its marketing efforts on "safety-sensitive"
industries. This focus results in customized outcome oriented programs that
the Company believes produce overall cost savings to the patients and/or
client organizations. The Company intends to leverage experience gained from
providing services to customers in certain industries which it believes will
enhance its selling efforts within these certain industries.
Marketing and Customers
The Company markets its substance abuse, inpatient and outpatient
psychiatric health services both locally and nationally, primarily to safety
sensitive industries, including transportation, oil and gas exploration,
heavy machinery and equipment, manufacturing and healthcare services.
Additionally, the Company markets its services in the gaming industry both in
Nevada and nationally.
The Company employs 9 individuals dedicated to marketing among the
Company's facilities. Each facility performs marketing activities in its
local region. The National Marketing Director of the Company, coordinates
the majority of the Company's national marketing efforts. In addition,
employees at certain facilities perform national marketing activities
independent of the National Marketing Director. The Company, with the
support of its owned integrated outpatient systems and management services,
plans to pursue more at-risk contracts and outpatient, managed health care
fee-for-service contracts. In addition to providing excellent services and
treatment outcomes, the Company will continue to negotiate pricing policies
to attract patients for long-term intensive treatment which meet length of
stay and clinical requirements established by insurers, managed health care
organizations and the Company's internal professional standards.
The Company's inpatient services are 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 has been successful in securing a number of national accounts
with a variety of corporations including: Boyd Gaming, Canadian Rail,
Conrail, CSX, the IUE, MCC, MGM, The Mirage, Station Casinos, Union Pacific
Railroad, Union Pacific Railroad Hospital Association, VBH, and others.
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.
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.
Implementation of these internal policies has been integral to the success of
the Company's strategy of providing services to relapse-prone, higher acuity
patients.
Government Regulation
The Company's business and the development and operation of the Company's
facilities are subject to extensive federal, state and local government
regulation. In recent years, an increasing number of legislative proposals
have been introduced at both the national and state levels that would effect
major reforms of the health care system if adopted. Among the proposals
under consideration are reforms to increase the availability of group health
insurance, to increase reliance upon managed care, to bolster competition and
to require that all businesses offer health insurance coverage to their
employees. The Company cannot predict whether any such legislative proposals
will be adopted and, if adopted, what effect, if any, such proposals would
have on the Company's business.
In addition, both the Medicare and Medicaid programs are subject to
statutory and regulatory changes, administrative rulings, interpretations of
policy, intermediary determinations and governmental funding restrictions,
all of which may materially increase or decrease the rate of program payments
to health care facilities. Since 1983, Congress has consistently attempted
to limit the growth of federal spending under the Medicare and Medicaid
programs and will 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 Harbor Oaks facility is certified for
participation as a provider 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 only facility of the Company that receives Medicare
reimbursement is Harbor Oaks. For the fiscal year ended June 30, 1997 11.12%
of revenues for Harbor Oaks were derived from Medicare programs.
The Medicare program generally reimburses psychiatric facilities pursuant
to its prospective payment system ("PPS"), in which each facility receives an
interim payment of its allowable costs during the year which is later
adjusted to reflect actual allowable direct and indirect costs of services
based upon the submission of a cost report at the end of each year. However,
current Medicare payment policies allow certain psychiatric service providers
an exemption from PPS. In order for a facility to be eligible for exemption
from PPS, the facility must comply with numerous organizational and
operational requirements. PPS-exempt providers are cost reimbursed,
receiving the lower of reasonable costs or reasonable charges. The Medicare
program fiscal intermediary pays a per diem rate based upon prior year costs,
which may be retroactively adjusted upon the submission of annual cost
reports.
The Harbor Oaks facility is currently PPS-exempt. The amount of its
cost-based reimbursement may be limited by the Tax Equity and Fiscal
Responsibility Act of 1982 ("TEFRA") and regulations promulgated thereunder.
Generally, TEFRA limits the amount of reimbursement a facility may receive to
a target amount per discharge, adjusted annually for inflation. This target
amount is based upon a facility's reasonable Medicare operating cost divided
by Medicare discharges, plus a per diem allowance for capital costs, during
its base year of operations. It is not possible to predict the ability of
Harbor Oaks to remain PPS-exempt or to anticipate the impact of TEFRA upon
the reimbursement received by Harbor Oaks in future periods.
In order to receive Medicare reimbursement, each participating facility
must meet the applicable conditions of participation set forth by the federal
government relating to the type of facility, its equipment, its personnel and
its standards of medical care, as well as compliance with all state and local
laws and regulations. In addition, Medicare regulations generally require
that entry into such facilities be through physician referral. The Company
must offer services to Medicare recipients on a non-discriminatory basis and
may not preferentially accept private pay or commercially insured patients.
Medicaid Reimbursement
Currently the only facility of the Company that receives reimbursement
under any state Medicaid program is Harbor Oaks. A portion of Medicaid costs
are paid by states under the Medicaid program and the federal matching
payments are not made unless the state's portion is made. Accordingly, the
timely receipt of Medicaid payments by a facility may be affected by the
financial condition of the relevant state.
Harbor Oaks is a participant in the Medicaid program administered by the
State of Michigan. Reimbursement is received on a per diem basis, inclusive
of ancillary costs. The rate is determined by the state and is adjusted
annually based on cost reports filed by the Company.
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 June 1, 1998, the Company had 310 employees, excluding Franvale and Good
Hope Center, of which 9 were dedicated to Marketing , 102 17 part time) to
finance and administration and 199 (75 part time) to patient care. All of the
Company's 310 employees 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 its employees to provide more favorable employee
health benefits at lower cost than would be available to the Company as a single
employer and to eliminate certain administrative tasks which otherwise would be
imposed on the management of the Company. The agreement provides that ARMFCO
will administer payroll, provide for compliance with workers' compensation laws,
including procurement of workers' compensation insurance and administering
claims, and procure and provide designated employee benefits. The Company
retains the right to reject the services of any leased employee and ARMFCO has
the right to increase its fees at any time upon thirty days' written notice or
immediately upon any increase in payroll taxes, workers' compensation insurance
premiums or the cost of employee benefits provided to the leased employees.
The Company believes that it has been successful in attracting skilled and
experienced personnel; competition for such employees is intense, however,
and there can be no assurance that the Company will be able to attract and
retain necessary qualified employees in the future. None of the Company's
employees are covered by a collective bargaining agreement. The Company
believes that its relationships with its employees are good.
Insurance
Each of the Company's facilities maintains separate professional liability
insurance policies. Mount Regis, Harbor Oaks, Harmony Healthcare, Total
Concept, NPP, BSC and PCV have coverage of $1,000,000 per claim and
$3,000,000 in the aggregate. Highland Ridge has limits of $1,000,000 per
claim and $6,000,000 in the aggregate. Good Hope has coverage of $2,000,000
per claim and $6,000,000 in the aggregate. In addition, these entities
maintain general liability insurance coverage in similar amounts. The
Company's long-term care facility maintained general and professional
liability coverage of $2,000,000, with a limit of $1,000,000 per claim and an
aggregate of $5,000,000 excess coverage. PCV's two doctors are currently
covered by their own malpractice policies.
The Company maintains $1,000,000 of directors and officers liability
insurance coverage and $1,000,000 of general liability insurance coverage.
The Company believes, based on its experience, that its insurance coverage is
adequate for its business and that it will continue to be able to obtain
adequate coverage.
PROPERTY
Executive Offices
The Company's executive offices are located in Peabody, Massachusetts.
The Company's lease in Peabody covers approximately 3,600 square feet for a
60-month term which expires August 10, 1999 and includes an option to renew.
The current annual payment under the lease is $35,721 and increases to
$37,507 in the final year. The Company also leases a small amount of nearby
space in the same building. The Company believes that this facility will be
adequate to satisfy its needs for the foreseeable future.
Highland Ridge Hospital
The Highland Ridge premises consists of approximately 16,072 square feet
of space occupying two full stories of a three-story building. The Company
is in the final 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
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. Mount
Regis/Changes occupies approximately 1,750 square feet of office space
leased from Pioneer Counseling of Virginia, Inc. in Salem, Virginia. The
Company believes that these premises are adequate for its current and
anticipated needs.
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
$1,600,000 mortgage on this property.
The Company owns the Pioneer Counseling of Virginia building which consists
of 7,500 square feet of office space located in Salem, Virginia. Pioneer
currently leases 1,750 square feet to Mount Regis-Changes and 1,500 square
feet to Blankenship Opticians, an unrelated party. The Pioneer Counseling of
Virginia property is subject to an outstanding mortgage in favor of Dillon &
Dillon Associates with an outstanding balance of $538,605 at fiscal year
ended June 30, 1997.
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>
MANAGEMENT
Directors and Officers
The directors and officers of the Company are as follows:
Name Age Position
Bruce A. Shear............... 43 Director, President and Chief
Executive Officer
Robert H. Boswell............ 49 Executive Vice President
Paula C. Wurts............... 49 Controller, Assistant Clerk
and Assistant Treasurer
Gerald M. Perlow, M.D. 60 Director and Clerk
(1)(2)....................
Donald E. Robar (1)(2)....... 61 Director and Treasurer
Howard W. Phillips........... 68 Director
William F. Grieco............ 44 Director
____________
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
All of the directors hold office until the annual meeting of stockholders
next following their election, or until their successors are elected and
qualified. 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 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. Mr. Boswell is a Board Member of the
National Foundation for Responsible Gaming and the Chair for the National
Center for Responsible Gaming.
PAULA C. WURTS has served as the Controller of the Company since 1989 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.
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 compensation of $8,333 for the
period. 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.
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. Mr.
Grieco is a member of the Board of Directors of Fresenius National Medical
Care Holdings, Inc. Mr. Grieco received a BS from Boston College in 1975, an
MS in Health Policy and Management from Harvard University in 1978 and a JD
from Boston College Law School in 1981.
Employment Agreements
The Company has not entered into any employment agreements with its
executive officers. The Company has acquired a $1,000,000 key man life
insurance policy on the life of Bruce A. Shear.
Executive Compensation
Two executive officers of the Company received compensation in the 1997
fiscal year which exceeded $100,000. The following table sets forth the
compensation paid or accrued by the Company for services rendered to these
executives in fiscal year 1998,1997, and 1996:
Summary Compensation Table
Long Term
Annual Compensation Compensation
Awards
(a) (b) (c) (d) (e) (g) (i)
Name and Other Securities All
Principal Year Salary Bonus Annual Underlying Other
Position Compensation Options/SARs Compensation
($) ($) ($) (#) ($)
Bruce A. Shear..... 1998 $309,167 -- $ 8,363(1) 50,000 $51,256
President and 1997 $294,167 -- $12,633(2) -- --
Chief Executive 1996 $294,063 -- $10,818(3) -- --
Officer
Robert H. Boswell.. 1998 $102,750 -- $ 6,931(4) 15,000 $14,149
Executive Vice 1997 $92,750 -- $ 6,000(5) 5,000 $6,821
President 1996 $80,667 $1,000 $23,750(6) 5,000 $11,250
(1) This amount represents (i) $1,341 contributed by the Company to the
Compan's Executive Employee Benefit Plan on behalf of Mr. Shear, (ii) $4,768
in premiums paid by the Company with respect to life insurance for the
benefit of Mr. Shear, and (iii) $2,254 personal use of a Company car held by
Mr. Shear
(2) This amount represents (i) $2,687 contributed by the Company to the
Company's Executive Employee Benefit Plan on behalf of Mr. Shear, (ii)
$6,769 in premiums paid by the Company with respect to life insurance for
the benefit of Mr. Shear, and (iii) $3,177 personal use of a Company car
held by Mr. Shear.
(3) 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.
(4) This amount represents (i) $6,000 automobile allowance, (ii) $408
contributed by the Company to the Company's Executive Employee Benefit Plan
on behalf of Mr. Boswell, (iii) $408 in other benefits paid by the Company on
behalf of Mr. Boswell and (iv) $115 in Class A Common Stock issued to
employees.
(5) This amount represents (i) an automobile allowance.
(6) This amount represents (i) $3,750 automobile allowance, and (ii)
$20,000 net gain from the exercise of options and subsequent sale of stock.
Compensation of Directors
Directors who are 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
fiscal year 1997 two members of the board of directors of the Company serve
on a board of directors of another entity. Mr. Phillips is a member of the
Board of Directors of Food Court Entertainment Network, Inc., an operator of
shopping mall television networks, and Telechips Corp., a manufacturer of
visual phones. Mr. Grieco is a member of the Board of Directors of Fresenius
National Medical Care Holdings, Inc.
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 June 30, 1997, the Company had issued options to purchase a total of
207,000 shares of Class A Common Stock under the 1993 Stock Plan at a price
per share ranging from $3.50 to $7.00 per share. On February 18, 1997, the
Board of Directors repriced all outstanding options, other than options
granted to members of the Board of Directors, at $3.50 per share. During the
fiscal year ended June 30, 1998, the Company issued additional options to
purchase 227,000 shares of Class A Common Stock under the 1993 Stock Plan at
a price per share ranging from $2.00 to $5.63. Generally, options are
exercisable upon grant for 25% of the shares covered with an additional 25%
becoming exercisable on each of the first three anniversaries of the date of
grant.
During the fiscal year ended June 30, 1997, 13,375 shares of Class A Common
Stock were issued through the exercise of options by employees and 100 shares
were issued to a former employee. During the fiscal year ended June 30, 1998
no options were exercised.
On November 17, 1997 the Board of Directors voted to amend the 1993 Stock
Plan to increase the number of shares of Class A Common Stock available for
issuance thereunder from 300,000 shares to 400,000 shares. This amendment was
presented to and approved by the Stockholders at the annual meeting on
December 26, 1997.
Issuance of Restricted Stock
On December 17, 1993, the Company issued 11,250 and 19,750 shares of the
Company's Class A Common Stock to certain directors and officers of the
Company, respectively, at a purchase price of $4.00 per share. The shares of
restricted stock were issued pursuant to the Company's Stock Plan. Each
purchaser paid to the Company 25% of the purchase price for his or her shares
in cash, and the balance with a non-recourse note. The notes bear interest at
6% per year, are payable quarterly in arrears, and became due March 31,
1997. To secure the payment obligation under the non-recourse notes, shares
paid for with these notes have been pledged to the Company. See "Certain
Transactions." The notes reached maturity on March 31, 1997. Two employees
were in default. Mark Cowell forfeited 6,925 shares and Joan Chamberlain
forfeited 1,731 shares which are currently held as treasury stock..
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 or 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. The second
offering period commenced on February 1, 1997 and ended on January 31, 1998.
Twenty four employees purchased an aggregate of 14,743 shares of Class A
Common Stock. A new offering commenced on February 1, 1998 and will end on
January 31, 1999. There are twenty-one employees participating in the third
offering under this plan.
On November 17, 1997 the Board of Directors voted to amend The Plan to
increase the number of shares of Class A Common Stock available for issuance
thereunder from 100,000 shares to 150,000 shares. This amendment was
presented to and approved by the Stockholders at the annual meeting on
December 26, 1997.
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, options to purchase a total of 5,500 shares of Class
A Common Stock were issued under the Director Plan at an exercise price of
$6.63 per share. On February 18, 1997, options to purchase a total of 6,000
shares of Class A Common Stock were issued under the Director Plan at an
exercise price of $3.50 per share. On January 22, 1998, options to purchase
a total of 6,000 shares of Class A Common Stock were issued under the
Director Plan at an exercise price of $2.06. As of May 31, 1998, none of
these options had been exercised.
On November 17, 1997 the Board of Directors voted to amend the Director
Plan to increase the number of shares of Class A Common Stock available for
issuance thereunder from 30,000 shares to 50,000 shares. This amendment was
presented to and approved by the Stockholders at the annual meeting on
December 26, 1997.
The following table provides information about options granted to the
named executive officers during fiscal 1998 under the Company's Stock Plan,
Employee Stock Purchase Plan and Non-Employee Director Stock Plan.
Individual Grants
(a) (b) (c) (d) (e)
Number of % of
Securities Total
Underlying Options/SA Exercise
Options/SARs Granted or Expiration
Name Granted to Base Date
(#) Employees Price
in ($/Share)
Fiscal
Year
Bruce A. Shear..... 50,000 22.0% $2.63 8/1/2002
Robert H. Boswell.. 10,000 4.4% $2.63 8/1/2002
5,000 2.2% $2.00 11/24/2002
The following table provides information about options exercised by the
named executive officers during fiscal 1997 and the number and value of
options held at the end of fiscal 1997.
(a) (b) (c) (d) (e)
Number of Value of
Securities Unexercised
Shares Underlying In-the-Money
Acquired Value Unexercised Options/SARs
Name on Realized Options/SARs at
Exercise ($) at FY-End ($)
(#) FY-End (#) Exercisable/
Exercisable/ Unexercisable
Unexercisable
Bruce A. Shear........ -- -- 12,500/37,500 $0/$0
Robert H. Boswell..... -- -- 47,600/34,000 $0/$0
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
June 30, 1998, the Company owed an aggregate of $159,496 to related parties.
During the period ended June 30, 1998, the Company paid Mr. Shear and
affiliates approximately $126,950 in principal and accrued interest under
various notes. As of June 30, 1998, the Company owed Bruce A. Shear $39,496
on a promissory note, which is dated March 31, 1994, matures on December 31,
1998 and bears interest at the rate of 8% per year, payable quarterly in
arrears, and requires repayments of principal quarterly in equal installments
and Tot Care, Inc., an affiliate of Bruce A. Shear, $100,000 on promissory
notes dated May 28, 1998 and June 9, 1998 which bear interest at the rate of
12% per year and are payable on demand.
Compliance with Section 16(a) of the Exchange Act
In fiscal year 1998, both Mr. Boswell and Ms. Wurts each failed to file a
Form 4 within the prescribed time limits relating to shares of Class A Common
Stock issued to all employees on March 30, 1998.
<PAGE>
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 and Class B Common Stock (the
only classes of capital stock of the Company currently outstanding) as of May
31, 1998 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 Percent
Title of Class of Beneficial Owner Nature of
of Beneficial Class
Owner (11)
Class A Common Stock Gerald M. Perlow *
c/o PHC, Inc. 19,750(1)
200 Lake Street
Peabody, MA 01960
Donald E. Robar 13,875(2) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA
01960
Bruce A. Shear 14,500(3) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Robert H. Boswell 38,087(4) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Howard W. Phillips 41,504(5) *
P. O. Box 2047
East Hampton, NY
11937
William F. Grieco 63,280(6)(7) 1.3%
115 Marlborough
Street
Boston, MA 02116
J. Owen Todd 59,280(7) 1.2%
c/o Todd and Weld
1 Boston Place
Boston, MA 02108
All Directors and 210,920(8) 4.2%
Officers as a
Group (8 persons)
Class B Common Stock Bruce A. Shear 671,259(10) 91.9%
(9).................. c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
All Directors and 671,259 91.9%
Officers as a
Group (8 persons)
<PAGE>
* Less than 1%.
(1) Includes 9,750 shares issuable pursuant to currently exercisable stock
options or stock options which will become exercisable within sixty days,
having an exercise price range of $2.06 to $6.63 per share.
(2) Includes 12,375 shares issuable pursuant to currently exercisable stock
options or stock options which will become exercisable within sixty days,
having an exercise price range of $2.06 to $6.63 per share.
(3) Includes 12,500 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price of $2.63 per
share. Excludes an aggregate of 59,280 shares of Class A Common Stock owned
by the Shear Family Trust and the NMI Trust, of which Bruce A. Shear is a
remainder beneficiary.
(4) Includes an aggregate of 34,000 shares of Class A Common Stock issuable
pursuant to currently exercisable stock options at an exercise price range
of $2.00 to $3.50 per share.
(5) Includes 37,504 shares issuable upon the exercise of a currently
exercisable Unit Purchase Option for 18,752 Units, at a price per unit of
$5.60, of which each unit consists of one share of Class A Common Stock and
one warrant to purchase an additional share of Class A Common Stock at a
price per share of $7.50 and 4,000 shares issuable pursuant to currently
exercisable stock options having an exercise price range of $2.06 to $3.50
per share.
(6) Includes 4,000 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of
$2.06 to $3.50 per share
(7) Messrs. Todd and Grieco are the two trustees of the Trusts which
collectively hold 59,280 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.
(8) Includes an aggregate of 93,125 shares issuable pursuant to currently
exercisable stock options. Of those options, 4,125 have an exercise price
of $6.63 per share, 68,250 have an exercise price of $3.50 per share,
17,500 have an exercise price of $2.63 and 2,000 have an exercise price of
$2.06 and 1,250 have an exercise price of $2.00. Also includes 37,504
shares issuable upon the exercise of the Unit Purchase Option as described
in (5).
(9) Each share of Class B Common Stock is convertible into one share of Class A
Common Stock automatically upon any sale or transfer thereof or at any time
at the option of the holder.
(10) Includes 56,369 shares of Class B Common Stock pledged to Steven J. Shear
of 2 Addison Avenue, Lynn, Massachusetts 01902, Bruce A. Shear's brother,
to secure the purchase price obligation of Bruce A. Shear in connection
with his purchase of his brother's stock in the Company in December 1988.
In the absence of any default under this obligation, Bruce A. Shear retains
full voting power with respect to these shares.
(11) 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).
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 May 31, 1998:
Bruce A. Shear .............................37.82%
J. Owen Todd..................................0.7%
William F. Grieco.............................0.7%
All Directors and Officers as a Group
(8 persons).............................38.72%
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. None of the Selling Security
Holders has had any position, or office with the Company or affiliates during
the past three years.
Number of
Name of Selling Shares of Number of Number of
Security Holder Class A Shares of Shares of
Common Stock Class A Class A Common
Owned Common Stock Stock Owned
Before the Offered after the
Offering Offering
Infinity
Investors, Ltd. 90,000 90,000 0
Seacrest Capital,
Ltd. 60,000 60,000 0
Alpine Capital
Partners 25,000 25,000 0
Barrow Street
Research, Inc. 3,000 3,000 0
C. C. R. I.
Corporation 160,000 160,000 0
Brean Murray &
Company 175,000 150,000 25,000
ProFutures Special
Equities Fund, L.P. 850,454 850,454 0
Augustine Fund, L.P. 284,498 284,498 0
Gary D. Halbert 210,740 210,740 0
John F. Mauldin 144,875 144,875 0
Healthcare
Financial
Partners, Inc. 105,000 105,000 0
Irwin Mansdorf 262,159 97,543 164,616
Yakov Burstein 92,688 30,381 62,307
<PAGE>
The Selling Security Holders listed acquired shares or rights to
purchase shares through the following transactions:
The issuance of Convertible Debentures with a face value of $3,125,000
issued at a 20% discount in November 1996 which accrued interest at 7% per year
and were convertible into Class A Common Stock. All Debentures have since been
converted and the Common Stock sold, however, Warrants to purchase 25,000 shares
of Class A Common Stock, at an exercise price of $2.00 expiring 10/7/2001, were
issued to Alpine Capital Partners in conjunction with this transaction as a
commission for services rendered to the Company. Warrants to purchase 150,000
shares, 90,000 to Infinity Investors Ltd and 60,000 to Seacrest Capital Ltd, at
an exercise price of $2.00 expiring 3/31/2002, were also issued in lieu of cash
payment of penalties for late registration of Common Stock. These shares were
previously registered on Registration Statement number 333-71418 in June 1997.
Warrants to purchase 3,000 shares of Class A Common Stock at an exercise
price of $2.80 expiring 2/18/2002, were issued to Barrow Street Research,
Inc. in exchange for investor relations services. These shares were
previously registered on Registration Statement number 333-71418 in June 1997.
Warrants to purchase 160,000 shares of Class A Common Stock at an exercise
price of $2.62 expiring 3/3/2002, were issued to C.C.R.I. Corporation in
exchange for investor relations services. These shares were previously
registered on Registration Statement number 333-71418 in June 1997.
Warrants to purchase 150,000 shares of Class A Common Stock at an exercise
price of $2.50 expiring 5/31/2002, were issued to Brean Murray and Company in
exchange for cash and services rendered. These shares were previously registered
on Registration Statement number 333-44045 in January 1998.
Series A Convertible Preferred Stock was issued in May 1997 with a face
value of $1,000,000. The Preferred Stock paid interest at 6% per year and was
convertible into Class A Common Stock at 80% of the five day closing bid price
as listed on Nasdaq. All Series A Convertible Preferred Stock was converted as
of August 1997. In conjunction with the issue of the Preferred Stock, the
Company issued warrants to purchase 50,000 shares of Class A Common Stock at an
exercise price of $2.75 expiring 6/4/2002, to ProFutures Special Equity Fund,
LP. These shares were previously registered on Registration Statement number
333-44045 in January 1998.
In September 1997 the Company issued units comprised of 172,414 shares of
Class A Common Stock and warrants to purchase 86,207 additional shares of Class
A Common Stock to ProFutures Special Equities Fund, LP in a Private Placement at
a 3.3% discount for $445,000. All shares of Class A Common Stock have since been
sold however all warrants to purchase shares at an exercise price $2.90 expiring
9/30/2002, are still outstanding. These shares of Common Stock were previously
registered on Registration Statement number 333-44045 in January 1998. In
conjunction with this transaction the Company also issued warrants to purchase
3,000 shares of Class A Common Stock at an exercise price of $2.90 expiring
3/10/2003 in payment of the penalty for late registering of the underlying
Common Stock in the above transaction. These shares of Common Stock were
previously registered on Registration Statement number 333-44045 in January
1998.
In March 1998 the Company issued 950 shares of Series B Convertible
Preferred Stock with a face value of $950,000 in a Private Placement. The
Convertible Preferred Stock pays interest at 6% per year until conversion. Each
Share of Series B Preferred Stock is convertible, at the option of its holder,
into Class A Common Stock at 80% of the average closing bid price five days
prior to the conversion date but not less than $1.88 or more than $3.50 per
share. If the conversion price should calculate to be less than $1.88 the
difference is made up in the form of a Note from the Company. Preferred Stock
dividends have preference over any Common Stock Dividends declared and may be
paid in cash or Preferred Stock at the Company's option. Preferred Stock under
this Private Placement was issued to: (i) ProFutures Special Equities Fund,
L.P., 500 shares, for which 684,932 shares of Class A Common Stock are being
Registered with this Registration Statement; (ii) Augustine Fund, L.P., 200
shares, for which 273,973 shares of Class A Common Stock are being Registered
with this Registration Statement; (iii) Gary D. Halbert, 150 shares, for which
205,480 shares of Class A Common Stock are being Registered with this
Registration Statement; (iv) John F. Maudlin, 100 shares, for which 136,985
shares of Class A Common Stock are being Registered with this Registration
Statement. In conjunction with this Private Placement the Company also issued
Warrants to purchase Class A Common Stock as follows: (i) ProFutures Special
Equities Fund, L.P., 26,315 shares; (ii) Augustine Fund, L.P., 10,525 shares;
(iii) Gary D. Halbert, 7,890 shares; and (iv) John F. Maudlin, 5,260 shares all
are exercisable at $2.31 per share and expire 3/18/2003 and are being Registered
with this Registration Statement.
On March 10, 1998 the Company signed a Note for $350,000 with Healthcare
Financial Partners, Inc. The Note bears interest at 3.5% over the Prime Rate and
matured on July 10, 1998. In conjunction with this financing the Company issued
Warrants to purchase 52,500 shares of Class A Common Stock at an exercise price
of $2.31 expiring 3/10/2003. On July 10, 1998 the Company signed an extension on
this Note to extend the maturity date to November 10, 1998. In conjunction with
this extension the Company issued Warrants to purchase 52,500 shares of Class A
Common Stock at an exercise price of $1.81 expiring 7/10/2003. These shares
totaling 105,000 are being Registered with this Registration Statement.
On November 1, 1996, BSC-NY, Inc. ("BSC"), merged with Behavioral Stress
Centers, Inc., a provider of management and administrative services to
psychotherapy and psychological practices in the greater New York City
Metropolitan Area. In connection with the merger, the Company issued 150,000
shares of PHC, Inc. Class A common stock to the former owners of Behavioral
Stress Centers, Inc. Also, in connection with the merger, another enity was
formed, Perlow Physicians, P.C. "(Perlow"), to acquire the assest of the medical
practices theretofore serviced by BSC. The acquisition and merger agreements
require additional purchase price to be paid by BSC to the former owners of
Behavioral Stress Centers, Inc. for the three years following the merger date.
The additional purchase price is based on the income of BSC before taxes and is
to be paid in PHC stock, at market value up to $200,000 and the balance, if any,
in cash. In connection with the earnout the former owners agreed to accept full
payment in Class A Common Stock. The Company issued 75,810 shares of registered
Class A Common Stock and 97,543 shares of unregistered Class A Common Stock to
Irwin Mansdorf on March 23, 1998 in lieu of cash as part of the earnout payment
required by the agreements and 23,613 shares of registered Class A Common Stock
and 30,381 shares of unregistered Class A Common Stock to Yakov Burstein on
March 23, 1998 in lieu of cash as part of the earnout payment required by the
agreement. The unregistered shares are being Registered with this Registration
Statement.
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 June 30, 1998, the Company had 449 record
holders of its Class A Common Stock and 315 record holders of its Class B 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
non-assessable.
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. Since the Company failed to meet earnings targets as specified in
its March 3, 1994 Prospectus, all outstanding Class C Common Stock was
canceled as of September 28, 1997.
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. Nine hundred
and fifty (950) shares of the Company's Series B Preferred Stock are currently
outstanding.
Each Share of Series B Preferred Stock is convertible, at the option of its
holder, into Class A Common Stock at 80% of the average closing bid price
five days prior to the conversion date but not less than $1.88 or more than
$3.50 per share. If the conversion price should calculate to be less than
$1.88 the difference is made up in the form of a Note from the Company.
Preferred Stock dividends have preference over any Common Stock Dividends
declared and may be paid in cash or Preferred Stock at the Company's option.
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.
<PAGE>
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. 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.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Arent Fox Kintner Plotkin & Kahn, PPLC.
EXPERTS
The financial statements of PHC, Inc. as of June 30, 1997 and 1996 and for
the years ended June 30, 1997 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 in
reliance upon such report given upon the authority of said firm as experts in
accounting and auditing.
<PAGE>
PHC, INC. AND SUBSIDIARIES
Contents
Consolidated Financial Statements
Independent auditors' report F-2
Consolidated balance sheets F-3
Consolidated statements of operations F-4
Consolidated statements of changes in F-5
stockholders' equity
Consolidated statements of cash flows F-6
Consolidated notes to financial statements F-7
F-1
<PAGE>
INDEPENDENT AUDITOR' REPORT
Board of Directors and Stockholders
PHC, Inc.
Peabody, Massachusetts
We have audited the accompanying consolidated balance sheets of PHC, Inc. and
subsidiaries as of June 30, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements enumerated above
present fairly, in all material respects, the consolidated financial position
of PHC, Inc. and subsidiaries at June 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the years then ended in
conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
September 19, 1997
F2
<PAGE>
PHC, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, June 30,
(unaudited)
1998 1997 1996
ASSETS (Notes C and D)
Current assets:
Cash and cash equivalents $ 92,591 $ 844,471 $ 284,044
Accounts receivable, net of allowance for
bad debts of $2,062,093 at Mar 31,1998,
$1,942,602 at June 30, 1997 and
$1,059,774 at June 30, 1996 (Notes A,
C and M) 9,378,264 9,066,763 5,994,997
Prepaid expenses 255,494 346,091 190,773
Other receivables and advances 467,706 249,218 63,282
Deferred income tax asset (Note F) 515,300 515,300 515,300
Other receivables, related party (Note L) 236,980 80,000 --
Net current assets of discontinued operations
(Note J) -- -- 797,187
__________ __________ __________
Total current assets 10,946,335 11,101,843 7,845,583
Accounts receivable, noncurrent 645,000 605,000 740,000
Loans receivable 118,284 134,284 113,805
Property and equipment, net (Notes A and B) 3,426,581 3,525,195 3,022,419
Deferred income tax asset (Note F) 154,700 154,700 154,700
Deferred financing costs, net of amortization 85,695 60,575 69,875
Goodwill, net of accumulated amortization
(Note A) 2,218,901 1,644,252 841,413
Other assets (Note A) 125,034 214,150 150,794
Net assets of operations held for sale (Note J) -- -- 56,682
Other receivables, noncurrent, related party
(Note L) 2,996,452 2,983,177 --
__________ __________ ___________
Total Assets $20,716,982 20,423,176 $12,995,271
__________ __________ __________
LIABILITIES
Current liabilities:
Accounts payable 2,269,118 $ 2,529,126 1,644,827
Notes payable - related parties (Note E) 51,596 51,600 56,600
Current maturities of long-term debt
(Note C) 1,018,039 560,914 233,531
Revolving credit note and secured term note 1,731,938 1,789,971 --
Current portion of obligations under capital 111,729 97,038 83,481
leases (Note D)
Accrued payroll, payroll taxes and benefits 525,960 303,731 287,543
Accrued expenses and other liabilities 548,567 672,154 668,200
Net current liabilities of
discontinued operations (Note J) 1,084,382 334,349 --
_________ _________ __________
Total current liabilities 7,341,329 6,338,883 2,974,182
_________ _________ __________
Long-term debt and accounts payable (Note C) 3,031,530 3,021,540 1,125,484
Obligations under capital leases (Note D) 1,442,063 1,434,816 1,453,994
Notes payable - related parties (Note E) -- 23,696 47,396
Convertible debentures ($3,125,000 less
discount $390,625) (Note C) -- 2,734,375 --
Net long term liabilities of discontinued 1,394,373 1,145,285 977,026
operations (Note J) _________ _________ __________
Total noncurrent liabilities 5,867,966 8,359,712 3,603,900
_________ _________ __________
Total liabilities 13,209,295 14,698,595 6,578,082
Commitments and contingent liabilities (Notes
A, G, H, K, L and M)
STOCKHOLDERS' EQUITY (Notes H and K)
Preferred stock, $.01 par value; 1,000,000
shares authorized, 950 and 500 shares issued 10 5 --
and outstanding March 31, 1998 and June 30,
1997 (liquidation preference $950,000)
Class A common stock, $.01 par value;
20,000,000 shares authorized, 4,932,303,
2,877,836 and 2,293,568 shares issued March 49,323 28,778 22,936
31,1998, June 30,1997 and 1996, respectively
Class B common stock, $.01 par value;
2,000,000 shares authorized, 730,292, 730,360
and 812,237 issued and outstanding March 31, 7,303 7,304 8,122
1998, June 30, 1997 and 1996, respectively,
convertible into one share of Class A common
stock
Class C common stock, $.01 par value; 200,000
shares authorized, 199,816 shares issued and -- 1,998 1,998
outstanding in 1997 and 1996
Additional paid-in capital 15,216,280 10,398,630 8,078,383
Notes receivable related to purchase of -- -- (63,928)
31,000 shares of Class A common stock
Treasury stock, 8,656 common shares at cost (37,818) (37,818) --
Accumulated deficit (7,727,411)(4,674,316) (1,630,322)
___________ __________ ___________
Total stockholders' equity 7,507,687 5,724,581 6,417,189
___________ __________ ____________
Total Liabilities & Shareholders
Equity $20,716,982 $20,423,176 $12,995,271
See notes to financial statements F-3
<PAGE>
PHC, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Nine Months Ended
March 31, Year Ended
(Unaudited) June 30,
1998 1997 1997 1996
Revenues:
Patient care, net (Note A) $14,949,416 $14,978,849 $20,700,616 $16,525,672
Management fees (Note L) 644,983 274,597 597,278 --
Other 554,031 441,525 629,761 233,164
Total revenue 16,148,430 15,694,971 21,927,655 16,758,836
___________ __________ __________ ____________
Operating expenses:
Patient care expenses 8,171,428 7,468,614 10,346,111 7,974,811
Cost of management contracts 337,628 232,098 324,440 146,407
Provision for doubtful
accounts 1,479,692 837,524 2,593,573 1,289,105
Administrative expenses 6,759,298 6,227,412 8,622,946 6,777,273
___________ __________ __________ ____________
Total operating expenses 16,748,046 14,765,648 21,887,070 16,187,596
___________ __________ __________ ____________
Income (Loss)from operations (599,616) 929,323 40,585 571,240
___________ __________ __________ ____________
Other income (expense):
Interest income 288,323 105,506 199,976 14,409
Other income, net 180,709 332,641 490,019 211,015
Interest expense (935,145) (949,681) (1,441,030) (396,255)
Gain from operations held for
sale (Note J) -- 36,478 26,853 11,947
___________ __________ __________ ___________
Total other expense (466,113) (475,056) (724,182) (158,884)
___________ __________ __________ ___________
Income (Loss) before income
taxes (benefit) (1,065,729) 454,267 (683,597) 412,356
Income taxes (benefit)(Note F) 105,509 30,000 197,311 (219,161)
___________ __________ ___________ __________
Income(Loss) from continuing
operations $(1,171,238) $ 424,267 $(880,908) $631,517
Income (loss) from
discontinued operations (1,829,508) (341,486) (1,958,756) (1,216,832)
____________ _________ ___________ ___________
Net income (loss) (3,000,746) 82,781 (2,839,664) (585,315)
____________ _________ ___________ ___________
Basic Earnings (Loss)per
common share:
Continuing Operations (.23) .13 (.27) .23
Discontinued Operations (.36) (.11) (.60) (.45)
Total (.58) .02 (.87) (.22)
Basic Weighted average number
of shares outstanding 5,090,919 3,170,222 3,270,175 2,709,504
Diluted Earnings (loss) per
common share:
Continuing Operations (.23) .09 (.27) .18
Discontinued Operations (.36) (.07) (.60) (.34)
Total (.58) .02 (.87) (.16)
Diluted Weighted average
number of shares
outstanding 5,090,919 4,855,753 3,270,175 3,615,514
See notes to financial statements F-4
<PAGE>
PHC, INC. AND SUBSIDIARIES
Consolidated Statements of Changes In Stockholders' Equity
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Class B Class C
Common Stock Common Stock Common Stock Preferred Stock
Shares Amount Shares Amount Shares Amount Shares Amount
Balance - June 30, 1,504,662 $15,047 898,795 $8,988 199,966 $2,000
1995
Payment of notes
receivable
Conversion of 86,554 866 (86,558) (866) (150) (2)
shares
Exercise of options 22,500 225
Issuance of stock
for obligations in 6,600 66
lieu of cash
Exercise of bridge 33,509 335
loan warrants
Sale of stock in
connection 493,750 4,937
with private
placement
Costs related to
private placement
Exercise of IPO 21,493 215
warrants
Issuance of shares 87,000 870
with acquisitions
Exercise of 37,500 375
private placement
warrants
Amount paid for
options, not yet
issued
Compensatory stock
options
Net loss, year ________________________________________________________________________
ended June 30, 1996
Balance - June 30, 2,293,568 22,936 812,237 8,122 199,816 1,998
1996
Costs related to
private placements
Issuance of shares 229,500 2,295
with acquisitions
Exercise of options 13,475 135
Payment of notes
receivable
Conversion of 81,877 818 (81,877) (818)
shares
Issuance of
employee stock 9,452 94
purchase plan
shares
Issuance of shares
in connection with 20,000 200
consulting
agreement
Issuance of
warrants with
convertible
debentures
Cancellation of
notes receivable
Payment of notes
receivable
Issuance of 1,000 $10
preferred stock
Adjustment related
to beneficial
conversion
Conversion of 229,964 2,300 (500) (5)
preferred stock
Dividend on
preferred stock
Net loss, year ________________________________________________________________________
ended June 30, 1997
Balance - June 30, 2,877,836 $28,778 730,360 $ 7,304 199,816 $1,998 500 $5
1997
Costs related to
private placements
Conversion of Debt 1,331,696 13,317
Conversion of 246,305 2,463 (500) (5)
preferred stock
Issuance of shares 41,024 410
with acquisition
Issuance Private 172,414 1,724
Placement shares
Conversion of 68 1 (68) (1)
Shares
Cancel Class C (199,816) (1,998)
Common Stock
Issue warrants for
services
Issuance of Shares
with 20,870 209
consulting
agreement
Issuance of Shares
with 227,347 2274
Earn out
agreement
Issuance of
employee stock 14,743 147
purchase plan
shares
Issuance of 950 10
preferred stock
Warrant Valuation
Balance - March 4,932,303 $49,323 730,292 $ 7,303 0 $0 950 $10
31, 1998
(Unaudited)
See notes to financial statements
<PAGE>
PHC, INC. AND SUBSIDIARIES (con't)
Consolidated Statements of Changes In Stockholders' Equity
Additional
Paid-in
Capital, Notes Treasury Shares Accumulated
Common Receivable Shares Amount Deficit Total
Stock for Stock
Balance - June 30, $5,554,874 $(75,362) $(1,045,007) $4,460,540
1995
Payment of notes 11,434 11,434
receivable
Conversion of 2 -0-
shares
Exercise of options 113,575 113,800
Issuance of stock
for obligations in 36,184 36,250
lieu of cash
Exercise of bridge 153,617 153,952
loan warrants
Sale of stock in
connection with 1,970,063 1,975,000
private placement
Costs related to (442,395) (442,395)
private placement
Exercise of IPO 137,785 138,000
warrants
Issuance of shares 392,678 393,548
with acquisitions
Exercise of 149,625 150,000
private placement
warrants
Amount paid for
options, not yet 9,375 9,375
issued
Compensatory stock 3,000 3,000
options
Net loss, year
ended June 30, 1996 (585,315) (585,315)
Balance - June 30, 8,078,383 (63,928) (1,630,322) 6,417,189
1996
Costs related to (141,295) (141,295)
private placements
Issuance of shares 838,524 840,819
with acquisitions
Exercise of options 59,709 59,844
Payment of notes 662 662
receivable
Conversion of -0-
shares
Issuance of
employee 30,530 30,624
stock
purchase plan
shares
Issuance of shares
in connection with 79,800 80,000
consulting
agreement
Issuance of
warrants with 125,000 125,000
convertible
debentures
Cancellation of 37,818 8,656 $(37,818) -0-
notes receivable
Payment of notes 25,448 25,448
receivable
Issuance of 999,990 1,000,000
preferred stock
Adjustment related
to beneficial
conversion
feature of 330,284 (200,000) 130,284
convertible
preferred stock
and convertible
debentures
Conversion of (2,295) -0-
preferred stock
Dividend on (4,330) (4,330)
preferred stock
Net loss, year (2,839,664)(2,839,664)
ended June 30, 1997 ______________________________________________________________________
Balance - June 30,
1997 $10,398,630 $ -0- 8,656 $(37,818) $(4,674,316) $5,724,581
Costs related to (228,288) (228,288)
private placements
Conversion of Debt 2,767,101 2,780,418
Conversion of (2,458) 0
preferred stock
Issuance of shares 79,605 80,015
with acquisition
Issuance Private 498,276 500,000
Placement shares
Conversion of -0-
Shares
Cancel Class C 1,998 -0-
Common Stock
Issue warrants for 46,281 46,281
services
Issuance of Shares
with 36,249 36,458
consulting
agreement
Issuance of Shares
with 531,991 534,265
Earn out
agreement
Issuance of
employee stock 35,750 35,897
purchase plan
shares
Issuance of 949,990 950,000
preferred stock
Warrant Valuation 101,155 (52,349) 48,806
(Part Dividend)
Net Loss Nine
months ended (3,000,746) (3,000,746)
March 31,
1998
Balance - March
31, 1998 $15,216,280 $ -0- 8,656 $(37,818) $(7,727,411) $ 7,507,687
(Unaudited)
_________________________________________________________________________
See notes to financial statements F-5
</TABLE>
<PAGE>
PHC, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C> <C> <C>
Nine Months Ended Year Ended
March 31, June 30,
(Unaudited)
1998 1997 1997 1996
Cash flows from operating activities:
Net loss $(3,000,746) $82,781 $(2,839,664) $ (585,315)
Adjustments to reconcile net loss to net
cash used in operating activities:
Non-Cash charge of net cash provided
(used) by discontinued operations 999,121 335,183 $ 1,299,795 (426,956)
Deferred tax benefit -- -- -- (418,137)
Depreciation and amortization 334,066 342,340 469,118 377,575
Beneficial conversion feature of -- -- 130,284 --
convertible debt
Compensatory stock options and stock and -- -- 205,000 39,250
warrants issued for obligations
Changes in:
Accounts receivable (710,969) (4,978,221) (2,929,003) (2,038,160)
Prepaid expenses and other current assets 90,597 (340,449) (349,017) (33,364)
Other assets (6,932) 1,743 196,339 671,521
Net assets of operations held for sale -- 56,682 56,682 106,886
Accounts payable (452,565) 476,002 884,299 1,249,654
Accrued expenses and other liabilities 291,201 (105,709) (143,943) 128,054
___________ __________ _________ __________
Net cash used in operating activities (2,456,227) (4,129,648) (3,020,110) (928,992)
Cash flows from investing activities:
Acquisition of property and equipment and (112,911) (198,956) (682,425) (574,443)
intangibles
Loan receivable (13,275) (1,461,645) (3,063,177) (17,462)
Costs related to business acquisition (626,267) (945,116) -- --
Net cash used in investing activities (752,453) (2,605,717) (3,745,602) (591,905)
___________ __________ ___________ ___________
Cash flows from financing activities:
Revolving debt, net (421,230) 1,753,009 1,789,981 --
Proceeds from borrowings 850,000 1,100,000 2,767,373 275,191
Payments on debt (21,450) (17,570) (696,886) (402,828)
Deferred financing costs -- -- 21,498 (711,960)
Issuance of capital stock 2,049,480 1,027,767 944,173 2,109,166
Convertible debt -- 2,656,250 2,500,000 --
__________ _________ _________ ___________
Net cash provided by financing
activities 2,456,800 6,519,456 7,326,139 1,269,569
__________ _________ _________ __________
Net increase (decrease) in cash and cash
equivalents (751,880) (215,909) 560,427 (251,328)
Beginning balance of cash and cash
equivalents 844,471 284,044 284,044 535,372
___________ __________ _________ ___________
Ending balance of cash and cash equivalents $92,591 $68,135 $844,471 $284,044
___________ __________ _________ ___________
Supplemental cash flow information:
Cash paid during the period for:
Interest $1,373,265 $1,002,575 $ 1,279,862 $312,669
Income taxes $ 98,309 $ 30,000 $86,414 $179,550
Supplemental disclosures of noncash
investing and financing activities:
Stock issued for acquisitions of
equipment and services $ 650,738 $ 920,819 $840,819 $393,548
Note payable due for litigation
settlement -- -- -- $225,000
Capital leases -- -- $284,048 $94,699
Conversion of preferred stock $ 584,587 -- $500,000 --
Beneficial conversion feature of
preferred stock -- -- $200,000 --
Conversion of Debt to Common Stock $2,734,375 -- -- --
See notes to financial statements F-6
</TABLE>
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996 (Unaudited with respect to the nine months ended March
31, 1998 and March 31, 1997)
NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation:
PHC, Inc. ("PHC") operates substance abuse treatment centers in several
locations in the United States, a 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") and PHC
of Virginia, Inc. ("PHV") provide treatment of addictive disorders and
chemical dependency. PHC of Michigan, Inc. ("PHM") provides inpatient and
outpatient psychiatric care. PHC of Nevada, Inc. ("PHN") and PHC of Kansas,
Inc. ("PHK") provide psychiatric treatment on an outpatient basis. North
Point-Pioneer, Inc. ("NPP") operates six outpatient behavioral health centers
under the name of Pioneer Counseling Centers. Behavioral Stress Centers,
Inc. ("BSC") provides management and administrative services to psychotherapy
and psychological practices (see Note L). Pioneer Counseling of Virginia,
Inc. ("PCV"), an 80% owned subsidiary provides outpatient services through a
physicians practice (see Note L). Quality Care Centers of Massachusetts, Inc.
("Quality Care") operates a long-term care facility known as the Franvale
Nursing and Rehabilitation Center. STL, Inc. ("STL") operated day care
centers (see Note J). The consolidated financial statements include PHC and
its subsidiaries. All significant intercompany transactions and balances
have been eliminated in consolidation.
Until May 31, 1998, the Company operated Good Hope Center, a substance abuse
treatment facility in West Greenwich Rhode Island ("Good Hope"). Until June
1, 1998 the Company also operated a subacute long-term care facility,
Franvale Nursing and Rehabilitation Center ("Franvale"), in Braintree
Massachusetts. On June 1, 1998 Franvale was placed into state receivership.
All financial information for Franvale is reported on the attached financial
statements as discontinued operations. The Company does not expect that the
liquidation of the Franvale Operations will have a material negative impact
on the financial position or results of operation of the Company.
For the year ended June 30, 1996, the Company incurred start-up costs related
to an addition at Quality Care prior to obtaining a license to admit
patients. These costs, amounting to $128,313, are included in discontinued
operations.
During the year ended June 30, 1997, the Company recorded an increase in its
accounts receivable reserve and a substantial portion of the increase was
recorded in the fourth fiscal quarter.
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.
Medicaid reimbursements are currently based on established rates depending on
the level of care provided and are adjusted prospectively at the beginning of
each calendar year. Medicare reimbursements are currently based on
provisional rates that are adjusted retroactively based on annual calendar
cost reports filed by the Company with Medicare. The Company's calendar year
cost reports to Medicare are routinely audited on an annual basis. The
Company periodically reviews its provisional billing rates and provides for
estimated Medicare adjustments. The Company believes that adequate provision
has been made in the financial statements for any adjustments that might
result from the outcome of Medicare audits.
F-7
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Revenues and accounts receivable: (continued)
The Company has $1,787,000 of receivables from Medicaid and Medicare at June
30, 1997, which constitute a concentration of credit risk should Medicaid and
Medicare defer or be unable to make reimbursement payments as due. This
amount includes receivables due to Franvale Nursing and Rehabilitation which
is reported as Net current assets of discontinued operations or Net current
liabilities of discontinued operations on the accompanying Balance Sheet.
Charity care amounted to approximately $725,000 and $865,000 at June 30, 1997
and 1996, respectively and is classified as patient care revenue and an equal
amount of cost is charged to patient care expenses in the statements of
operations.
Property and equipment:
Property and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets using accelerated and straight-line
methods. The estimated useful lives are as follows:
Assets Estimated
Useful Life
Buildings 20 through 39 years
Furniture and equipment 3 through 10 years
Motor vehicles 5 years
Leasehold improvements Term of lease
Other assets:
Other assets represent deposits, deferred expenses and covenants not to
compete. Covenants not to compete are amortized over the life of the
underlying agreement using the straight line method.
Goodwill, net of accumulated amortization:
The excess of the purchase price over the fair market value of net assets
acquired are being amortized on a straightline basis over their estimated
useful lives, generally twenty years.
Basic and diluted loss per share:
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock for each fiscal year excluding Class C
Common Shares held in escrow. Common stock equivalents are not considered in
loss years because they are anti-dilutive.
In 1997, the Financial Accounting Standards Board (FASB) issued Statement No.
128, Earnings per share. Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive affects of options, warrants and convertible securities.
Dilutive earnings per share is very similar to the previously reported fully
diluted earnings per share.
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
F-8
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE A-THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash equivalents:
Cash equivalents are short-term highly liquid investments with original
maturities of less than three months.
Fair value of financial instruments:
The carrying amounts of cash, trade receivables, other current assets,
accounts payable, notes payable and accrued expenses approximate fair value.
Impairment of long-lived assets:
During the year ended June 30, 1997 the Company wrote-off the carrying value
of the goodwill for one of its subsidiaries in the amount of approximately
$50,000.
Stock-based compensation:
The Company accounts for its employee stock-based compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 establishes a
fair-value-based method of accounting for stock-based compensation plans.
The Company adopted the disclosure only alternative in fiscal year 1997 which
requires disclosure of the pro forma effects on loss and loss per share as if
SFAS No. 123 had been adopted, as well as certain other information.
Unaudited Interim Financial Statements:
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included for the nine months ended March 31, 1998 and 1997. Operating
results for the nine months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1998.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment is comprised as follows:
June 30,
1997 1996
Land $ 302,359 $ 251,759
Buildings 7,854,419 7,338,838
Furniture and equipment 1,760,359 1,404,716
Motor vehicles 50,889 50,889
Leasehold improvements 385,543 301,067
___________ __________
10,353,569 9,347,269
Less accumulated depreciation and
amortization 1,945,358 1,463,206
Less Net Assets of Franvale Nursing
& Rehabilitation Center
(The above table shows assets related
to Franvale which is presented as
discontinued operations on the
accompanying balance sheet.) 4,883,016 4,861,644
___________ _________
F-9
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, l997 and 1996
NOTE C - LONG-TERM DEBT
Long-term debt is summarized as follows:
June 30,
1997 1996
_____ _____
Note payable with interest at 9% requiring monthly payments
of $1,150 through May 2001 $44,816 $58,154
Note payable due in monthly installments of $2,000
including imputed interest at 8% through April 1, 1999 40,574 60,163
9% mortgage note due in monthly installments of $4,850
through July 1, 2012, when the remaining principal balance
is payable 492,996 505,485
Note payable due in monthly installments of $21,506
including interest at 10.5% through November 1, 1999,
collateralized by all assets of PHN and certain
receivables 547,092 735,213
Construction obligations:
Construction note payable collateralized by real estat
and insured by HUD due in monthly installments of
$53,635, including interest at 9.25%, through
December 2035 6,757,422 6,301,986
Other construction obligations to be added to note
payable -- 344,802
Note payable to a former vendor, payable in monthly
installments of $19,728 including interest at 9.5% -- 152,353
Note payable due in monthly installments of $26,131
including interest at 11.5% through June 2000 when the
remaining principal balance is payable, collateralized
by all assets of NPP (see Note L) 818,371 --
Note payable due in monthly installments of $5,558
including interest at 9.25% through May 2012 when the
remaining principal balance is payable, collateralized by
the real estate 538,605 --
Term mortgage note payable with interest only payments
through March 1998 principal due in monthly installments of
$9,167 beginning April 1998 through February 2001, a
balloon payment of approximately $780,000 plus interest is
due March 2001, interest at prime plus 5% (13.5% at June
30, 1997) collateralized by all assets of PHM with an
additional $500,000 borrowed under the mortgage
subsequen to June 30, 1998 1,100,000 --
__________ _________
10,339,876 8,158,156
Less Amounts applicable to Franvale (shown as
discontinued operations on the accompanying
balance sheet) 6,757,422 6,799,141
Less current maturities 560,914 233,531
_________ ________
Noncurrent maturities $3,021,540 $1,125,484
F-10
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE C - LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows as of June 30, 1997:
Year Ending
June 30, Amount
1998 $ 560,914
1999 671,381
2000 560,171
2001 1,363,216
2002 20,634
Thereafter 406,138
_____________
$3,582,454
In fiscal year 1997, the Company issued 7% convertible debentures due
December 31, 1998 in the aggregate principal amount of $3,125,000. The
number of shares of Class A common stock into which the debentures may be
converted is determined by dividing the principal amount to be converted by
the conversion price. The conversion price is equal to 94% of the average
closing bid price of the Class A common stock as reported by NASDAQ for the
five trading days immediately preceding the date of conversion. The
beneficial conversion feature, valued at $130,284, was recorded as additional
interest. In addition, on March 31, 1997 the Company issued warrants to the
debenture holders as compensation for amending the debenture agreement to
allow for a later filing of the Registration Statement which was originally
required to be filed in December 1996. The warrants provide for the purchase
of 150,000 shares of Class A common stock at $2.00 per share and expire in
2003. The warrants were valued at $125,000. Subsequent to June 30, 1997,
all of the convertible debentures were converted into 1,331,696 shares of
Class A common stock.
The Company has entered into a revolving credit note and a secured note with
maximum advances of $1,500,000 and $1,000,000, respectively. Advances are
made based on a percentage of accounts receivable and principal is payable
upon receipt of proceeds of the accounts receivable. Interest is payable
monthly at prime plus 2.25% (10.75% at June 30, 1997). These agreements were
renewed to include three additional facilities for a total amount of
$4,000,000 and are automatically renewable for one-year periods thereafter
unless terminated by either party. Upon expiration, all remaining principal
and interest is due. The notes are collateralized by substantially all of
the assets of the Company's subsidiaries excluding Franvale.
NOTE D - CAPITAL LEASE OBLIGATION
At June 30, 1997, the Company was obligated under various capital leases for
equipment and real estate providing for monthly payments of approximately
$31,000 for fiscal 1998 and terms expiring from December 1997 through
February 2014.
The carrying value of assets under capital leases is as follows:
June 30,
1997 1996
__________ __________
Building $1,477,800 $1,477,800
Equipment and improvements 485,004 214,754
Less accumulated depreciation and
amortization (501,732) (400,768)
___________ ____________
$1,461,072 $1,291,786
___________ ___________
F-11
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE D - CAPITAL LEASE OBLIGATION (CONTINUED)
Future minimum lease payments under the terms of the capital lease agreements
are as follows at June 30, 1997:
Year Ending Real
June 30, Equipment Property Total
__________ _________ ________ ________
1998 $ 140,307 $ 231,000 $ 371,307
1999 117,083 239,000 356,083
2000 95,121 259,248 354,369
2001 70,828 272,208 343,036
2002 13,557 295,188 308,745
Thereafter -- 4,641,348 4,641,348
_________ ___________ __________
Total future minimum lease
payments 436,896 5,937,992 6,374,888
Less amount representing
interest 83,804 4,556,574 4,640,378
Present value of future
minimum lease payments 353,092 1,381,418 1,734,510
Less amounts attributable
to Franvale 202,656 -- 202,656
Less current portion 59,722 37,316 97,038
_________ _________ _________
Long-term obligations
under capital lease $ 90,714 $1,344,102 $1,434,816
_________ __________ ___________
NOTE E - NOTES PAYABLE - RELATED PARTIES
Related party debt is summarized as follows:
June 30,
1997 1996
________ _________
Note payable, President and principal stockholder,
interest at 8%, due in installments through 1998 $ 55,296 $ 78,996
Notes payable, other related parties, interest at
12% and payable on demand 20,000 24,998
_________ _________
75,296 103,994
Less current maturities 51,600 56,600
_________ ________
$ 23,696 $ 47,394
Maturities of related party debt are as follows at June 30, 1997:
Year Ending
June 30, Amount
1998 $51,600
1999 23,696
_________
$75,296
Related party interest on notes receivable related to the purchase of Class A
common stock approximated $1,699 and $4,295 for the years ended June 30, 1997
and 1996, respectively.
F-12
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE F - INCOME TAXES
The Company has the following deferred tax assets included in the accompanying
balance sheets:
Year Ended
June 30,
1997 1996
____________ __________
Temporary differences attributable to:
Allowance for doubtful accounts $ 1,007,000 $ 510,000
Depreciation 147,000 154,700
Other 3,000 5,300
Operating loss carryforward 340,000 --
___________ ___________
Total deferred tax asset 1,497,000 670,000
Less:
Valuation allowance (827,000) --
____________ ___________
Subtotal 670,000 670,000
Current portion (515,300) (515,300)
____________ ___________
Long-term portion $ 154,700 $ 154,700
____________ ___________
The Company had no deferred tax liabilities at June 30, 1997 and 1996.
Income tax expense (benefit) is as follows:
Nine Year Ended
Months June 30,
Ended
March 31,
1998 1997 1996
________ ___________ ___________
Deferred income taxes benefit $ (418,137)
Current income taxes $105,509 $ 197,311 $ 206,546
________ __________ ____________
$105,509 $ 197,311 $ (211,591)
________ __________ ____________
Reconciliations of the statutory U.S. Federal income taxes
based on a rate of 34% to actual income taxes is as follows:
Nine Months Year Ended
Ended March June 30,
31,
1998 1997 1996
_____________ ____________ ____________
Income tax benefit at
statutory rate $(1,020,254) $ (898,400) $ (271,000)
State income taxes 105,509 197,311 80,850
Increase in valuation
allowance 960,254 827,000 --
Increase due to
nondeductible items,
primarily penalties and
travel and entertainment
expenses 15,000 12,000 12,100
Other 45,000 59,400 (33,541)
____________ __________ ___________
$ 105,509 $ 197,311 $ (211,591)
____________ _________ ___________
At June 30,1997 the Company had a net operating loss carryforward amounting
to approximately $994,000 which expires at various dates through 2012.
Subsequent to June 30, 1997, the Company may be subject to Internal Revenue
Code provisions which limit the loss carryforward available for use in any
given year.
F-13
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE G - COMMITMENTS AND CONTINGENT LIABILITIES
Operating leases:
The Company leases office and treatment facilities and furniture and
equipment under operating leases expiring on various dates through January
2003. Rent expense for the years ended June 30, 1997 and 1996 was
approximately $752,000 and $450,000, respectively. Minimum future rental
payments under noncancelable operating leases, having remaining terms in
excess of one year as of June 30, 1997 are as follows:
Year Ending
June 30, Amount
1998 $688,105
1999 441,833
2000 297,780
2001 202,876
2002 93,450
Thereafter 136,864
___________
$1,860,908
Litigation:
At June 30, 1997 the Company was involved in two litigation matters related
to the use of its trademark name, PIONEER HEALTHCARE. Pursuant to an
agreement reached in February 1998 on one matter, the Company is now doing
business as Pioneer Behavioral Health in certain jurisdictions.
NOTE H - STOCK PLANS
[1] Stock plans:
The Company has three stock plans: a stock option plan, an employee stock
purchase plan and a nonemployee directors' stock option plan.
The stock option plan provides for the issuance of a maximum of 400,000
shares of Class A common stock of the Company pursuant to the grant of
incentive stock options to employees or nonqualified stock options to
employees, directors, consultants and others whose efforts are important to
the success of the Company. Subject to the provisions of this plan, the
compensation committee has the authority to select the optionees and
determine the terms of the options including: (i) the number of shares, (ii)
option exercise terms, (iii) the exercise or purchase price (which in the
case of an incentive stock option will not be less than the market price of
the Class A common stock as of the date of grant), (iv) type and duration of
transfer or other restrictions and (v) the time and form of payment for
restricted stock upon exercise of options.
The employee stock purchase plan provides for the purchase of Class A common
stock at 85 percent of the fair market value at specific dates, to encourage
stock ownership by all eligible employees. A maximum of 150,000 shares may
be issued under this plan.
F-14
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE H - STOCK PLANS (CONTINUED)
[1] Stock plans: (continued)
Also in October 1995, the Company adopted a non-employee directors' stock
option plan that provides for the grant of nonstatutory stock options
automatically at the time of each annual meeting of the Board. Through June
30, 1997, options for 11,500 shares were granted under this plan. A maximum
of 50,000 shares may be issued 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.
In February 1997, all 95,375 shares underlying the then outstanding employee
stock options were repriced to the current market price, using the existing
exercise durations.
Under the above plans, at June 30, 1997, 179,198 shares were available for
future grant or purchase.
The Company had the following activity in its stock option plans for fiscal 1997
and 1996:
Number Weighted-Average
of Exercise
Shares Price
Per Share
Option plans:
Balance - June 30, 1995 92,000 $5.10
Granted 46,500 $6.20
Cancelled (1,250) $5.00
Exercised (22,500) $5.06
________
Balance - June 30, 1996 114,750 $5.56
Granted 125,500 $4.56
Repriced options:
Original (95,375) $5.99
Repriced 95,375 $3.50
Cancelled (21,400) $6.05
Exercised (13,475) $5.16
________
Balance - June 30, 1997 205,375 $4.27
________
Options for 89,250 shares are exercisable as of June 30, 1997 at exercise
prices ranging from $2.87 to $6.63 and a weighted-average exercise price of
approximately $3.71 per share, with a weighted-average remaining contractual
life of approximately three years.
The exercise prices of options outstanding at June 30, 1997 range from $2.87
to $6.63 per share and have a weighted-average exercise price of
approximately $3.07 per share, with a weighted-average remaining contractual
life of approximately four years.
[2] Stock-based compensation:
The Company has adopted the disclosure-only provisions of SFAS No. 123, but
applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. There was no compensation
expense recognized in 1997 or 1996. If the Company had elected to recognize
compensation cost for the plans based on the fair value at the grant date for
awards granted, consistent with the method prescribed by SFAS No. 123, net
loss per share would have been changed to the pro forma amounts indicated
below:
Year Ended
June 30
1997 1996
_________ _________
Net loss As reported $(2,839,664) $(585,315)
Pro forma (2,893,272) (610,497)
Net loss per share As reported $(0.87) $ (0.22)
Pro forma (0.88) (0.23)
F-15
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE H - STOCK PLANS (CONTINUED)
[2] Stock-based compensation: (continued)
The fair value of the Company's stock options used to compute pro forma net
loss and net loss per share disclosures is the estimated present value at
grant date using the Black-Scholes option-pricing model with the following
weighted-average assumptions for 1997 and 1996: dividend yield of 0%;
expected volatility of 30%; a risk-free interest rate of between 5% and 7%;
and an expected holding period of five years.
The per share weighed-average grant-date fair value of options granted during
the years ended June 30, 1997 and 1996 was $3.44 and $2.07, respectively.
NOTE I - SEGMENT INFORMATION
At June 30, 1997, the Company's operations were classified into two primary
business segments: substance abuse/psychiatric services and long-term care.
The long-term care segment is reported on the accompanying Financial
Statements as Discontinued Operations.
Year Ended
June 30,
1997 1996
_________ _________
Revenue:
Substance abuse/psychiatric services $ 20,700,616 $ 16,525,672
Long-term care 5,306,717 5,043,922
Other 629,761 233,164
Management fees 597,278 --
_____________ ____________
$ 27,234,372 $ 21,802,758
_____________ ____________
Income (loss) from operations:
Substance abuse/psychiatric services $ 627,341 $ 1,024,245
Long-term care (1,447,468) (826,463)
Other (PDSS) 305,321 86,757
General corporate (427,272) (180,966)
Interest and other income (expense), net (1,700,275) (900,479)
______________ _____________
Loss before income taxes $ (2,642,353) $ (796,906)
Depreciation and amortization:
Substance abuse/psychiatric services $ 449,641 $ 349,437
Long-term care 210,130 176,450
General corporate 19,477 28,138
_____________ ____________
$ 679,248 $ 554,025
Capital expenditures:
Substance abuse/psychiatric services $ 729,661 $ 233,466
Long-term care 213,489 982,978
General corporate 63,150 16,583
_____________ ____________
$ 1,006,300 $ 1,233,027
_____________ ____________
Identifiable assets:
Substance abuse/psychiatric services $ 18,352,342 $10,877,197
Long-term care 7,437,633 8,619,133
General corporate 2,070,834 1,264,205
Net assets of operations held for sale -- 56,682
_____________ ___________
$ 27,860,809 $20,817,217
F-16
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE J - OPERATIONS HELD FOR SALE AND DISCONTINUED OPERATIONS
The Company has systematically phased out its day care center operations
(STL). At June 30, 1996, the Company had net assets relating to its day care
centers amounting to approximately $57,000, which primarily represented the
depreciated cost of one remaining real estate parcel. The parcel was sold in
October 1996 at a gain of approximately $38,000.
The Company reported its long term care facility, Franvale Nursing and
Rehabilitation Center as discontinued operations beginning December 31, 1997
based on the pending sale to Lexington Healthcare Group, Inc. On May 26,
1998, PHC, Inc.'s wholly owned subsidiary, Quality Care Centers of
Massachusetts, Inc., which operates Franvale Nursing and Rehabilitation
Center, filed for reorganization under Chapter 11. On May 29, 1998, the
Bankruptcy Court terminated the Chapter 11 proceeding determining that there
was no likelihood of reorganization since the prospective acquirer of the
facility was now imposing certain terms unacceptable to all interested
parties and that the transfer of patients and liquidation of assets could be
as readily effectuated in a state court receivership under the aegis of the
Massachusetts Health Care Statutes and accordingly dismissed the Chapter 11
case. On June 1, 1998, a receiver was appointed to transfer the patients and
close the facility expeditiously.
Although the full extent of the financial impact on PHC, Inc. cannot be
determined at this time, the management of PHC, Inc. does not believe that
the liquidation of the assets and liabilities of Quality Care Centers of
Massachusetts, Inc. will have a substantial negative impact on PHC's
financial position and results of operations. Quality Care Centers of
Massachusetts, Inc. posted a loss from Discontinued Operations of
approximately $1.8 million in the nine months ended March 31, 1998 and $1.9
million in the previous fiscal year. The elimination of this loss will
enhance the profitability of PHC.
NOTE K - CERTAIN CAPITAL TRANSACTIONS
In addition to the outstanding options under the Company's stock plans (Note
H), the Company has the following options and warrants outstanding at June
30, 1997:
Number of Exercise Expiration
Description Units/Shares Price Date
Bridge warrants 5,024 units $4.38 per unit September 1998
Unit purchase option 148,171 units $5.91 per unit March 1999
IPO warrants 1,681,832 shares $6.29 per share March 1999
Private placement warrants 715,682 shares $3.93 per share January 1999
Bridge warrants 34,710 shares $7.39 per share March 1999
Warrant for services 25,000 shares $6.88 per share October 2001
Warrant for services 3,093 shares $3.39 per share February 2002
Consultant warrant
(see below) 160,000 shares $2.62 per share March 2002
Convertible debenture
warrants (Note C) 150,000 shares $2.00 per share March 2002
Preferred stock warrant 50,000 shares $2.75 per share June 2000
Each unit consists of one share of Class A common stock and a warrant to
purchase one share of Class A common stock at $7.50 per share.
In June 1997, the Company received $1,000,000 in exchange for the issuance of
Series A convertible preferred stock and warrants to purchase 50,000 shares
of Class A common stock. The warrants are exercisable at $2.75 per share and
expire in 2000. The warrants were valued at $30,000. The number of shares
of Class A common stock into which the preferred stock may be converted is
equal to 80% of the closing bid price of the Class A common stock as reported
by NASDAQ for the five trading days immediately preceding the conversion.
The beneficial conversion feature, due to the 80% discount above, valued at
$200,000 was recorded as additional dividends. In June 1997, 500 shares of
preferred stock were converted into 229,640 shares of Class A common stock.
Subsequent to year-end the 500 remaining shares of preferred stock were
converted into 246,305 shares of Class A common stock. The issuance of these
securities will result in the issuance of some additional Class A common
shares under existing dilution agreements with other stockholders.
Cumulative preferred dividends are at the rate of $60 per share per year,
payable quarterly. Dividends are payable in cash or in shares of preferred
stock at $1,000 per share. At June 30, 1997, accrued dividends amounted to
$4,330.
Certain Consultant Warrants may be canceled if certain stock prices, as
defined in the agreement, are not achieved by March 3, 1998.
In February 1996, the Company issued, in a private placement, units comprised
of 6,250 shares of Class A common stock and warrants to purchase 9,375 shares
of Class A common stock. A total of 79 units, representing 493,750 shares of
Class A common stock and 740,625 warrants were issued in the offering at a
gross purchase price of $1,975,000. Fees and expenses payable in connection
with the offering total $442,395. Subject to the terms and conditions of
the applicable warrant agreement, each warrant is exercisable for one share
of Class A common stock at an exercise price of $4.00, subject to adjustment
upon certain events. The warrants expire in January 1999. Upon the issuance
of the units described above, certain additional shares of Class A common
stock or securities exercisable therefor become issuable under the
antidilution provisions of certain outstanding securities of the Company.
F-17
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE K - CERTAIN CAPITAL TRANSACTIONS (CONTINUED)
Subsequent to June 30, 1997, the Class C common stock was canceled and
retired because of restrictions on the release of the stock, due to earnings
targets which were not achieved.
Subsequent to June 30, 1997, the Company issued a warrant which expires May
2002 for the purchase of 150,000 shares of common stock in exchange for
services at an exercise price of $2.50 per share. The Company also issued
warrants to purchase 191,617 shares of common stock in conjunction with
private placements. These warrants expire in September 2002 and March 2003
and have exercise prices ranging from $2.31 to $2.90 per share.
NOTE L - ACQUISITIONS
On November 1, 1995, the Company purchased an outpatient facility located in
Nevada ("PHN") which provides psychiatric services to patients. The Company
acquired the tangible and intangible property owned by the seller of the
business for consideration consisting of $631,000 in cash and 75,000 shares
of Class A common stock of PHC, Inc. which were valued at $323,000. The
purchase price was allocated as follows:
Accounts receivable $231,509
Equipment and other assets 54,397
Covenant not to compete 10,500
Goodwill 671,359
Accrued benefits payable (13,765)
_________
$954,000
_________
On March 29, 1996 PHN entered into a lease agreement for the real estate.
The lease payments, which increase annually, are due in equal monthly
installments over a period of four years.
On March 16, 1996, the Company purchased an outpatient facility located in
Kansas ("PHK") which provides psychiatric services to patients. The Company
acquired the tangible and intangible property owned by the seller of the
business for consideration consisting of 12,000 shares of Class A common
stock of PHC, Inc., valued at $70,548. The purchase price was allocated as
follows:
Equipment and other assets $20,000
Covenant not to compete 10,000
Goodwill 40,548
________
$70,548
________
In connection with the acquisition, PHK entered into a lease agreement for
the real estate. The lease payments, which increase annually, are due in
equal monthly installments over a period of three years.
In September 1996, the Company purchased the assets of seven outpatient
behavioral health centers located in Michigan ("NPP"). The centers were
purchased for $532,559 and 15,000 shares of Class A common stock of PHC, Inc.
valued at $5.04 per share. The Company borrowed $900,000 (see Note C) to
finance the purchase and to provide working capital for the centers. The
purchase price was allocated as follows:
Office equipment $ 18,000
Covenants not to compete 20,000
Goodwill 597,746
Deposits 15,072
Liabilities assumed (42,659)
_________
$608,159
F-18
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE L - ACQUISITIONS (CONTINUED)
Concurrent with the asset purchase agreement, NPP entered into an employment
agreement with a former owner which requires an annual salary of $150,000 and an
annual bonus. The agreement is effective for four years and is automatically
extended for successive one year terms unless terminated. The salary and bonus
are subject to adjustment based on collected billings.
NPP also entered into a management agreement whereby $1,500 per month would be
paid for
five years to the former owners.
Subsequent to year-end, under the employment agreement, the Company issued
15,000 unregistered shares of Class A common stock.
On November 1, 1996, BSC-NY, Inc. ("BSC"), merged with Behavioral Stress
Centers, Inc., a provider of management and administrative services to
psychotherapy and psychological practices in the greater New York City
Metropolitan Area. In connection with the merger, the Company issued 150,000
shares of PHC, Inc. Class A common stock to the former owners of Behavioral
Stress Centers, Inc. Also, in connection with the merger, another entity was
formed, Perlow Physicians, P.C. ("Perlow"), to acquire the assets of the medical
practices theretofore serviced by BSC. The Company advanced Perlow the funds to
acquire those assets and at June 30, 1997 Perlow owed the Company $3,063,177
which includes in addition to acquisition costs, management fees of
approximately $511,000 and interest on the advances of approximately $176,000.
It is expected that the obligations will be paid over the next several years and
accordingly, most of these amounts have been classified as noncurrent. The
Company has no ownership interest in Perlow.
The purchase price of BSC was allocated as follows:
Goodwill $63,600
Equipment and other assets 20,000
_______
$83,600
_______
The merger agreement requires additional purchase price to be paid by BSC to the
former owners of Behavioral Stress Centers, Inc. for the three years following
the merger date. The additional purchase price is based on the income of BSC
before taxes and is to be paid in PHC stock, at market value up to $200,000 and
the balance, if any, in cash.
BSC also entered into a management agreement with Perlow. The agreement requires
Perlow to pay 25% of its practice expenses to BSC on a monthly basis over a
five-year period with an automatic renewal for an additional five-year period.
Effective January 1, 1998 the management agreement was amended to pay 20% of the
practice expenses to BSC in management fees.
On November 1, 1996, BSC entered into a lease agreement for its facilities. The
lease payments are due in equal monthly installments over a three year period
with an option to extend annually for three additional years. The lease is to be
paid by Perlow in accordance with the management agreement.
On January 17, 1997, with an effective date of January 1, 1997, the Company
entered into a Stock Exchange Agreement with a Virginia corporation owned by two
individuals to whom the Company has an outstanding note payable. The corporation
consists of private practices of psychiatry. The Stock Exchange Agreement
provided that in exchange for $50,000 in cash and 64,500 shares of restricted
Class A common stock, the Company received an 80% ownership interest in the
Virginia corporation. The Company also paid $80,444 in legal fees in connection
with the Agreement. Concurrent with the Stock Exchange Agreement the two owners
of the Virginia corporation each executed Employment Agreements with the
Virginia corporation to provide professional services and each
F-19
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE L - ACQUISITIONS (CONTINUED)
was granted an option to purchase 15,000 shares of Class A common stock at an
exercise price of $4.87 per share. The options expire on April 1, 2002. Each
agreement requires an annual salary of $200,000 and expires in five years.
Further, a Plan and Agreement of Merger was executed whereby the Virginia
corporation was merged into PCV.
On January 17, 1997 PCV entered into a purchase and sale agreement with an
unrelated general partnership, to purchase real estate with buildings and
improvements utilized by the Virginia Corporation for approximately $600,000 of
which $540,000 was paid through the issuance of a note (Note C).
In accordance with the above agreements the purchase price was allocated as
follows:
Land $ 50,600
Building 540,000
Covenant not to compete 50,000
Goodwill 285,038
_________
$ 925,638
_________
In accordance with the agreement the two owners will be paid a finders fee for
all subsequently acquired medical practices within a 200 mile radius of PCV and
those medical practices identified by the owners wherever the location. The
finders fee is payable in Class A common stock and in cash.
Information is not available to present pro forma financial information relating
to the 1997 acquisitions. The Company has so advised the Securities and Exchange
Commission and has received a no action letter with respect to this matter. Had
the acquisitions made during the fiscal years ended June 30, 1996, been made as
of July 1, 1995, the pro forma effect on the Company's results of operations
would have been immaterial.
NOTE M - SALE OF RECEIVABLES
The Company has entered into a sale and purchase agreement whereby third-party
receivables are sold at a discount with recourse. The interest rate is
calculated at 5.5% plus the six-month LIBOR rate which is 11.5% and 11.3% at
June 30, 1997 and 1996, respectively. The amount of receivables subject to
recourse at June 30, 1997 totaled approximately $577,000 and the agreement
states that total sales of such outstanding receivables are not to exceed
$4,000,000. Proceeds from the sale of these receivables totaled approximately
$3,000,000 and $3,500,000 for the years ended June 30, 1997 and 1996,
respectively. The purchase fees related to the agreement amount to approximately
$127,000 and $73,720 for the years ended June 30, 1997 and 1996, respectively,
and are included in interest expense in the accompanying consolidated statement
of operations. Subsequent to June 30, 1997 the Company refinanced this debt with
Healthcare Financial Partners, Inc. to provide for receivables funding and
liquidate the debt due to Finova Capital from PHC of Virginia, Inc. and PHC of
Rhode Island, Inc. and provide receivables funding for Pioneer Counseling of
Virgina, Inc.
NOTE N - OTHER EVENTS SUBSEQUENT TO JUNE 30, 1997
In September 1997, the Company received $500,000 in exchange for the issuance of
172,414 shares of unregistered Class A common stock.
On March 26, 1998 the Company issued 227,347 shares of the Company's Class A
Common Stock to the former owners of Behavioral Stress Centers, Inc. now BSC-NY,
Inc. in full payment for the earn-out due to be paid to them for the year ended
October 31, 1997.
Also, subsequent to June 30, 1997, the Company purchased the assets of an
outpatient clinic in Virginia for 26,024 shares of Class A common stock and
$50,000 in cash. The clinic's operations will be included in PCV.
On March 10, 1998 the Company issued a warrant to purchase 52,500 shares of PHC,
Inc. Class A Common Stock, exercisable at $2.38 per share, to Healthcare
Financial Partners, Inc. in conjunction with a $350,000 financing provided to
PHC, Inc.
On July 10, 1998 the Company issued a warrant to purchase 52,500 shares of PHC,
Inc. Class A Common Stock, exercisable at $2.00 per share, to Healthcare
Financial Partners, Inc. in conjunction with the payment extension granted on
the $350,000 financing provided to PHC, Inc.
F-20
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
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.
<PAGE>
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 .................$ 756
NASDAQ Listing Fees ..................$ 7,500
Legal Fees and Expenses ...............$35,000
Accounting Fees and Expenses ..........$15,000
Miscellaneous ........................$ 4,244
Total...........$62,500
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 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 Rubenfair 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 11, 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. The exercise price of the
warrants was adjusted to $2.00 in July 1997.
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 $3.50 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.
On October 2, 1997 the Company also issued 172,414 shares of the Company's
Class A Common Stock to ProFutures Special Equities Fund, L.P. in a private
placement finalized in September 1997 resulting in net proceeds to the Company
of approximately $445,000.
On October 2, 1997 the Company also issued 26,024 shares of the Company's
Class A Common Stock to Counseling Associates of Southwest Virginia, Inc. in
connection with the acquisition of the assets of Counseling Associates of
Southwest Virginia, Inc.
In September 1997 the Company issued a warrant to purchase up to 150,000
shares of Class A Common Stock at an exercise price of $2.50 per share to
Brean Murray and Company, Inc. in exchange for $100.00 and services rendered.
In September 1997 the Company issued a warrant to purchase up to 86,207
shares of Class A Common Stock at an exercise price of $2.90 per share to
ProFutures Equity Fund in conjunction with a private placement.
In March 1998 the Company issued a warrant to purchase up to 3,000 shares
of Class A Common Stock at an exercise price of $2.90 per share to ProFutures
Equity Fund in conjunction with a private placement.
On March 10, 1998 the Company issued a warrant to purchase 52,500 shares of
PHC, Inc. Class A Common Stock, exercisable at $2.38 per share, to Healthcare
Financial Partners, Inc. in conjunction with a $350,000 financing provided to
PHC, Inc.
On March 18, 1998 the Company issued warrants to purchase 49,990 shares of
Class A Common Stock at an exercise price of $2.31 per share to ProFutures
Special Equities Fund, L.P.(26,315 shares), Augustine Fund, L.P. (10,525
shares), Gary D. Halbert (7,890) and John F. Mauldin (5,260 shares) in
conjunction with a private placement.
On March 26, 1998 the Company issued 227,347 shares of the Company's Class
A Common Stock to the former owners of Behavioral Stress Centers, Inc. now
BSC-NY, Inc. in full payment for the earn-out due to be paid to them for the
year ended October 31, 1997.
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
Exhibits Index
Exhibit No. Description
3.1 Restated Articles of Organization of the Registrant, as amended.
(Filed as exhibit 3.1 to the Company's Registration Statement on
March 2, 1994)
3.1.1 Articles of Amendment filed with the Commonwealth of
Massachusetts on January 28, 1997.
3.2 By-laws of the Registrant, as amended. (Filed as exhibit 3.2 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
333-71418).
3.3 Certificate of Vote of Directors establishing a Series of a
Class of stock dated June 3, 1997.
4.1 Form of Warrant Agreement. (Filed as exhibit 4.1 to the Company's
Registration Statement on March 2, 1994)
4.2 Form of Unit Purchase Option. (Filed as exhibit 4.4 to the
Company's Registration Statement on March 2, 1994)
4.3 Form of warrant issued to Robert A. Naify, Marshall Naify, Sarah
M. Hassanein and Whitney Gettinger. (Filed as exhibit 4.6 to the
Company's Registration Statement on Form 3 dated March 12, 1996.
Commission file number 333-71418).
4.4 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. (Filed as
exhibit 4.8 to the Company's Registration Statement on Form 3
dated March 12, 1996. Commission file number 333-71418).
4.5 Form of Warrant Agreement issued to Alpine Capital Partners, Inc.
to purchase 25,000 Class A Common shares dated October 7, 1996.
(Filed as exhibit 4.15 to the Company's Current Report on Form
8-K, filed with the Securities and Exchange Commission on
November 5, 1996. Commission file number 0-23524).
4.6 Form of Warrant Agreement issued to Barrow Street Research, Inc.
to purchase 3,000 Class A Common shares dated February 18, 1997.
(Filed as exhibit 4.17 to the Company's Registration Statement on
Form SB-2 dated April 15, 1997. Commission file number
333-25231).
4.7 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. Filed as an exhibit to the Company's
Registration Statement on Form SB-2 dated April 15, 1997.
Commission file number 333-25231).
4.8 Warrant Agreement by and between PHC, Inc. and ProFutures Special
Equities Fund, L.P. for 50,000 shares of Class A Common Stock
dated 6/4/97. (Filed as exhibit 4.22 to the Company's
Registration Statement on Form SB-2 dated April 15, 1997.
Commission file number 333-25231).
4.9 Warrant Agreement by and between Brean Murray & Company and PHC,
Inc. dated 07/31/97 (See 10.125). (Filed as exhibit 4.23 to the
Company's report on Form 10-KSB, filed with the Securities and
Exchange Commission on October 14, 1997. Commission file number
0-23524).
4.10 Warrant Agreement by and between PHC, Inc. and ProFutures Special
Equities Fund, L.P. for up to 86,207 shares of Class A Common
Stock dated 09/19/97. (Filed as exhibit 4.25 to the Company's
report on Form 10-KSB, filed with the Securities and Exchange
Commission on October 14, 1997. (Commission file number 0-23524).
4.11 Transfer from Seacrest Capital Securities of PHC, Inc. and
securities to Summit Capital Limited dated 12/19/97. (Filed as
exhibit 4.26 to the Company's report on Form 10-KSB, filed with
the Securities and Exchange Commission on October 14, 1997.
Commission file number 0-23524).
4.12 Warrant Agreement by and between PHC, Inc. and ProFutures Special
Equities Fund, LP for 3,000 shares of Class A Common Stock.
(Filed as exhibit 4.27 to the Company's Current Report on Form
8-K, filed with the Securities and Exchange Commission
on April 29, 1998. Commission file number 0-23524).
4.13 Subscription Agreements and Warrants for Series B Convertible
Preferred Shares and Warrants by and between PHC, Inc.,
ProFutures Special Equities Fund, L.P., Gary D. Halbert, John F.
Mauldin and Augustine Fund, L.P. dated March 16, 1998. (Filed as
exhibit 4.28 to the Company's Current Report on Form 8-K, filed
with the Securities and Exchange Commission on April 29, 1998.
Commission file number 0-23524)
4.14 Notice and Agreement of Termination of Lease and Option to
Purchase; Bill of Sale; Assignment of Licenses; Promissory Note;
and Guaranty by and between NMI Realty, Inc. and PHC of Rhode
Island, Inc. dated May 31, 1998. (Filed as exhibit 4.28 to the
Company's Current Report on Form 8-K/A, filed with the Securities
and Exchange Commission on June 5, 1998. Commission file number
0-23524).
*4.15 Warrant to purchase up to 52,500 shares of Class A Common Stock
by and between PHC, Inc., and HealthCare Financial Partners, Inc.
dated March 10, 1998.
*4.16 Warrant to purchase up to 52,500 shares of Class A Common Stock
by and between PHC, Inc., and HealthCare Financial Partners, Inc.
dated July 10, 1998.
*5.1 Opinion of Arent Fox Kintner Plotkin & Kahn, PPLC.
10.1 1993 Stock Purchase and Option Plan of PHC, Inc., as amended
December 26, 1997. (Filed as exhibit 10.1 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 333-71418).
10.2 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. (Filed
as exhibit 10.6 to the Company's Registration Statement on
Form SB-2 dated March 2, 1994. Commission file number 33-71418).
10.3 Lease Agreement between Palmer-Wells Enterprises and AIHS, Inc.
and Edwin G. Brown, dated September 23, 1983, with Addendum
dated March 23, 1989, and Renewal of Addendum dated April 7,
1992. (Filed as exhibit 10.14 to the Company's Registration
Statement on Form SB-2 dated March 2, 1994. Commission file
number 33-71418).
10.4 Note of PHC of Virginia, Inc. in favor of Himanshu S. Patel and
Anna H. Patel, dated April 1, 1995, in the amount of $10,000.
Filed as exhibit 10.29 to the Company's annual report on Form
10-KSB, filed with the Securities and Exchange (Commission
file number 0-23524) on October 2, 1995.
10.5 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.
(Filed as exhibit 10.30 to the Company's Registration Statement
on Form SB-2 dated March 2, 1994. Commission file number
33-71418).
10.6 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 (filed
as exhibit 10.33 to Form SB-2 dated March 2, 1994). Assignment
and Assumption of Limited Partnership Interest, by and between
PHC of Virginia Inc. and each assignor dated as of June 30,
1994.(filed as exhibit 10.57 to Form 10-KSB on September 28, 1994)
10.7 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. (Filed as exhibit 10.34 to the Company Registration
Statement on Form SB-2 dated March 2, 1994. Commission file
number 33-71418)
10.8 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. (Filed as exhibit
10.52 to the Company's Registration Statement on Form SB-2
dated March 2, 1994. Commission file number 33-71418).
10.9 Note of PHC, Inc. in favor of Bruce A. Shear, dated March 31,
1994, in the amount of $110,596. (Filed as exhibit 10.56 to the
Company's annual report on Form 10-KSB, filed with the
Securities and Exchange Commission on September 28, 1994.
Commission file number 0-23524)
10.10 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. (Filed as exhibit
10.61 to the Company's annual report on Form 10-KSB, filed with
the Securities and Exchange Commission on September 28, 1994.
Commission file number 0-23524)
10.11 Lease and Option Agreement, by and between NMI Realty, Inc. and
PHC of Rhode Island, Inc., dated March 16, 1994 (Filed as an
exhibit to the Company's annual report on Form 10-KSB, filed
with the Securities and Exchange Commission on September 28,
1994. Commission file number 0-23524). As amended on May 31,
1998. (see exhibit 10.64 filed herewith).
10.12 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. (Filed as exhibit 10.67 to the Company's annual
report on Form 10-KSB, filed with the Securities and Exchange
Commission on September 28, 1994. Commission file number
0-23524) as amended on May 31, 1998 (see exhibit 10.64 filed
herewith)
10.13 Lease Agreement by and between Conestoga Corp. and PHC, Inc.,
dated July 11, 1994. (Filed as exhibit 10.69 to the Company's
annual report on Form 10-KSB, filed with the Securities and
Exchange Commission on September 28, 1994. Commission file
number 0-23524).
10.14 Renewal of Lease Addendum between Palmer Wells Enterprises and
PHC of Utah, Inc., executed February 20, 1995. (Filed as exhibit
10.73 to the Company's annual report on Form 10-KSB, filed with
the Securities and Exchange on October 2, 1995. Commission
file number 0-23524)
10.15 1995 Employee Stock Purchase Plan. (Filed as exhibit 10.74 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
333-71418).
10.16 1995 Non-Employee Director Stock Option Plan. Filed as exhibit
10.75 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 333-71418).
10.17 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. (Filed as exhibit 10.76 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 333-71418).
10.18 Secured Promissory Note in the amount of $750,000 by and
between PHC of Nevada, Inc. and LINC Anthem Corp. (Filed as
exhibit 10.77 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 333-71418).
10.19 Stock Pledge by and between PHC, Inc. and Linc Anthem
Corporation (Filed as exhibit 10.81 to the Company's report on
Form 10-KSB, filed with the Securities and Exchange Commission
on September 28, 1994. )
10.20 Custodial Agreement by and between LINC Anthem Corporation and
PHC, Inc. and Choate, Hall and Stewart dated July 25, 1996.
(Filed as exhibit 10.85 to the Company's quarterly report on
Form 10-QSB, filed with the Securities and Exchange Commission
on February 25, 1997. Commission file number 0-23524)
10.21 Loan and Security Agreement by and between Northpoint-Pioneer
Inc. and LINC Anthem Corporation dated July 25, 1996. (Filed as
exhibit 10.86 to the Company's quarterly report on Form 10-QSB,
filed with the Securities and Exchange Commission on December
5, 1996. Commission file number 0-23524).
10.22 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.
(Filed as exhibit 10.87 to the Company's quarterly report on
Form 10-QSB, filed with the Securities and Exchange Commission
on December 5, 1996. Commission file number 0-23524).
10.23 Stock Pledge and Security Agreement by and between PHC, Inc. and
LINC Anthem Corporation. (Filed as exhibit 10.88 to the
Company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on December 5, 1996.
Commission file number 0-23524).
10.24 Secured Promissory Note of North Point-Pioneer, Inc. in favor of
LINC Anthem Corporation dated July 25, 1996 in the amount of
$500,000. (Filed as exhibit 10.89 to the Company's quarterly
report on Form 10-QSB, filed with the Securities and Exchange
Commission on December 5, 1996. Commission file number 0-23524).
10.25 Lease Agreement by and between PHC, Inc. and 94-19 Associates
dated October 31, 1996 for BSC-NY, Inc. (Filed as exhibit 10.90
to the Company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on December 5, 1996.
Commission file number 0-23524).
10.26 Note by and between PHC Inc. and Yakov Burstein in the amount
of $180,000. (Filed as exhibit 10.91 to the Company's quarterly
report on Form 10-QSB, filed with the Securities and Exchange
Commission on December 5, 1996. Commission file number 0-23524).
10.27 Note by and between PHC, Inc. and Irwin Mansdorf in the amount
of $570,000. (Filed as exhibit 10.92 to the Company's quarterly
report on Form 10-QSB, filed with the Securities and Exchange
Commission on December 5, 1996. Commission file number 0-23524).
10.28 Employment Agreement by and between BSC-NY, Inc. and Yakov
Burstein dated November 1, 1996. (Filed as exhibit 10.93 to the
Company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on December 5, 1996.
Commission file number 0-23524).
10.29 Consulting Agreement by and between BSC-NY, Inc. and Irwin
Mansdorf dated November 1, 1996. (Filed as exhibit 10.94 to the
Company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on December 5, 1996.
Commission file number 0-23524).
10.30 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. (Filed as exhibit 10.95
to the Company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on December 5, 1996.
Commission file number 0-23524).
10.31 Employment Agreement by and between Perlow Physicians, P.C. and
Yakov Burstein dated November 1, 1996. (Filed as exhibit 10.98
to the Company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on December 5, 1996.
Commission file number 0-23524).
10.32 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. (Filed as exhibit 10.99
to the Company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on December 5, 1996.
Commission file number 0-23524).
10.33 Consulting Agreement by and between Perlow Physicians, P.C. and
Irwin Mansdorf dated November 1, 1996. (Filed as exhibit 10.100
to the Company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on December 5, 1996.
Commission file number 0-23524).
10.34 First Amendment to Lease Agreement and Option Agreement by and
between NMI Realty, Inc. and PHC of Rhode Island, Inc. dated
December 20, 1996. (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 333-71418), as amended
on May 31, 1998. (see exhibit 10. )
10.35 Mortgage by and between PHC of Michigan, Inc. and HCFP Funding
Inc. dated January 13, 1997 in the amount of $2,000,000. (Filed
as exhibit 10.106 to the Company's quarterly report on Form
10-QSB, filed with the Securities and Exchange Commission on
February 25, 1997 Commission file number 0-23524).
10.36 Employment Agreement for Dr. Himanshu Patel; Employment
Agreement for Dr. Mukesh Patel; and Fringe Benefit Exhibit for
both of the Patels' Employment Agreements. (Filed as exhibit
10.107 to the Company's quarterly report on Form 10-QSB, filed
with the Securities and Exchange Commission on February 25,
1997 Commission file number 0-23524).
10.37 Unconditional Guaranty of Payment and Performance by and between
PHC, Inc. in favor of HCFP. (Filed as exhibit 10.112 to the
Company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on February 25, 1997
Commission file number 0-23524).
10.38 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. (Filed as exhibit 10.113 to the Company's quarterly
report on Form 10-QSB, filed with the Securities and Exchange
Commission on February 25, 1997 Commission file number 0-23524).
10.39 Employment Agreement by and between Perlow Physicians P.C. and
Nissan Shliselberg, M.D dated March, 1997. (Filed as exhibit
10.114 to the Company's Registration Statement on Form SB-2 dated
April 15, 1997. Commission file number 333-25231).
10.40 Option and Indemnity Agreement by and between PHC, Inc. and
Nissan Shliselberg, M.D dated February, 1997. (Filed as exhibit
10.115 to the Company's Registration Statement on Form SB-2 dated
April 15, 1997. Commission file number 333-25231).
10.41 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. (Filed as exhibit 10.116 to the
Company's Registration Statement on Form SB-2 dated April 15,
1997. Commission file number 333-25231).
10.42 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. (Filed as exhibit
10.117 to the Company's Registration Statement on Form SB-2
dated April 15, 1997. Commission file number 333-25231).
10.43 Submission of Lease between PHC, Inc. and Conestoga Corporation
dated 11/09/95 for space at 200 Lake Street, Suite 101b, Peabody,
MA 01960. (Filed as exhibit 10.119 to the Company's Registration
Statement on Form SB-2 dated April 15, 1997. Commission file
number 333-25231).
10.44 Master Equipment Lease Agreement by and between PHC, Inc. and
LINC Capital Partners dated March 18, 1997 in the amount of
$200,000. (Filed as exhibit 10.121 to the Company's Registration
Statement on Form SB-2 dated April 15, 1997. Commission file
number 333-25231).
10.45 Agreement between Family Independence Agency and Harbor Oaks
Hospital effective January 1, 1997. (Filed as exhibit 10.122 to
the Company's report on Form 10-KSB, filed with the Securities
and Exchange Commission on October 14, 1997 Commission file
number 0-23524)
10.46 Master Contract by and between Family Independence Agency and
Harbor Oaks Hospital effective January 1, 1997. (Filed as
exhibit 10.122 to the Company's report on Form 10-KSB, filed with
the Securities and Exchange Commission on October 14, 1997
Commission file number 0-23524)
10.47 Deed, Deed of Trust and Deed Trust Note in the amount of $540,000
by and between Dillon and Dillon Associates and Pioneer
Counseling of Virginia, Inc. (Filed as exhibit 10.124 to the
Company's report on Form 10-KSB, filed with the Securities and
Exchange Commission on October 14, 1997 Commission file number
0-23524)
10.48 Financial Advisory Agreement, Indemnification Agreement and Form
of Warrant by and between Brean Murray & Company and PHC, Inc.
dated 06/01/97. (Filed as exhibit 10.125 to the Company's report
on Form 10-KSB, filed with the Securities and Exchange Commission
on October 14, 1997 Commission file number 0-23524)
10.49 Secured Term Note; Mortgage; Environmental Indemnity; Agreement
Guaranty by PHC, Inc.; and Amendment No. 2 Loan and Security
Agreement by and between Healthcare Financial; and PHC, Inc. of
Michigan dated December, 1997. (Filed as exhibit 10.129 to the
Company's Registration Statement on Form SB-2 dated January 8,
1997. Commission file number 333-25231).
10.51 Promissory Note of Quality Care Center of Massachusetts, Inc. in
favor of CMS Therapies dated December 17, 1997 in the amount of
$312,468.94. (Filed as exhibit 10.131 to the Company's 10Q-SB
dated February 17, 1998.)
10.52 First Amendment to Sale and Purchase Agreement by and between
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. (Filed as exhibit 10.132 to the
Company's 10Q-SB dated February 17, 1998.)
10.55 Agreement by and between PHC, Inc., and Irwin Mansdorf and Yakov
Burstein dated March 2, 1998. (Filed as exhibit 10.135 to the
Company's Current Report on Form 8-K, filed with the Securities
and Exchange ommission on April 29, 1998. Commission file number
0-23524).
10.56 Secured Bridge Loan to be made to PHC, Inc. by HCFP Funding II,
Inc. in the amount of $350,000 dated March 10, 1998. (Filed as
exhibit 10.136 to the Company's Current Report on Form 8-K, filed
with the Securities and Exchange Commission on April 29,
1998. Commission file number 0-23524))
10.57 First Amendment to Mortgage between PHC of Michigan, Inc. and
HCFP Funding, Inc. (Filed as Exhibit 10.137 to the Company's
10Q-SB filed on May 15, 1998.)
*10.58 Secured Unconditional Guaranty of Payment and Performance by and
between BSC-NY, Inc. and HCFP Funding II, Inc. in the amount of
$350,000.
*10.59 Loan and Security Agreement by and among HCFP Funding, Inc., and
PHC of Michigan, Inc., PHC of Utah, Inc., PHC of Virginia, Inc.,
PHC of Rhode Island, Inc., and Pioneer Counseling of Virginia,
Inc. dated as of February 18, 1998.
*10.60 Credit Line Deed of Trust by and between PHC of Virginia, Inc.,
and HCFP Funding II, Inc. dated July, 1998.
*10.61 Amendment No. 1 to Secured Bridge Note dated July 10, 1998 by and
between PHC, Inc. and HCFP Funding II, Inc.
*10.62 Promissory Note for $50,000 dated May 18, 1998 by and between
PHC, Inc. and Tot Care, Inc.
*10.63 Promissory Note for $50,000 dated June 9, 1998 by and between
PHC, Inc. and Tot Care, Inc.
*10.64 Letter Agreement dated May 31, 1998 by and between NMI Realty,
Inc. and PHC of Rhode Island, Inc. to terminate the Lease and
Option Agreement entered into March 16, 1994.
16.1 Letter on Change in Independent Public Accountants. (Filed as an
exhibit to the Company's report on Form 10-KSB, filed with the
Securities and Exchange Commission on September 28, 1994 and
as exhibit 16.1 in the Company's Current Report on Form 8-K,
filed with the Securities and Exchange Commission on April 29,
1998. Commission file number 0-23524)
*21.1 List of Subsidiaries.
*23.1 Consent of Independent Auditors.
*23.3 Consent of Arent Fox Kintner Plotkin & Kahn, PPLC. Included in
exhibit 5.1
* Filed Herewith
<PAGE>
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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe 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
24th day of July, 1998.
PHC, INC.
By: /s/ Bruce A. Shear
President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Bruce
A. Shear his or her true and lawful attorney-in fact and agent, each acting
alone, with full power of substitution and resubstitution, for him or her in
his or her name, place and stead, in any and all capacities, to sign any or
all Amendments (including post-effective Amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and every act and
thing appropriate or necessary to be done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his or her substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Signature Title Date
By: /s/ Bruce A. Shear President and Chief July 24, 1998
Bruce A. Shear Executive
Officer and Director
(principal
executive officer)
By: /s/ Paula C. Wurts Controller, Assistant July 24, 1998
Paula C. Wurts Treasurer
and Assistant Clerk
(principal
financial officer)
By: /s/ Gerald M. Perlow Clerk and Director July 24, 1998
Gerald M. Perlow
By: /s/ Donald E. Robar Treasurer and Director July 24, 1998
Donald E. Robar
By: /s/ Howard W. Phillips Director July 24, 1998
Howard W. Phillips
By: /s/ William F. Grieco Director July 24, 1998
William F. Grieco
*By: /s/ Bruce A. Shear July 24, 1998
Bruce A. Shear
as attorney-in-fact
<PAGE>
Exhibit 23.1 Consent of Independent Auditors
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form SB-2
of our report dated December 4, 1997 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
July 16, 1998
Exhibit 23.3 Opinion of Arent Fox Kintner Plotkin & Kahn, PPLC Included in
Exhibit 5.1
<PAGE>
EXHIBIT INDEX
4.15 Warrant to purchase up to 52,500 shares of Class A Common Stock
by and between PHC, Inc., and HealthCare Financial Partners,
Inc. dated March 10, 1998.
4.16 Warrant to purchase up to 52,500 shares of Class A Common Stock
by and between PHC, Inc., and HealthCare Financial Partners,
Inc. dated July 10, 1998.
5.1 Opinion of Arent Fox Kintner Plotkin & Kahn, PPLC.
10.58 Secured Unconditional Guaranty of Payment and Performance by
and between BSC-NY, Inc. and HCFP Funding II, Inc. in the
amount of $350,000.
10.59 Loan and Security Agreement by and among HCFP Funding, Inc.,
and PHC of Michigan, Inc., PHC of Utah, Inc., PHC of Virginia,
Inc., PHC of Rhode Island, Inc., and Pioneer Counseling of
Virginia, Inc. dated as of February 18, 1998.
10.60 Credit Line Deed of Trust by and between PHC of Virginia, Inc.,
and HCFP Funding II, Inc. dated July, 1998.
10.61 Amendment No. 1 to Secured Bridge Note dated July 10, 1998 by
and between PHC, Inc. and HCFP Funding II, Inc.
10.62 Promissory Note for $50,000 dated May 18, 1998 by and between
PHC, Inc. and Tot Care, Inc.
10.63 Promissory Note for $50,000 dated June 9, 1998 by and between
PHC, Inc. and Tot Care, Inc.
10.64 Letter Agreement dated May 31, 1998 by and between NMI Realty,
Inc. and PHC of Rhode Island, Inc. to terminate the Lease and
Option Agreement entered into March 16, 1994.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors.
23.3 Consent of Arent Fox Kintner Plotkin & Kahn, PPLC. Included in
exhibit 5.1
<PAGE>
Exhibit 10.64
May 27, 1998
BY FACSIMILE (401) 294-9561
Mr. Alan Willoughby
1266 Middle Road
East Greenwich, RI 02818
Mr. Peter Fratantuono
Vice President
NMI Realty, Inc.
P.O. Box 470
East Greenwich, RI 02815
c/o James C. Sullivan, Esq.
Sullivan & Sullivan
1130 Ten Rod Road; Suite B-206
North Kingston, RI 02852-4129
LETTER AGREEMENT
Dear Alan and Peter:
In accordance with our earlier meeting, this Letter Agreement memorializes the
terms of our agreement to terminate the Lease and Option Agreement, entered on
March 16, 1994 by and between NMI Realty, Inc. ("NMI") and PHC of Rhode Island,
Inc. ("PHC-RI"), effective midnight on May 31, 1998, subject to the following
terms and conditions:
1) PHC-RI will remit to NMI, its successors or assigns, One
Hundred Thousand Dollars ($100,000.00), payable as
follows and evidenced by a promissory note signed by
PHC-RI and guaranteed by PHC, Inc. in a form acceptable
to NMI:
a) Payment of Twenty Thousand Dollars ($20,000.00) on
June 1, 1998;
b) Payment of Twenty Thousand Dollars ($20,000.00) on
July 1, 1998;
c) Payment of Twenty Thousand Dollars ($20,000.00) on
August 1, 1998;
d) Payment of Ten Thousand Dollars ($10,000.00) on
September 1, 1998;
e) Payment of Ten Thousand Dollars ($10,000.00) on October
1, 1998;
f) Payment of Ten Thousand Dollars ($10,000.00) on
November 1, 1998; and,
g) Payment of Ten Thousand Dollars ($10,000.00) on
December 1, 1998.
2) On or before May 31, 1998, PHC-RI and NMI will execute
the Notice and Agreement of Termination of Lease and
Option To Purchase, in the form attached hereto as
Exhibit A and incorporated herein by reference;
3) PHC-RI will pay the quarterly property tax bills for the
Good Hope Center property on John Potter Road for the
quarters ended May 31, 1998 and August 31, 1998. The
payment obligation for the quarter ended August 31, 1998
will not accrue until and unless the original tax bill is
forwarded to PHC-RI, Attn:Paula C. Wurts, 200 Lake Street;
Suite 102, Peabody, MA 01960 by NMI. PHC-RI hereby
acknowledges receipt of the bill for the quarter ended May
31, 1998, however, PHC-RI's payment obligation for this
assessment will not accrue until the execution of this
Letter of Intent;
4) All balances currently or hereinafter owed by PHC-RI, to
GHC, Inc., it's successors or assigns ("Good Hope"), under
the Asset Purchase Agreement entered by and between the
parties on January 21, 1994, will be forgiven and the
obligation of PHC-RI to pay will be waived by Good Hope.
The current balance owed under said Agreement is Twenty
Four Thousand Seven Hundred Forty One Dollars and Fifty
Five Cents ($24,741.55);
5) PHC-RI will leave intact all leasehold improvements,
furniture, fixtures, vehicles, equipment, supplies and
materials as more particularly described in the Bill of
Sale attached hereto as Exhibit B, and incorporated herein
by reference, to be executed by PHC-RI on or before May
31, 1998. Notwithstanding the foregoing the above
excludes the Packard Bell computer and Hewlett Packard
Inkjet Printer currently being utilized in the facility
administrative offices and the Yellow Pages Advertising
Contract, however, PHC-RI will retain all rights to the
telephone numbers included in said advertising;
6) PHC-RI will continue to fund all current equipment leases
associated with the facility until the termination of
said leases. At the time of termination of said leases,
NMI will have the option of remitting to PHC-RI payment in
full of the consideration necessary to procure the
equipment held under said leases within ten (10) days of
demand by PHC-RI. Should NMI not exercise said option,
the equipment will be subject to recoupment by the lessor,
however, PHC-RI will remit the funds necessary to procure
the bathroom fixtures and equipment currently under lease
from NewCourt Linc;
7) PHC-RI and NMI, its successors or assigns, hereby agree
that effective midnight on May 31, 1998, NMI, its
successors or assigns, will take complete responsibility
for operating the Good Hope Center and NMI, its successors
or assigns will have the right to operate under existing
regulatory licenses currently held by PHC-RI until the
sooner of such time as a transfer of said licenses to NMI,
its successors or assigns, can be accomplished, or one
hundred twenty (120) calendar days from June 1, 1998.
PHC-RI and NMI will enter into any agreement necessary to
satisfy the applicable licensing authority to accomplish
said right to operate;
8) In accordance with Paragraph 6 above, effective midnight
on May 31, 1998, NMI, its successors or assigns, will
assume all responsibility for the costs, expenses and
risks of operating the Good Hope Center, including the
procurement of General, Auto, Property, Worker's
Compensation and Professional Liability Insurance Policies
with coverage limits, at a minimum, identical to those
presently bound by PHC-RI, and will completely discharge,
indemnify and hold harmless PHC-RI from all obligations
associated with the facility and its operation which arise
on or after June 1, 1998 and are not the result of any
obligations associated with the facility prior to June 1,
1998;
9) PHC-RI will indemnify NMI for liabilities relating to
environmental matters existing to the point in time up
through, and including, May 31, 1998. In addition, PHC-RI
will completely discharge, indemnify and hold harmless NMI
from all obligations associated with the facility and its
operation which are attributable to a point in time on or
prior to May 31, 1998:
10) In consideration of the execution and delivery of this
Letter Agreement, PHC, Inc. (PHC) does hereby provide a
Corporate Guarantee and covenants, promises and agrees to
make all payments evidenced in this Letter Agreement, and
fully satisfy all conditions contained therein, in the
event of any default by PHC-RI;
11) PHC-RI hereby terminates any and all prohibitions,
covenants and obligations of Alan Willoughby, Peter
Fratantuono, NMI, Inc. and GHC, Inc. under the terms and
conditions of the Agreement Not To Compete by and between
the later parties and PHC-RI dated March 16, 1994;
12) With the exception of the driveway repairs previously
discussed between the parties, PHC-RI at present, and for
a period of one hundred twenty (120) days past, has not
authorized and approved any construction, erection,
alterations or repairs of any structures or improvements,
nor has contracted for any material to be delivered to the
Good Hope Center facility in West Greenwich, outside that
required in the ordinary conduct of business, that has not
been paid for or which could allow for a mechanics lien to
be filed;
13) Excepting that which is noted in this Letter Agreement and
incorporated herein by reference, PHC, Inc., PHC of Rhode
Island, Inc., NMI Realty, Inc., GHC, Inc. and their
successors and assigns, hereby release, acquit and forever
discharge each other and their shareholders, officers,
directors, agents, employees and affiliated (parent,
sibling and subsidiary) corporations from any and all
claims, demands, actions, causes of action, judgments and
liabilities of any kind or nature whatsoever in law,
equity or otherwise, whether known or unknown, suspected
or unsuspected, which have existed or may have existed, or
which may result in the future, related to the prior
relationship between the parties, including, but not
limited to, the Lease and Option Agreement, entered on
March 16, 1994 by and between NMI Realty, Inc. and PHC of
Rhode Island, Inc. and the Asset Purchase Agreement
entered by and between the parties on January 21, 1994;
14) NMI agrees to temporarily relinquish all active medical
records, as necessary, to support the efforts made by
PHC-RI to collect all open accounts receivable; and,
15) Each of the parties hereto agrees to execute and deliver
such other documents, instruments and affidavits as may
reasonably be required to effect the transaction
contemplated herein, including PHC-RI making best efforts,
to the extent possible, to obtain a partial release of any
security interests lender(s) may have in the assets
transferred hereby, executing the original vehicle title
and providing evidence of corporate authority. However,
PHC-RI represents that, to their knowledge, there are no
security interests, presently existing or pledged, in the
physical assets being transferred, excepting those which
may exist against the equipment represented by the leases
discussed in Paragraph 6 above.
I trust that the above accurately summarizes our discussions and preliminary
understanding. If you are in agreement, please so indicate by affixing your
signatures in the space provided below.
If you have any questions regarding the above, or if I can provide any
additional information, please contact me directly at (978) 536-2777.
Sincerely,
Bruce A. Shear
President
PHC of Rhode Island, Inc. PHC, Inc.
By: /s/ Bruce A. Shear By: /s/ Bruce A. Shear
Its: President Its: President
Accepted and Approved this
29th day of May, 1998
NMI Realty, Inc. GHC, Inc.
By: /s/ Alan Willoughby By: /s/ Alan Willoughby
Its: President
<PAGE>
EXHIBIT 21.1
STATE OF
NAME OF SUBSIDIARY DOING BUSINESS AS (NAME) INCORPORATION
PHC, Inc. Pioneer Healthcare Massachusetts
Pioneer Behavioral Health
PDSS
PHC of Utah, Inc. Highland Ridge Hospital Massachusetts
PHC of Virginia, Inc. Mount Regis Massachusetts
Center
Changes
PHC of Rhode Island, Inc. Good Hope Center Massachusetts
PHC of Michigan, Inc. Harbor Oaks Hospital Massachusetts
PHC of Nevada, Inc. Harmony Healthcare Massachusetts
Harmony Behavioral Nevada
Healthcare
Northpoint-Pioneer, Inc. Pioneer Counseling Center Massachusetts
PHC of Kansas, Inc. Total Concept EAP Massachusetts
Quality Care Centers of Franvale Nursing and Massachusetts
Massachusetts, Inc. Rehabilitation Center
PHC of California, Inc. Marin Grove Massachusetts
Pioneer Counseling of Counseling Associates of Massachusetts
Virginia, Inc. Virginia
Pioneer Counseling of Virginia
BSC-NY, Inc. Behavioral Stress Center New York
STL, Inc. Massachusetts
Professional Health New York
Associates, Inc.
<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 December 4, 1997 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" in the prospectus.
Richard A. Eisner & Company, LLP
/s/ Richard E. Eisner & Company, LLP
New York, New York
July, 16, 1998
<PAGE>
Exhibit 4.15
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 52,500 shares of the Class A
Common Stock, $.01 par value, of PHC,
Inc.
WARRANT TO PURCHASE
SHARES OF CLASS A COMMON STOCK
Expires July 10, 2003
THIS CERTIFIES THAT, for value received, HealthCare Financial
Partners, 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 $1.81 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 July 10, 1998.
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 July
13, 2003.
Notwithstanding anything to the contrary contained herein,
neither this Warrant nor any rights hereunder may be transferred or assigned
except to an Assignee who is an "accredited investor" within the meaning of
Regulation D of the General Rules and Regulations of the Securities Act of
1933.
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.
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: /s/ Bruce A. Shear, President
Date: July 10, 1998
<PAGE>
Exhibit 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.dot
<PAGE>
Exhibit 4.16
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 52,500 shares of the Class A
Common Stock, $.01 par value, of PHC,
Inc.
WARRANT TO PURCHASE
SHARES OF CLASS A COMMON STOCK
Expires March 10, 2003
THIS CERTIFIES THAT, for value received, HealthCare Financial
Partners, 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 $2.375 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 March 10, 1998.
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 March
10, 2003.
Notwithstanding anything to the contrary contained herein,
neither this Warrant nor any rights hereuunder may be transferred or assigned
except to an Assignee who is an "accredited investor" within the meaning of
Regulation D of the General Rules and Regulations of the Securities Act of
1933.
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.
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: /s/ Bruce A. Shear
President
Date: March 10, 1998
<PAGE>
Exhibit 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.dot
<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 10.58
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of this
10th day of July, 1998 by and between PHC, INC., a Massachusetts corporation
(the "Company"), and HEALTHCARE FINANCIAL PARTNERS, INC., a Delaware
corporation, and its affiliates and assigns (collectively, "HCFP"). This
Agreement is made in connection with the issuance by the Company of one or more
Warrants to HCFP (the "Warrant"), pursuant to which HCFP may purchase and the
Company may hereafter issue up one-hundred five thousand (105,000) shares (the
"Warrant Shares") of its common stock from time to time upon the exercise of the
Warrant. The Company hereby confirms that the rights granted under this
Agreement constitute a material inducement to HCFP to accept the Warrant in
connection with the transactions under which Warrant is being issued. Upon
effectiveness of the Agreement, this Agreement shall replace in its entirety the
Registration Rights Agreement made as of March 10, 1998 by and between the
Company and HCFP.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. In addition to those terms defined elsewhere in this
Agreement, the following terms shall have the following meanings wherever used
in this Agreement:
"Act" shall mean the Securities Act of 1933, as amended, and any successor
statute from time to time.
"Costs and Expenses" shall mean all of the costs and expenses relating to
any subject Registration Statement, including but not limited to registration,
filing and qualification fees, blue sky expenses, costs of listing any shares on
any exchange or automated quotation system, printing expenses, fees and
disbursements of counsel to the Company, and accounting fees; provided, however,
that underwriting discounts and commissions attributable solely to the
securities registered for the benefit of the Holders, fees and disbursements of
counsel to the Holders, and all other expenses attributable solely to the
Holders shall be borne by them.
"Form S-1," "Form S-3," "Form S-4" and "Form S-8" mean such respective
forms under the Act as in effect on the date of this Agreement or any successor
registration forms subsequently adopted by the Securities and Exchange
Commission (the "SEC") or any successor regulatory authority.
"Holder" or "Holders" means any person or persons owning or having the
right to acquire Registrable Securities.
"NOTE" means that certain Secured Term Note made by the Company in favor of
HCFP Funding II, Inc., a Delaware corporation that is an affiliate of HCFP.
<PAGE>
"Registrable Securities" means the Warrant Shares and any common stock
issued (or issuable upon the conversion or exercise of any warrant, right or
other security) as a dividend or other distribution with respect to, or in
exchange for or in replacement of any Warrant Shares.
"Registration" shall mean any registration of Registrable Securities
pursuant to a registration statement filed by the Company with the SEC in
respect of any class of Registrable Securities, other than a registration
statement in respect of employee stock options or other employee benefit plans
or in respect of any merger, consolidation, acquisition or like combination,
whether on Form S-3, Form S-4, Form S-8 or any equivalent form of registration
then in effect.
"Registration Statement" shall mean any registration statement filed or to
be filed by the Company in respect of any Registration.
2. Registration.
(a) Subject to the provisions of this Agreement, the Company shall effect a
Registration to permit the resale of the Registrable Securities. The Company
agrees that it will file the Registration Statement by July 31, 1998, and that
it will use its best efforts to cause the Registration Statement to become
effective on or before the Maturity Date of the Note (as "Maturity Date" is
defined in the Note).
(b) Holder shall be permitted to withdraw all or any part of its
Registrable Securities from the Registration Statement by written notice to the
Company given at any time before the effective date of the Registration
Statement.
3. Terms and Conditions of the Company's Obligations. Notwithstanding
anything to the contrary contained in this Agreement, the Company's obligation
to file the Registration Statement pursuant to Section 2 shall be subject, at
the option of the Company, to the following further conditions:
(a) The Registrable Securities to be included in the Registration Statement
may not be distributable in open market transactions pursuant to any applicable
exemption from the registration requirements of the Act, including Rule 144
promulgated thereunder (or any successor thereto); and
(b) If an underwriter is used in connection with a Registration, the
distribution for the account of the Holder shall be underwritten by the same
underwriters (if any) who are underwriting the distribution of the securities
for the account of the Company and/or any other persons whose securities are
covered by such Registration Statement, and the Holder shall enter into an
agreement with such underwriters containing customary indemnification and other
provisions.
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<PAGE>
4. Registration Procedures. In the case of each Registration effected by
the Company in which Registrable Securities are to be sold for the account of
any Holder, the Company will use its best efforts to:
(a) furnish to counsel selected by each Holder copies of all Registration
Statements or prospectuses or any amendments or supplements thereto proposed to
be filed with the SEC, which documents will be subject to review by such counsel
before filing solely with regard to any information contained therein which
pertains to the subject Holder;
(b) prepare and file with the SEC such amendments and supplements to such
Registration Statement and the prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective for a period of not less
than 90 days after the Registrable Securities may first be publicly sold
pursuant thereto and to comply with the provisions of the Act with respect to
the disposition of all securities covered by such Registration Statement during
such period.
(c) furnish to each subject Holder such number of copies of such
Registration Statement, each amendment and supplement thereto, the prospectus
included in such Registration Statement (including each preliminary prospectus)
and such other documents as the Holder may reasonably require in order to
facilitate the disposition of the Registrable Securities owned by and registered
on behalf of such Holder;
(d) register or qualify such Registrable Securities under such other
securities or blue sky laws of such states as the underwriter reasonably
requires and do any and all other acts and things which may be reasonably
necessary or advisable to enable each subject Holder to consummate the
disposition of the Registrable Securities in such jurisdictions (provided that
the Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such jurisdiction, or (iii)
consent to general service of process in any such jurisdiction);
(e) notify each subject Holder, at any time when a prospectus relating to a
Registration Statement is required to be delivered under the Act, of the
happening of any event as a result of which the prospectus included in a
Registration Statement contains an untrue statement of a material fact or omits
to state any fact necessary to make the statements therein not materially
misleading, and prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchaser(s) of Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not materially
misleading; and
(f) cause all subject Registrable Securities to be listed for trading on
each securities exchange or automated quotation system on which similar
securities issued by the Company as those which are the subject of such
Registration Statement are then listed.
3
<PAGE>
5. Costs and Expenses. The Company shall bear all of the Costs and Expenses
of Registration under Section 2 of this Agreement; provided, however, that each
Holder shall pay, pro rata based upon the number of its Registrable Securities
included in the Registration, the underwriters' discounts, commissions and
compensation attributable solely to the inclusion of the Registrable Securities
in the public offering.
6. Indemnification by the Company.
(a) The Company will indemnify each Holder from and against any claim,
loss, cost, charge or liability of any kind, including amounts paid in
settlement and reasonable attorneys' fees, which may be incurred by the Holder
as a result of any breach of any representation or warranty or covenant of the
Company contained in this Agreement or in any certificate delivered on the
closing date of the public offering by the Company, with such indemnification to
be made within thirty (30) days of receipt of written request therefor.
(b) The Company shall indemnify and hold harmless each Holder, any
underwriter (as defined in the Act) for any Holder, each officer and director of
a Holder, legal counsel and accountants for a Holder, and each person, if any,
who controls a Holder or such underwriter within the meaning of the Act, against
any losses, expenses, claims, damages or liabilities, joint or several, to which
such Holder or any such underwriter, officer, director or controlling person
becomes subject, under the Act or any rule or regulation thereunder or
otherwise, insofar as such losses, expenses, claims, damages or liabilities (or
actions in respect thereof) (i) are caused by any untrue statement or alleged
untrue statement of any material fact contained in any preliminary prospectus
(if used prior to the effective date of the Registration Statement), or
contained, on the effective date thereof, in any Registration Statement of which
Warrant Shares were the subject, the prospectus contained therein, any amendment
or supplement thereto, or any other document related to such Registration
Statement, or (ii) arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) arise out of
any violation by the Company of the Act or any rule or regulation thereunder
applicable to the Company and relating to actions or omissions otherwise
required of the Company in connection with such registration. The Company shall
reimburse each Holder and any such underwriter, officer, director or controlling
person for any legal or other expenses reasonably incurred by such Holder, or
any such officer, director, underwriter or controlling person in connection with
investigating, defending or settling any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable to any such
persons in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information furnished to the Company in writing by such
person expressly for inclusion in any of the foregoing documents. This indemnity
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company.
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<PAGE>
7. Indemnification by the Holders. Each Holder participating in the
Registration shall indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed a Registration Statement, legal
counsel and accountants for the Company, each person (if any) who controls the
Company within the meaning of the Act and any underwriter (as defined in the
Act) for the Company, against any losses, claims, damages or liabilities to
which the Company or any such director, officer, controlling person or
underwriter may become subject under the Act or any rule or regulation
thereunder or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) (i) are caused solely by any untrue statement or
alleged untrue statement of any material fact contained in any preliminary
prospectus (if used prior to the effective date of the Registration Statement),
or contained, on the effective date thereof, in any Registration Statement of
which such Holder's Warrant Shares were the subject, the prospectus contained
therein, any amendment or supplement thereto, or any other document related to
such Registration Statement, or (ii) arise out of or are based solely upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with information furnished to the Company by such Holder
expressly for inclusion in any of the foregoing documents. This indemnity shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
subject Holder.
8. Additional Provisions Regarding Indemnification.
(a) Each Holder and each other person indemnified pursuant to Section 6
above shall, in the event that it receives notice of the commencement of any
action against it which is based upon an alleged act or omission which, if
proven, would result in the Company's having to indemnify it pursuant to Section
6 above, promptly notify the Company, in writing, of the commencement of such
action and permit the Company, if the Company so notifies such Holder within
thirty (30) days after receipt by the Company of notice of the commencement of
the action, to participate in and to assume the defense of such action with
counsel reasonably satisfactory to such Holder; provided, however, that such
Holder or other indemnified person shall be entitled to retain its own counsel
at its own expense. The omission to notify the Company promptly of the
commencement of any such action shall not relieve the Company of any liability
to indemnify such Holder or such other indemnified person, as the case may be,
under Section 6 above, except to the extent that the Company shall suffer any
loss by reason of such failure to give notice, and shall not relieve the Company
of any other liabilities which it may have under this or any other agreement.
(b) The Company and each other person indemnified pursuant to Section 7
above shall, in the event that it receives notice of the commencement of any
action against it which is based upon an alleged act or omission which, if
proven, would result in any Holder having to indemnify it pursuant to Section 7
above, promptly notify such Holder, in writing, of the commencement of such
action and permit such Holder, if such Holder so notifies the Company within
thirty (30) days after receipt by such Holder of notice of the commencement of
the action, to participate in and to assume the defense of such action with
counsel reasonably satisfactory to the Company; provided, however, that the
Company or other indemnified person shall be entitled to retain its own counsel
at the Company's expense. The omission to notify any Holder promptly of the
commencement of any such action shall not relieve such Holder of liability to
indemnify the Company or such other indemnified person, as the case may be,
under Section 7 above, except to the extent that the subject Holder shall suffer
any loss by reason of such failure to give notice, and shall not relieve such
Holder of any other liabilities which it may have under this or any other
agreement.
5
<PAGE>
(c) No indemnifying party, in the defense of any such claim or litigation,
shall, except with the consent of each indemnified party, consent to entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. Each indemnified party shall furnish such information regarding
itself or the claim in question as an indemnifying party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
(d) (i) If a court of competent jurisdiction determines that the foregoing
indemnity provided under Sections 6 and 7 above is unavailable, or is
insufficient to hold hardness an indemnified party, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of such losses, claims, damages, liabilities or expenses (A) in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other, or
(B) if the allocation provided by clause (A) above is not permitted by
applicable law, or provides a lesser sum to the indemnified party than the
amount hereinafter calculated, in such proportion as is appropriate to reflect
not only the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other, but also the relative fault of the
indemnifying party and the indemnified party, as well as any other relevant
equitable considerations. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11 (f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(ii) In the event that the indemnifying party and the indemnified party are
unable to mutually agree on the relative benefits to and/or the relative faults
of such persons and the amounts of appropriate contribution, such dispute shall
be resolved by final, binding and enforceable arbitration before the American
Arbitration Association in Washington, D.C.
9. Rule 144. With the view of making available to a Holder the benefits of
Rule 144 promulgated under the Act and any other rule that may at any time
permit a Holder to sell securities of the Company without Registration, the
Company agrees to:
(a) Use its best efforts to make and keep public information available, as
those terms are understood and defined in Rule 144, at all times;
6
<PAGE>
(b) Use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Act and the
Securities Exchange Act of 1934, as amended (the "1934 Act"); and
(c) So long as any Holder owns any Registrable Shares, to furnish to such
Holder upon request a written statement by the Company as to its compliance with
the reporting requirements of Rule 144 and of the Act and the 1934 Act, a copy
of its most recent annual or quarterly report, and such other information as a
Holder may reasonably request in order to permit such Holder to take advantage
of Rule 144.
10. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
given in the manner provided in the Warrant.
11. Waiver and Amendment. No waiver, amendment or modification of this
Agreement or of any provision of this Agreement shall be valid unless evidenced
by a writing duly executed by the Company and Holders of a majority of the
Warrant Shares then issued and held and/or issuable upon future exercise of the
Warrants. No waiver of any default hereunder shall be deemed a waiver of any
other, prior or subsequent default hereunder.
12. Governing Law. This Agreement shall be governed, construed and
controlled by and under the substantive laws of the State of Maryland without
regard to principles of conflicts of laws.
13. Assignees. This Agreement is solely for the benefit of the Company,
HCFP, Holders, and any person(s) acquiring Warrant Shares from a Holder thereof
by will or by the laws of descent and distribution. No other transferees of
Warrant Shares shall be entitled to derive any benefit herefrom.
14. Captions. The captions and Section headings used in this Agreement are
for convenience only, and shall not affect the construction or interpretation of
this Agreement or any of the provisions of this Agreement.
15. Entire Agreement. This Agreement constitutes the sole and entire
agreement and understanding between the parties hereto as to the subject matter
of this Agreement, and supersedes all prior discussions, agreements and
understandings of every kind and nature between them as to such subject matter.
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7
<PAGE>
IN WITNESS WHEREOF, the Company and HCFP have executed this Agreement as of the
date first written above.
PHC, INC.
a Massachusetts corporation
By: /s/ Bruce A. Shear
Title President
HEALTHCARE FINANCIAL PARTNERS, INC.
a Delaware corporation
By: /s/ Michael G. Gardullo
Title: Vice President
H:\WP\LEGAL\CLIENTS\PHCINC\Regrightagt.wpd
8
<PAGE>
THIS GUARANTY CONTAINS PROVISIONS FOR WAIVER
OF JURY TRIAL
SECURED UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE
THIS SECURED UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE (the
"Guaranty"), dated as of March 10, 1998, is made by BSC--NY, INC., a New York
corporation ("Guarantor"), in favor of HCFP FUNDING II, INC., a Delaware
corporation ("Lender").
W I T N E S S E T H
WHEREAS, Lender has agreed to make a secured term loan ("Loan") to PHC,
INC., a Massachusetts corporation that is an affiliate of Guarantor ("PHC") in
the maximum aggregate principal amount of Three Hundred Fifty Thousand and
No/100 Dollars ($350,000.00) pursuant to a Secured Term Note made by PHC in
favor of Lender of even date with this Guaranty (as such note may from time to
time be amended, modified or supplemented, the "Secured Note"); and
WHEREAS, Lender is willing to make the Loan pursuant to the Secured Note
but only upon the condition, among others, that Guarantor shall have executed
and delivered to Lender this Guaranty.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained in this Guaranty and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
1. The Secured Note and all documents related to the Secured Note are
collectively referred to in this Guaranty as the "Loan Documents." Other
capitalized terms used but not defined in this Guaranty shall have the
respective meanings given them in the Secured Note.
2. To induce Lender to make the Loan upon the terms and conditions set
forth in the Loan Agreement, and in consideration thereof, Guarantor hereby
unconditionally and irrevocably guarantees to Lender and to its successors,
endorsees, transferees and assigns, Borrower's prompt and complete performance,
of all payments when due, whether at the stated maturity, by acceleration or
otherwise, and of all performance and other obligations, covenants and
agreements under the Secured Note and all documents related to the Secured Note
(all of which obligations, covenants and agreements are collectively referred to
as the "Obligations").
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<PAGE>
3. As security for Guarantor's obligations under this Guaranty, Guarantor
hereby assigns and grants to Lender a continuing priority lien on and security
interest in, upon, and to the following property:
(i) All of Guarantor'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 Guarantor's now or hereafter acquired deposit accounts into
which Accounts are deposited, including the Concentration Account;
(iii) All of Guarantor's right, title and interest, and all of Guarantor's
rights, remedies, security and liens, in, to and in respect of the Accounts,
including, without limitation, rights of stoppage in transit, replevin,
repossession and reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, guaranties or other contracts of suretyship with
respect to the Accounts, deposits or other security for the obligation of any
Account debtor, and credit and other insurance;
(iv) All of Guarantor's right, title and interest in, to and in respect of
all goods relating to, or which by sale have resulted in, Accounts, including,
without limitation, all goods described in invoices or other documents or
instruments with respect to, or otherwise representing or evidencing, any
Account, and all returned, reclaimed or repossessed goods;
(v) All deposit accounts, as such term is defined in the UCC;
(vi) All books, records, ledger cards, computer programs and information
and other property at any time evidencing or relating to the Accounts; and
(vii) The proceeds (including, without limitation, insurance proceeds) of
all of the foregoing.
3. Guarantor hereby waives notice of the acceptance of this Guaranty and of
the extending of credit as above specified and the state of indebtedness of
Borrower at any time, and expressly agrees to any extensions, renewals,
accelerations or modifications of such credit or any of the terms thereof, and
waives diligence, presentment, demand of payment, protest or notice, whether of
non-payment, dishonor, protest or otherwise of any document or documents and
notice of any extension, renewal. modification or default and assent to the
release, substitution or variation of any collateral which may at any time be
held as security for any credit extended to Borrower, all without relieving
Guarantor of any liability under this Guaranty. The obligations of Guarantor
under this Guaranty shall be an unconditional obligation to make prompt payment
and performance to Lender irrespective of the genuineness, validity, regularity
or enforceability of any indebtedness or evidence of indebtedness of Borrower to
Lender or of other circumstances which might otherwise under the laws of any
jurisdiction constitute a legal or equitable discharge of a surety or a
guarantor or a bar (in the nature of a moratorium or otherwise) to the
enforcement of Lender's rights either (i) against Borrower on all or any part of
its Obligations or (ii) under this Guaranty.
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<PAGE>
4. Notwithstanding any payment or payments made by Guarantor under this
Guaranty or any setoff or application of funds of Guarantor by Lender, Guarantor
shall not be entitled to be subrogated to any of the rights of Lender against
Borrower or any collateral security or guarantee or right of offset held by
Lender for the payment or performance of the Obligations, nor shall Guarantor
seek any reimbursement from Borrower in respect of payments made by Guarantor
under this Guaranty, until all amounts owing and any other performance due to
Lender by Borrower for or on account of the Obligations are paid and satisfied
in full. Upon such payment and satisfaction in full, Guarantor shall be
subrogated to all rights of Lender against Borrower or any collateral security
or guarantee or right of offset held by Lender for the payment and performance
of the Obligations.
5. Any indebtedness of Borrower now or hereafter owed to or held by
Guarantor is hereby subordinated to the indebtedness of Borrower to Lender; and
such indebtedness of Borrower to Guarantor if Lender so requests shall be
collected, enforced and received by Guarantor as trustee for Lender and be paid
over to Lender on account of the indebtedness of Borrower to Lender but without
reducing or affecting in any manner the liability of Guarantor under the other
provisions of this Guaranty.
6. This is intended to be and shall be construed as a continuing guarantee
and shall remain in full force and effect and can be binding in accordance with
and to the extent of its terms upon Guarantor and its successors and assigns,
and shall inure to the benefit of Lender, and its successors, endorsees,
transferees and assigns.
7. If all or any part of the Obligations of Borrower to Lender are not paid
when due, Guarantor hereby guarantees that it will pay the same to Lender, upon
demand therefor, without set-off or counterclaim and without reduction by reason
of any taxes, levies, imposts, charges and withholdings, restrictions or
conditions of any nature which are now or may hereafter be imposed levied or
assessed by any country, political subdivision or taxing authority, all of which
will be for the account of and paid by Guarantor, and Lender need not first
proceed to preserve, utilize or exhaust any other right or remedy against
Borrower or any other guarantor or any security Lender may have to obtain
payment. Such payment will be made in immediately available funds to Lender's
office at 2 Wisconsin Circle, Fourth Floor, Chevy Chase, Maryland 20815,
Attention: Ethan D. Leder, President, or at such other place as Lender may
designate in writing.
3
<PAGE>
8. No failure to exercise and no delay in exercising, on the part of
Lender, any right, power or privilege under this Guaranty shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege preclude any other or further exercise thereof, or the exercise of any
other power or right. The rights and remedies provided in this Guaranty are
cumulative and not exclusive of any rights or remedies provided by law.
9. Notice or demand to the parties shall be sufficiently given if in
writing and personally delivered, or mailed by registered or certified first
class mail, postage prepaid, return receipt requested, or sent by commercial
courier against receipt, or by telecopier (with a confirming copy sent by
regular mail) to the party intended and at the address or addresses specified in
the preamble to this Guaranty. Any party may designate a change of address by
notice in writing to the other parties, such notice to be effective ten (10)
days after mailing or delivery as provided in this Guaranty.
10. Guarantor hereby represents, warrants, and covenants to Lender that:
(a) It is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and has the
corporate power and authority to own its property, conduct its business as now
being conducted and to make and perform this Guaranty and the transactions
contemplated hereby, and is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction where the nature and
extent of the business conducted by it, or property owned by it, and applicable
law require such qualification, except where the failure so to qualify would not
have a material adverse effect on the business, operations or financial position
of Guarantor.
(b) The execution, delivery and performance of this Guaranty have been duly
authorized by all necessary corporate action and will not violate any provision
of law or any order of any court or governmental agency or the certificate of
incorporation or other incorporating documents or bylaws of Guarantor, or
conflict with, or result in a breach of, or constitute (with or without notice
or lapse of time or both) a default under, or result in the creation of any
security interest, lien, charge or encumbrance upon any property or assets of
Guarantor, pursuant to any agreement, indenture or other instrument to which it
is a party or by which it may be bound.
(c) Except as disclosed to Lender in writing prior to the execution hereof,
no action, suit, investigation or proceeding is pending or known to be
threatened against or affecting Guarantor which, if adversely determined, would
have a material adverse effect upon its financial condition or operations.
4
<PAGE>
(d) It is not in default under any provision of its certificate of
incorporation or other incorporating documents, by-laws. or stock provisions or
any amendment of any thereof or of any indenture relating to borrowed money or
agreement to which it is a party or by which it is bound or of any other
indenture or of any order, regulation, ruling or requirement of a court or
public body or authority by which it is bound which default would have a
material adverse effect on the business, operations or financial position of
Guarantor.
(e) No license, consent or approval of, or filing with, any governmental
body or other regulatory authority is required for the making and performance of
this Guaranty or any instrument or transaction contemplated herein. Guarantor
holds all certificates and authorizations of all governmental agencies and
authorities required by law to enable it to engage in the business currently
transacted by it, except such certificates and authorizations as to which the
failure to do so hold would not, in the aggregate, have a material adverse
effect on
it.
11. No provision of this Guaranty shall be waived, amended or supplemented
except by a written instrument executed by Lender.
12. The obligations of Guarantor under this Guaranty shall continue in full
force and effect and shall remain in operation until all of the Obligations
shall have been paid in full or otherwise fully satisfied, and continue to be
effective or be reinstated, as the case may be, if at anytime payment or other
satisfaction of any of the Obligations is rescinded or must otherwise be
restored or returned upon the bankruptcy, insolvency, or reorganization of
Borrower, or otherwise, as though such payment had not been made or other
satisfaction occurred. No invalidity, irregularity or unenforceability by reason
of applicable bankruptcy laws or any other similar law, or any law or order of
any government or agency thereof purporting to reduce, amend or otherwise
affect, the Obligations, shall impair, affect, be a defense to or claim against
the obligations of Guarantor under this Guaranty.
13. In addition to its guarantee of Guarantor's payment of the Obligations
and Guarantor's performance of all covenants, obligations and agreements
contained in the Loan Documents, Guarantor shall pay all costs and expenses
(including reasonable attorney's fees) paid or incurred by Lender in connection
with the enforcement of this Guaranty.
14. Guarantor hereby agrees to execute any and all further documents,
agreements, and instruments, and take all further actions, which Lender shall
reasonably request in order to effectuate the effect or further preserve,
evidence, perfect or protect the rights purported to be created in favor of
Lender under this Guaranty.
15. Guarantor hereby assumes responsibility for keeping itself informed of
the financial condition of Borrower, and any and all endorsers and/or other
guarantors of any instrument or document evidencing all or any part of the
Obligations and of all other circumstances bearing upon the risk of nonpayment
of the Obligations or any part thereof that diligent inquiry would reveal, and
Guarantor hereby agrees that Lender shall have no duty to advise Guarantor of
information known to Lender regarding such condition or any such circumstances.
If Lender, in its sole discretion, undertakes at any time or from time to time
to provide any such information to Guarantor, Lender shall be under no
obligation (i) to undertake any investigation not a part of its regular business
routine, (ii) to disclose any information which, pursuant to accepted or
reasonable commercial finance practices, Lender wishes to maintain confidential,
or (iii) to make any other or future disclosures of such information or any
other information to the undersigned.
5
<PAGE>
16. This Guaranty may be executed in one or more counterpart copies, each
of which shall be an original and all of which together shall constitute one and
the same instrument, and it is not necessary that all parties' signatures appear
on each counterpart.
17. If any term, covenant or condition of this Guaranty, or the application
of such term, covenant or condition to any party or circumstance shall be found
by a court of competent jurisdiction to be, to any extent, invalid or
unenforceable, the remainder of this Guaranty and the application of such term,
covenant, or condition to parties or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term, covenant or condition shall be valid and enforced to the fullest extent
permitted by law. Upon determination that any such term is invalid, illegal or
unenforceable, the parties hereto shall amend this Guaranty so as to effect the
original intent of the parties as closely as possible in an acceptable manner.
18. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS GUARANTY IS
COMMENCED BY LENDER IN THE STATE OF MARYLAND OR FEDERAL COURT LOCATED IN THE
STATE OF MARYLAND, GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH
COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND.
ANY PROCESS IN ANY SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED
MAIL, POSTAGE PREPAID, TO GUARANTOR AT THE ADDRESS SET FORTH IN THE PREAMBLE TO
THIS GUARANTY.
19. GUARANTOR HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY
OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY
JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY,
BY GUARANTOR, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH
INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE
ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS GUARANTY TO ANY
COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS
TO SERVE AS CONCLUSIVE EVIDENCE OF GUARANTOR'S WAIVER OF THE RIGHT TO JURY
TRIAL. FURTHER, GUARANTOR HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF
LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO
GUARANTOR THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY
TRIAL PROVISION.
6
<PAGE>
20. GUARANTOR AUTHORIZES ANY ATTORNEY ADMITTED TO PRACTICE BEFORE ANY COURT
OF RECORD IN THE UNITED STATES OR THE CLERK OF SUCH COURT TO APPEAR ON BEHALF OF
GUARANTOR IN ANY COURT IN ONE OR MORE PROCEEDINGS, OR BEFORE ANY CLERK THEREOF
OR PROTHONOTARY OR OTHER COURT OFFICIAL, AND TO CONFESS JUDGMENT AGAINST
GUARANTOR IN FAVOR OF LENDER IN THE FULL AMOUNT DUE UNDER THIS GUARANTY
(INCLUDING PRINCIPAL, ACCRUED INTEREST AND ANY AND ALL CHARGES, FEES AND COSTS)
PLUS ATTORNEYS' FEES EQUAL TO FIFTEEN PERCENT (15%) OF THE AMOUNT DUE, PLUS
COURT COSTS, ALL WITHOUT PRIOR NOTICE OR OPPORTUNITY OF GUARANTOR FOR PRIOR
HEARING. GUARANTOR AGREES AND CONSENTS THAT VENUE AND JURISDICTION SHALL BE
PROPER IN THE CIRCUIT COURT OF ANY COUNTY OF THE STATE OF MARYLAND OR OF
BALTIMORE CITY, MARYLAND, OR IN THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF MARYLAND. GUARANTOR WAIVES THE BENEFIT OF ANY AND EVERY STATUTE,
ORDINANCE, OR RULE OF COURT WHICH MAY BE LAWFULLY WAIVED CONFERRING UPON
GUARANTOR ANY RIGHT OR PRIVILEGE OF EXEMPTION, HOMESTEAD RIGHTS, STAY OF
EXECUTION, OR SUPPLEMENTARY PROCEEDINGS, OR OTHER RELIEF FROM THE ENFORCEMENT OR
IMMEDIATE ENFORCEMENT OF A JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT. THE
AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST GUARANTOR 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, OR PROPER.
H:\WP\LEGAL\CLIENTS\PHCINC\Guarsec.wpd
7
<PAGE>
IN WITNESS WHEREOF, the Company and HCFP have executed this Agreement as of
the date first written above.
ATTEST: BSC-NY, INC.
a New York corporation
_____________________________________ By: /s/ Bruce A. Shear
Name: Title: President
Title:
H:\WP\LEGAL\CLIENTS\PHCINC\Guarsec.wpd
8
<PAGE>
Exhibit 10.59
(PHC, Inc. Letterhead)
June 8, 1998
Attention: Ethan D. Leder, President
HCFP Funding, Inc.
Two Wisconsin Circle 4th Floor
Chevy Chase, Maryland 20815
Re: Loan and Security Agreement by and among HCFP FUNDING, INC.
("Lender") and PHC OF MICHIGAN, INC., PHC OF UTAH, INC., PHC OF
VIRGINIA, INC., PHC OF RHODE ISLAND, INC., and PIONEER COUNSELING OF
VIRGINIA, INC. (collectively, "Borrower") dated as of February 18,
1998.
Dear Mr. Leder:
Reference is made to that certain Loan and Security Agreement dated February
18, 1998 (as it has been or may be amended or restated, the "Loan
Agreement"), by and between Borrower and Lender. All capitalized terms used
but not defined in this Letter Agreement shall have the respective meanings
given them in the Loan Agreement.
Lender and Borrower hereby agree to the following terms regarding an
additional loan in the maximum amount of Two Hundred Thousand and No/100
Dollars ($200,000.00) to be made by Lender to Borrower on the date of this
Letter Agreement, in the form of an overline facility established by this
Letter Agreement (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 to the Overline Loan (the "Overline Obligations") shall
be treated as additional Obligations under the Loan Agreement and the other
Loan Documents.
2. The Overline Loan shall continue to bear interest at the Base Rate as
specified in Loan Agreement. In addition, on each Monday (or, if Monday is a
holiday, Tuesday) during the term of the Overline Obligations and until the
Overline Obligations are paid in full, Borrower shall pay to Lender a fee
equal to one and one-half percent (1.5%) of the outstanding balance of the
Overline Obligations as of 5:30 p.m. on the last preceding Business Day.
<PAGE>
HCFP Funding, Inc.
June 8, 1998
Page 2
3. The Overline Obligations shall be repaid in full no later than August
9, 1998 unless mutually extended (the "Overline Maturity Date"), unless
Borrower requests that the term be extended and the term is extended by
Lender in the exercise of its sole discretion. If the term is extended, the
end of the term shall become the Overline Maturity Date.
4. The failure to repay the Overline Obligations at the Overline Maturity
Date shall constitute an immediate Event of Default under the Loan
Agreement. Lender shall be entitled to apply amounts transferred to the
Concentration Account pursuant to Section 2.3 of the Loan Agreement in
satisfaction of the Overline Obligations of Borrower.
5. The Overline Obligations of Borrower under this Letter Agreement shall
be additionally secured by the execution and delivery of an Unconditional
Guaranty of Payment and Performance by Bruce A. Shear, which Guaranty
guarantees the payment of the Overline Obligations. This guarantee shall not
be utilized until or unless sufficient funds are not available to pay loan
from borrowers collections.
6. The assertion of any claim or the bringing of any action against any
entity comprising Borrower by Franvale, any creditor of Franvale, any
receiver of Franvale or any trustee in bankruptcy with jurisdiction over
Franvale may constitute an immediate Event of Default under the Loan
Agreement at the sole discretion of Lender.
7. The Maximum Loan Amount under the Loan Agreement shall be inclusive of
the Overline Loan.
8. Except as specifically modified hereby, the Loan Agreement, and all
other Loan Documents, shall remain in full force and effect, and are hereby
ratified and confirmed.
9. The execution, delivery and effectiveness of this Letter Agreement
shall not, except as expressly provided in this Letter Agreement, operate as
a 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 with the Loan Agreement.
10. This Letter Agreement shall be governed by and construed in accordance
with the laws of the State of Maryland.
<PAGE>
HCFP Funding, Inc.
June 8, 1998
Page 3
11. This Letter Agreement may be executed in counterparts, and both
counterparts taken together shall be deemed to constitute one and the same
instrument.
If these conditions are acceptable to Lender, please so signify by signing
below where indicated.
Very truly yours,
PHC, INC.
a Massachusetts corporation
(on behalf of all entities comprising
"Borrower")
By: /s/ Bruce Shear
Title: President & CEO
THE FOREGOING IS ACKNOWLEDGED AND AGREED TO AS OF THE 8th DAY OF JUNE, 1998.
HCFP FUNDING, INC.
a Delaware corporation
By: /s/ Michael G. Gardullo
Title: Vice President
H:\WP\LEGAL\CLIENTS\PHCINC\Overline.wpd
<PAGE>
THIS GUARANTY CONTAINS PROVISIONS FOR WAIVER
OF JURY TRIAL
UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE
THIS UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE (the "Guaranty")
is dated as of June 8, 1998 and is made by Bruce A. Shear, an individual
("Guarantor"), in favor of HCFP FUNDING, INC., a Delaware corporation
("Lender").
RECITALS
WHEREAS, pursuant to a certain Loan and Security Agreement dated as of
February 18, 1998 (as the agreement may from time to time be amended,
modified or supplemented, the "Loan Agreement"), by and among PHC OF
MICHIGAN, INC., PHC OF UTAH, INC., PHC OF VIRGINIA, INC., PHC OF RHODE
ISLAND, INC., and PIONEER COUNSELING OF VIRGINIA, INC. (collectively,
"Borrower") and Lender, the parties entered into certain revolving credit
financing arrangements; and
WHEREAS, Lender has agreed to make available to Borrower an Overline
Loan, in the maximum aggregate principal amount of Two Hundred Thousand and
No/100 Dollars ($200,000.00) (the "Overline Loan") which shall 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 to the
Overline Loan ("Overline Obligations") shall be treated as additional
Obligations under the Loan Agreement and the other Loan Documents; and
WHEREAS, Lender is willing to make the Overline Loan but only upon the
condition, among others, that Guarantor shall have executed and delivered to
Lender this Guaranty.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained in this Guaranty and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree
as follows:
1 All capitalized terms used but not defined in this Guaranty shall
have the respective meanings given them in the Loan Agreement.
2. To induce Lender to execute and deliver the Overline Loan and to
make the Overline Loan upon the terms and conditions set forth therein, and
in consideration thereof, Guarantor hereby unconditionally and irrevocably
guarantees to Lender, and to its successors, endorsees, transferees and
assigns, Borrower's prompt and complete payment when due, whether at the
stated maturity, by acceleration or otherwise, of the Overline Obligations
and Borrower's prompt and complete performance of all of its other covenants,
obligations and agreements related to the Overline Loan.
<PAGE>
3. Guarantor hereby waives notice of the acceptance of this Guaranty
and of the extending of credit as above specified and the state of
indebtedness of Borrower at any time, and expressly agrees to any extensions,
renewals, accelerations or modifications of such credit or any of the terms
of such credit, and waives diligence, presentment, demand of payment, protest
or notice, whether of non-payment, dishonor, protest or otherwise, of any
document or documents and notice of any extension, renewal, modification or
default and assent to the release, substitution or variation of any
collateral that may at any time be held as security for any credit extended
to Borrower, all without relieving Guarantor of any liability under this
Guaranty. The obligations of Guarantor under this Guaranty shall be an
unconditional obligation to make prompt payment and performance to Lender
irrespective of the genuineness, validity, regularity or enforceability of
any indebtedness or evidence of indebtedness of Borrower to Lender or of
other circumstances that might otherwise under the laws of any jurisdiction
constitute a legal or equitable discharge of a surety or a guarantor or a bar
(in the nature of a moratorium or otherwise) to the enforcement of Lender's
rights either (i) against Borrower on all or any part of its Overline
Obligations or (ii) under this Guaranty.
4. Notwithstanding any payment or payments made by Guarantor under
this Guaranty or any setoff or application of funds of Guarantor by Lender,
Guarantor shall not be entitled to be subrogated to any of the rights of
Lender against Borrower or any collateral security or guarantee or right of
offset held by Lender for the payment or performance of the Overline
Obligations, nor shall Guarantor seek any reimbursement from Borrower in
respect of payments made by Guarantor under this Guaranty, until all amounts
then owing and any other performance then due to Lender by Borrower for or on
account of the Overline Obligations are paid and satisfied in full. Upon
such payment and satisfaction in full, Guarantor shall be subrogated to all
rights of Lender against Borrower or any collateral security or guarantee or
right of offset held by Lender for the payment and performance of the
Overline Obligations.
5. Any indebtedness of Borrower now or hereafter owed to or held by
Guarantor is hereby subordinated to the indebtedness of Borrower to Lender;
and such indebtedness of Borrower to Guarantor if Lender so requests shall be
collected, enforced and received by Guarantor as trustee for Lender and be
paid over to Lender on account of the indebtedness of Borrower to Lender but
without reducing or affecting in any manner the liability of Guarantor under
the other provisions of this Guaranty.
6. This is intended to be and shall be construed as a continuing
guarantee and shall remain in full force and effect and shall be binding in
accordance with and to the extent of its terms upon Guarantor and Guarantor's
heirs and assigns, and shall inure to the benefit of Lender, and its
successors, endorsees, transferees and assigns.
7. If all or any part of the Overline Obligations of Borrower to Lender
are not paid when due, and if collections of Accounts under the Loan
Agreement are not sufficient to pay the portion of the Overline Obligations
that are due, Guarantor hereby guarantees that it will pay the same to
Lender, upon demand, without set-off or counterclaim and without reduction by
reason of any taxes. levies, imposts, charges and withholdings, restrictions
or conditions of any nature that are now or may hereafter be imposed, levied
or assessed by any country, political subdivision or taxing authority, all of
which will be for the account of and paid by Guarantor, and Lender need not
first proceed to preserve, utilize or exhaust any other right or remedy
against Borrower or any other guarantor or any security that Lender may have
to obtain payment. The payment shall be made in immediately available funds
to Lender's office at 2 Wisconsin Circle, Fourth Floor, Chevy Chase, Maryland
20815, Attention: Ethan D. Leder, President, or at such other place as Lender
may designate in writing.
2
<PAGE>
8. No failure to exercise and no delay in exercising, on the part of
Lender, any right, power or privilege under this Guaranty shall operate as a
waiver of the right, power or privilege, nor shall any single or partial
exercise of any right, power or privilege preclude any other or further
exercise of the right, power or privilege, or the exercise of any other power
or right. The rights and remedies provided in this Guaranty are cumulative
and not exclusive of any rights or remedies provided by law.
9. Notice or demand to the parties to this Guaranty shall be
sufficiently given if in writing and personally delivered, or mailed by
registered or certified first class mail, postage prepaid, return receipt
requested, or sent by commercial courier against receipt, to the party
intended and at the address or addresses specified in the preamble to this
Guaranty. Any party may designate a change of address by notice in writing
to the other parties, the notice to be effective ten (10) days after mailing
or delivery as provided in this Section 9.
10. Guarantor hereby represents, warrants, and covenants to Lender:
(a) Guarantor has the full right, power and authority to
enter into this Guaranty.
(b) The execution, delivery and performance of this Guaranty
will not violate any provision of law or any order of any court or
governmental agency or conflict with, or result in a breach of, or constitute
(with or without notice or lapse of time or both) a default under, or result
in the creation of any security interest, lien, charge or encumbrance upon
any property or assets of Guarantor, pursuant to any agreement, indenture or
other instrument to which it is a party or by which it may be bound.
(c) Except as disclosed to Lender in writing prior to the
execution of this Guaranty, no action, suit, investigation or proceeding is
pending or known to be threatened against or affecting Guarantor that, if
adversely determined, would have a material adverse effect upon its financial
condition.
3
<PAGE>
(d) Guarantor is not in default under any provision of any
indenture relating to borrowed money, any agreement to which it is a party or
by which it is bound, any other indenture, or any order, regulation, ruling
or requirement of a court or public body or authority by which it is bound,
which default would have a material adverse effect on the financial position
of Guarantor.
(e) No license, consent or approval of, or filing with, any
governmental body or other regulatory authority is required for the making
and performance of, or any instrument or transaction contemplated by, this
Guaranty. Guarantor holds all certificates and authorizations of all
governmental agencies and authorities required by law to enable it to engage
in the business currently transacted by it, except those certificates and
authorizations as to which the failure to so hold would not, in the
aggregate, have a material adverse effect on Guarantor.
11. No provision of this Guaranty shall be waived, amended or
supplemented except by a written instrument executed by Lender.
12. The obligations of Guarantor under this Guaranty shall continue
in full force and effect and shall remain in operation until all of the
Overline Obligations shall have been paid in full or otherwise fully
satisfied, and continue to be effective or be reinstated, as the case may be,
if at any time payment or other satisfaction of any of the Overline
Obligations is rescinded or must otherwise be restored or returned upon the
bankruptcy, insolvency, or reorganization of Borrower, or otherwise, as
though such payment had not been made or other satisfaction occurred. No
invalidity, irregularity or unenforceability by reason of applicable
bankruptcy laws or any other similar law, or any law or order of any
government or government agency purporting to reduce, amend or otherwise
affect, the Overline Obligations, shall impair, affect, be a defense to or
claim against the obligations of Guarantor under this Guaranty.
13. In addition to its guarantee of Borrower's payment of the
Overline Obligations and Borrower's performance of all covenants, obligations
and agreements contained in the Loan Documents related to the Overline
Obligations, Guarantor shall pay all actual costs and expenses (including
reasonable attorney's fees) paid or incurred by Lender in connection with the
enforcement of this Guaranty.
14. Guarantor hereby agrees to execute any and all further documents,
agreements, and instruments, and take all further actions, that Lender shall
reasonably request to effectuate or further preserve, evidence, perfect or
protect the rights purported to be created in favor of Lender under this
Guaranty.
15. Guarantor hereby assumes responsibility for keeping itself
informed of the financial condition of Borrower, and any and all endorsers
and/or other guarantors of any instrument or document evidencing all or any
part of the Overline Obligations, and of all other circumstances bearing upon
the risk of nonpayment of the Overline Obligations, or any part of the
Overline Obligations, that diligent inquiry would reveal, and Guarantor
hereby agrees that Lender shall have no duty to advise Guarantor of
information known to Lender regarding such condition or any such
circumstances. If Lender, in its sole discretion, undertakes at any time or
from time to time to provide any such information to Guarantor, Lender shall
be under no obligation (i) to undertake any investigation not a part of its
regular business routine, (ii) to disclose any information that, pursuant to
accepted or reasonable commercial finance practices, Lender wishes to
maintain confidential, or (iii) to make any other or future disclosures of
such information or any other information to Guarantor
4
<PAGE>
16. This Guaranty may be executed in one or more counterpart copies,
each of which shall be an original and all of which together shall constitute
one and the same instrument, and it is not necessary that all parties'
signatures appear on each counterpart.
17. If any term, covenant or condition of this Guaranty, or the
application of such term, covenant or condition to any party or circumstance,
shall be found by a court of competent jurisdiction to be, to any extent,
invalid or unenforceable, the remainder of this Guaranty and the application
of such term, covenant, or condition to parties or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term, covenant or condition shall be valid and enforced to
the fullest extent permitted by law. Upon determination that any such term
is invalid, illegal or unenforceable, the parties to this Guaranty shall
amend this Guaranty so as to effect the original intent of the parties as
closely as possible in an acceptable manner.
18. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO ANY OTHERWISE
APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF
THIS GUARANTY IS COMMENCED BY LENDER IN THE STATE COURTS OF THE STATE OF
MARYLAND OR IN THE U.S. DISTRICT COURT FOR THE DISTRICT OF MARYLAND,
GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH
ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND. ANY PROCESS IN
ANY SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE
PREPAID, TO GUARANTOR AT ITS ADDRESS SET FORTH IN THE PREAMBLE TO THIS
GUARANTY.
19. GUARANTOR HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY
JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO
TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY
AND VOLUNTARILY, BY GUARANTOR, AND THIS WAIVER IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY
TRIAL WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO
SUBMIT THIS GUARANTY TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER
AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF GUARANTOR'S
WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, GUARANTOR HEREBY CERTIFIES THAT
NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL) HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, TO GUARANTOR THAT LENDER WILL NOT SEEK
TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
5
<PAGE>
20. GUARANTOR AUTHORIZES ANY ATTORNEY ADMITTED TO PRACTICE BEFORE ANY
COURT OF RECORD IN THE UNITED STATES OR THE CLERK OF SUCH COURT TO APPEAR ON
BEHALF OF GUARANTOR IN ANY COURT IN ONE OR MORE PROCEEDINGS, OR BEFORE ANY
CLERK THEREOF OF PROTHONOTARY OR OTHER COURT OFFICIAL, AND TO CONFESS
JUDGMENT AGAINST GUARANTOR IN FAVOR OF LENDER IN THE FULL AMOUNT DUE ON THIS
GUARANTY (INCLUDING PRINCIPAL, ACCRUED INTEREST AND ANY AND ALL CHARGES, FEES
AND COSTS) PLUS ATTORNEYS' FEES EQUAL TO FIFTEEN PERCENT (15%) OF THE AMOUNT
DUE, PLUS COURT COSTS, ALL WITHOUT PRIOR NOTICE OR OPPORTUNITY OF BORROWER
FOR PRIOR HEARING. GUARANTOR AGREES AND CONSENTS THAT VENUE AND JURISDICTION
SHALL BE PROPER IN THE CIRCUIT COURT OF ANY COUNTY OF THE STATE OF MARYLAND
OR OF BALTIMORE CITY, MARYLAND, OR IN THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF MARYLAND. GUARANTOR WAIVES THE BENEFIT OF ANY AND EVERY
STATUTE, ORDINANCE, OR RULE OF COURT WHICH MAY BE LAWFULLY WAIVED CONFERRING
UPON GUARANTOR ANY RIGHT OR PRIVILEGE OF EXEMPTION, HOMESTEAD RIGHTS, STAY OF
EXECUTION, OR SUPPLEMENTARY PROCEEDINGS, OR OTHER RELIEF FROM THE ENFORCEMENT
OR IMMEDIATE ENFORCEMENT OF A JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT.
THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST GUARANTOR
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, OR PROPER.
H:\WP\LEGAL\CLIENTS\PHCINC\Guarind\1over.wpd
6
<PAGE>
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed as of
the date first written above.
WITNESS: GUARANTOR:
___________________________ ________________________________
Bruce A. Shear
H:\WP\LEGAL\CLIENTS\PHCINC\Guarind\1over.wpd
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<PAGE>
HealthCare Financial
July 10, 1998
PHC, Inc.
200 Lake Street
Suite 102
Peabody, Massachusetts 01960
Attention: Bruce A. Shear, President
Re: Amendment to Overline Letter Agreement dated June 8, 1998
("Overline Facility") pursuant to the Loan and Security Agreement
dated February 18, 1998 by and among PHC OF MICHIGAN, INC., PHC
OF UTAH, INC., PHC OF VIRGINIA, INC., PHC OF RHODE ISLAND, INC.,
and PIONEER COUNSELING OF VIRGINIA, INC. and by HCPF Funding,
Inc. ("Lender")
Gentlemen:
This letter confirms that the maturity date of the Overline Facility
has been extended to November 10, 1998.
Except as specifically modified hereby, the Overline Facility, the Loan
Agreement and all other Loan Documents shall remain in full force and effect
and are hereby ratified and confirmed.
The execution, delivery and effectiveness of this Letter Agreement
shall not, except as expressly provided in this Letter Agreement, operate as
a 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 with the Loan Agreement.
If the foregoing terms are acceptable to Borrower, please sign this
Letter Agreement where indicated and return it to Lender.
Very truly yours,
HCFP FUNDING, INC.
By: _________________________
Name:
Title:
(Additional Signatures to Follow)
2 Wisconsin Circle, 4th Floor * Chevy Chase, Maryland 20815 *
301-961-1640 * Fax: 301-664-9860
The Leader In Health Care Finance
<PAGE>
PHC, Inc.
July 10, 1998
Page 2
THE UNDERSIGNED AGREES TO THE TERMS SET FORTH ABOVE AS OF THIS 10th DAY OF
- -JULY, 1998.
PHC, INC.
a Massachusetts corporation
(on behalf of all entities comprising
"Borrower")
By: /s/ Bruce A. Shear
President
PHC OF MICHIGAN, INC.
a Massachusetts corporation
By: /s/ Bruce A. Shear
President
PHC OF UTAH, INC.
a Massachusetts corporation
By: /s/ Bruce A. Shear
President
PHC OF VIRGINIA INC.
a Massachusetts corporation
By: /s/ Bruce A. Shear
President
(Additional Signatures to Follow)
<PAGE>
PHC, Inc.
July 10, 1998
Page 3
PHC OF RHODE ISLAND, INC.
a Massachusetts corporation
By: /s/ Bruce A. Shear
President
PIONEER COUNSELING OF VIRGINIA. INC.
a Massachusetts corporation
By: /s/ Bruce A. Shear
President
<PAGE>
Exhibit 10.60
After recording, return to:
Debra M. Van Alstyne, Esq.
HCFP Funding II, Inc.
2 Wisconsin Circle
Fourth Floor
Chevy Chase, Maryland 20815
THIS IS A CREDIT LINE DEED OF TRUST
CREDIT LINE SECOND DEED OF TRUST,
ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
$ 350,000.00
GRANTOR: PHC OF VIRGINIA, INC.
BENEFICIARY: HCFP FUNDING II, INC.
TRUSTEE: Thomas L. Hanley and Barry P. Miller
July __, 1998
<PAGE>
THIS IS A CREDIT LINE DEED OF TRUST
CREDIT LINE SECOND DEED OF TRUST,
ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
This Credit Line Second Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing ("Deed of Trust") is made as of July
__, 1998 by PHC OF VIRGINIA, INC., a Virginia corporation (the "Grantor")
whose address is 405 Kimball Avenue, Salem, Virginia 24153, to THOMAS L.
HANLEY of the City of Alexandria, Virginia and BARRY P. MILLER of Arlington
County, Virginia, as Trustees ("Trustee"), either of whom may act
individually for the benefit of HCFP FUNDING II, INC., a Delaware corporation
("Beneficiary") whose address is 2 Wisconsin Circle, Fourth Floor, Chevy
Chase, Maryland 20815.
That Grantor, in consideration of One Dollar ($1.00) in hand paid by
the Trustee and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in order to secure the full,
unconditional and irrevocable repayment of all amounts due under that certain
Secured Unconditional Guaranty of Payment and Performance made by Grantor in
favor of Beneficiary and dated as of March 10, 1998 (the "Guaranty"), which
Guaranty is additional security for the secured bridge loan in the amount of
$350,000.00 being made to Grantor's affiliate, PHC, Inc., a Massachusetts
corporation, and the prompt and complete performance of all the covenants
contained herein and in the Guaranty, hereby bargains, sells, grants and
conveys unto the Trustee and its successors and assigns forever, IN TRUST,
WITH FULL POWER OF SALE and with General Warranty certain real estate in the
City of Salem, Virginia, commonly known as 405 Kimball Avenue, Salem,
Virginia and described more particularly on Exhibit A attached hereto and
made a part hereof for all purposes (all of such real estate being
hereinafter referred to as the "Real Estate"), for the benefit of HCFP
FUNDING II, INC., a Delaware corporation, together with all rights, title and
interests of Grantor, now existing or hereafter arising, in and to:
(i) All rights, privileges, interests, tenements, hereditaments,
easements and appurtenances in any way now or hereafter benefiting, belonging
or appertaining to all or any of the Real Estate, including (without limiting
the generality of the foregoing) all land lying within any roadway and strips
adjoining all or any of the Real Estate, all minerals, oil, gas and other
hydrocarbon substances thereon or therein and all air rights and water rights
(collectively, the "Easements and Appurtenances");
(ii) All buildings, structures and other improvements of every kind
and description now or hereafter erected, constructed or placed on the Real
Estate, together with all fixtures, equipment, machinery, apparatus,
furniture, furnishings and other articles of personal property now or
hereafter located in or upon, attached to or regularly used or intended to be
regularly used in connection with the Real Estate, and all replacements
thereof (collectively, the "Improvements");
(iii) All extensions, improvements, betterments, substitutes,
replacements, renewals, additions and appurtenances of or to the Easements
and Appurtenances and of or to the Improvements (collectively, the
"Additions");
(iv) All rights, title, estate and interest of Grantor in and to all
rents, royalties, revenues, rates, issues, income, profits, charges and
proceeds from accounts due or becoming due from the Mortgaged Property or the
Improvements or the operation of the Mortgaged Property or Improvements,
including, but not limited to, payments for the operation or use of the
Mortgaged Property or Improvements, for all services rendered, whether or not
earned by performance, for goods sold or leased on the Mortgaged Property or
Improvements, and all proceeds of the foregoing, whether cash or non-cash
(collectively, the "Rents");
(v) All awards, payments and proceeds of conversion, whether
voluntary or involuntary, of any of the Real Estate, Easements and
Appurtenances, Improvements, Additions and Rents, including (without
limitation) all insurance, condemnation and tort claims, rent claims and
other obligations dischargeable in cash or cash equivalent (collectively, the
"Proceeds").
Herein, the Real Estate, the Easements and Appurtenances, the Improvements,
the Additions, the Rents and the Proceeds are referred to collectively as the
"Mortgaged Property."
Provided, however, upon full payment of all indebtedness hereby secured
and upon performance of all covenants, obligations and indemnities hereby
secured the Mortgaged Property shall be reconveyed and released to Grantor.
This Deed of Trust is given to secure performance by Grantor of the
covenants and agreements contained in this Deed of Trust, and to secure:
(i) Performance of all the terms and provisions and payment of all
principal and interest payments that may become due under the Guaranty
executed by Grantor in favor of Beneficiary, up to a maximum amount of Three
Hundred Fifty and No/100 Dollars ($350,000.00), together with all other
amounts now or hereafter owing under the Guaranty, the terms of which are
incorporated herein by reference, as well as all renewals, extensions,
modifications and recastings of the Guaranty;
(ii) Payment of fees, penalties, and other sums as provided in the
Guaranty;
(iii) Any and all modifications, restatements, renewals and extensions
of one or more of the liabilities, obligations, and other instruments secured
hereby;
(iv) The performance of any surety, guarantor or indemnitor of any
obligations of Grantor under the Guaranty; and
(v) The payment of all costs, attorney's fees, and litigation
expenses expended by Beneficiary to preserve or protect the Property or the
validity or priority of this Deed of Trust.
The indebtedness, liabilities and obligations secured by this Deed of
Trust are hereinafter collectively called the "Indebtedness".
All persons who have or may acquire an interest in the Mortgaged
Property shall be deemed to have notice of and shall be bound by the terms of
the Guaranty, this Deed of Trust, and any other instruments or documents made
or entered into in connection herewith and the terms of the Indebtedness.
Grantor hereby further covenants with the Beneficiary as follows:
1. Payment of Sums Due. Grantor promptly will pay as and
when due the Indebtedness, including all reasonable costs of collection and
attorneys' and paralegals' fees and litigation expenses. Grantor waives
demand, presentment for payment, notice of protest and notice of nonpayment
or dishonor of the Indebtedness. Payments received will be applied by
Beneficiary in order of priority as Beneficiary shall determine in its sole
discretion.
2. Care and Condition of Mortgaged Property. Grantor shall
(a) promptly repair, restore or rebuild any part of the Mortgaged Property
which may become damaged or be destroyed; (b) keep the Mortgaged Property in
good condition and thorough repair, without waste, and free from
encroachments and mechanic's or materialman's liens or claims for liens,
provided that if Grantor disputes such a lien or claim for lien Grantor may
post a bond within fifteen (15) days after a lien is filed or a claim for
lien is made in an amount sufficient to satisfy the lien or claim; (c) pay
any indebtedness when due which may be secured by a lien or charge on the
Mortgaged Property, whether or not superior, equal or junior to the lien of
this Deed of Trust; (d) complete, or cause to be completed, within a
reasonable time and in a good and workmanlike manner, any Improvements now or
at any time hereafter in the process of erection, construction or
installation; (e) comply, and cause any lessees and sublessees of the
Mortgaged Property to comply, with all requirements of law, municipal
ordinances, restrictions of record or insurance covenants with respect to the
Mortgaged Property and its use; (f) permit no removal, demolition or material
alteration or modification of the Mortgaged Property aggregating more than
$50,000.00 (other than removal of items of the Mortgaged Property which have
become obsolete or are being replaced) without the prior written consent of
Beneficiary; (g) observe and comply with all conditions and requirements
necessary to preserve and extend any and all rights, licenses, permits
(including without limitation all uses), privileges, franchises and
concessions which are applicable to any part of the Mortgaged Property or
which have been granted to or contracted for by Grantor in connection with
any existing or contemplated use of any part of the Mortgaged Property;
(h) permit Beneficiary to enter upon and inspect the Mortgaged Property at
all reasonable times and from time to time following reasonable prior notice
to Grantor; and (i) promptly notify Beneficiary of the assertion of any
claim, or the filing of any action or proceeding affecting the Mortgaged
Property, of the occurrence of any damage to the Mortgaged Property, or of
any act or default under any contract, mortgage, lease, license or federal,
state or local law or regulation in connection with or affecting in any way,
the Mortgaged Property.
3. Warranties. Grantor covenants and warrants that:
(a) Grantor is lawfully seized of the Real Estate and Improvements in fee
simple or leasehold, as applicable, has valid and indefeasible title to the
Mortgaged Property and has a good and legal right to mortgage the Mortgaged
Property to Beneficiary; (b) all of the Mortgaged Property is and will remain
free from all liens and encumbrances excepting only the first priority lien
of ________________, and the lien of real estate taxes not yet due and
payable, those easements and encumbrances set forth on the Grantor's policy
of title insurance issued to Grantor on the date hereof, which exceptions are
set forth on Schedule 3(b) hereto, those liens and encumbrances which are in
favor of Beneficiary, and those other liens and encumbrances set forth on
Schedule 3b hereto, and Grantor will warrant generally with full English
covenants of title and defend against all parties, at Grantor's expense,
Grantor's right, title and interest in and to the Mortgaged Property (subject
to those matters to which this Deed of Trust is hereinabove expressly made
subject) against all claims made thereon; (c) the Real Estate is properly
zoned and its present development and uses comply in all respects with all
applicable zoning and other ordinances, laws and legal restrictions
regulating development and use of the Real Estate; (d) Grantor is and will
continue to be a corporation duly organized and validly existing under the
laws of the Commonwealth of Massachusetts; (e) Grantor has full right, power
and authority to own the Mortgaged Property and to execute and deliver the
Guaranty, to operate the Mortgaged Property, to borrow funds, and to
otherwise consummate the transactions contemplated by the Guaranty and this
Deed of Trust; (f) there is no action, litigation or proceeding pending or
threatened against or involving Grantor in any court or by any agency or
regulatory body which could result in a judgment or liability against Grantor
or which could adversely affect any material asset of Grantor, including
(without limitation) the Mortgaged Property, or the income of Grantor or the
right of Grantor to carry on its business as now conducted or intended to be
conducted; no condemnation, adverse zoning, environmental or usage change or
other adverse legal proceeding has been commenced or threatened with respect
to the Mortgaged Property or any part thereof; (g) Grantor is not in default
with respect to any order, writ, injunction, decree or command of any court
or regulatory body and is not in violation of any ordinance, law, regulation
of any governmental authority applicable to Grantor or its businesses or
properties; (h) neither the execution of, nor the consummation of the
transactions contemplated by the Guaranty nor the compliance with the terms
and provisions of the Guaranty will conflict with, result in a breach of or
constitute a default under any of the terms, conditions or provisions of any
agreement, lease, indenture, mortgage, deed of trust, land contract, license
or other instrument to which Grantor is a party or by which Grantor or any of
its assets are or may be bound or affected or to which Grantor is subject or
any law, regulation, order, writ, injunction or decree of any court or agency
or regulatory body having jurisdiction; (h) no authorization or approval of
any third party, including (without limitation) any governmental authority
(other than that which has already been obtained), is required for the
execution, delivery and performance of the Guaranty by Grantor; (i) there are
no governmental authorizations, permits, certificates, licenses, filings,
registrations, approvals or consents which must be obtained, received or made
or which have not been obtained, received or made for Grantor lawfully to
make, execute and deliver the Guaranty, perform all of its obligations
thereunder and/or own, use and operate the Mortgaged Property, except for
those listed on Schedule 3(i) hereto; (j) all utility service necessary for
the full, proper and sufficient operation of the Mortgaged Property has been
installed and/or connected and is presently in operation, including without
limitation water, sewer, electric, gas and telephone facilities; (k) the
Mortgaged Property constitutes a single tax parcel and no other property,
building or improvement relies upon the Mortgaged Property or any part
thereof or interest therein and the Mortgaged Property relies on no other
property, building or improvement to fulfill any legal requirement; (l) the
Mortgaged Property is in sound physical condition and good working order, and
to the best of Grantor's knowledge, no casualty thereto has occurred within
the previous one year period which has not been fully repaired or restored;
(m) the Mortgaged Property: (i) contains no facilities that are subject to
reporting under Section 312 of the Federal Emergency Planning and Community
Right-to-Know Act of 1986 (42 U.S.C. Sub-section 11022), (ii) is not the site
of any underground storage tanks, for which notification is required under 42
U.S.C. Sub-section 6991a, and (iii) is not listed on the Comprehensive
Environmental Response, Compensation and Liability Information System
("CERCLIS") in accordance with Section 116 of CERCLA (42 U.S.C. Sub-section
9616); (n) neither Grantor nor, to the best of Grantor's knowledge, any prior
owner of the Real Estate or any current or prior tenant, subtenant or other
occupant thereof has used, generated, manufactured, produced or stored
Hazardous Substances (as defined in paragraph 6(h)) on, from or about or
in any way affecting the Mortgaged Property, other than in the ordinary
course of business and in compliance with all Environmental Laws (as defined
in paragraph 6(h))or has released, discharged or disposed of Hazardous
Substances on, under or about the Mortgaged Property. To the best of
Grantor's knowledge, the Mortgaged Property does not contain and has not
in the past contained any asbestos containing material in friable form,
and there is no current or potential airborne contamination of the Mortgaged
Property by asbestos fiber, including any potential contamination that would
be caused by maintenance or tenant finish activities in the Improvements; and
(o) all statements, financial or otherwise, submitted to Beneficiary in
connection with the transactions contemplated by the Guaranty and this
Deed of Trust are true, correct and complete in all material respects, and
there has been no material adverse change in the finances, business,
operations, or affairs of Grantor or to the Mortgaged Property since the date
of such submissions.
4. Insurance.
(a) Grantor, at its sole cost and expense, shall
obtain and keep in full force and effect such policies of insurance in such
amounts, with such loss deductibles and covering such risks as Beneficiary
shall from time to time require in its sole discretion, including (without
limitation) the following:
(i) Insurance in the minimum aggregate amount
of $350,000.00 but no less than one hundred percent (100%) of the full
replacement costs of all Improvements and personal property against loss or
damage to any of the Mortgaged Property by fire and any of the risks covered
by insurance commonly known as "fire and extended coverage" and, if the
Mortgaged Property or any part thereof is located in a flood area, flood
insurance;
(ii) Comprehensive general public liability
insurance in the general aggregate amount of $5,000,000.00, including,
without limitation, against claims for personal injury, bodily injury, death
or property damage occurring on, in or about the Mortgaged Property and the
adjoining streets, sidewalks and passageways;
(iii) During the course of all construction or
repair, (A) workers' compensation insurance (including employer's liability
insurance) in the aggregate amount of $500,000.00 for all persons engaged on
or with respect to the Mortgaged Property in such amounts as are reasonably
satisfactory to Beneficiary or, if such limits are established by law, in
such amounts, and (B) builder's completed value risk insurance against "all
risks of physical loss" during construction, covering the total value of work
performed and equipment, supplies and materials furnished;
(iv) Business income interruption insurance
with loss payable to Beneficiary in such amounts and such terms as are
acceptable to Beneficiary in its sole discretion;
(v) Worker's compensation insurance in the
required statutory amount; and
(vi) Blanket crime and fidelity insurance
coverage insuring against losses from dishonest or fraudulent acts committed
by Grantor, it employees or agents.
(b) All insurance required to be obtained and
maintained by Grantor by the terms of this Deed of Trust (the "Required
Insurance") shall be provided by policies written in terms, amounts and by
companies fully licensed in the Commonwealth of Virginia, rated "A" or better
by A.M. Best Company and with a Size Class of VII which are acceptable to
Beneficiary. Beneficiary shall be named as an additional insured on all
liability policies; and losses under all other policies shall be payable to
Beneficiary pursuant to a standard mortgagee endorsement satisfactory to
Beneficiary. Grantor shall deliver to Beneficiary true and correct copies of
all policies of insurance (including, but not limited to, all policies of
Required Insurance) and renewals thereof acquired by Grantor to insure
against any loss or damage to the Mortgaged Property. The deductible for
such insurance shall not exceed Five Thousand Dollars ($5,000.00).
(c) Grantor hereby authorizes Beneficiary to obtain
and/or maintain in effect any and all policies of Required Insurance in the
event Grantor fails to do so, and Grantor agrees to reimburse Beneficiary as
provided in paragraph 7 hereof for any premiums or other costs associated
with obtaining Required Insurance which Beneficiary may pay.
(d) At least 30 days prior to the expiration of each
policy of Required Insurance, Grantor shall furnish Beneficiary with evidence
satisfactory to Beneficiary of the issuance of a renewal or replacement
policy continuing such insurance in force as required by this Deed of Trust.
All policies of Required Insurance shall contain a provision that such
policies may not be canceled or amended (including any reduction of the scope
or limits of coverage) without at least 30 days prior written notice to
Beneficiary and a provisions to the effect that the waiver of subrogation
rights by the insured does not void the coverage. Upon Beneficiary's
request, Grantor shall cause copies of all bills, statements or other
documents relating to the Required Insurance to be sent or mailed to
Beneficiary.
(e) In the event of a foreclosure sale of all or any
part of the Mortgaged Property pursuant to the enforcement of this Deed of
Trust, the purchaser of the Mortgaged Property shall succeed to all rights of
Grantor, including any rights to the proceeds of insurance and to unearned
premiums, in and to all of the policies of Required Insurance. In the event
of foreclosure sale, Beneficiary is hereby authorized, without the further
consent of Grantor, to assign any and all policies of Required Insurance to
the purchaser at the sale, or to take such other steps as Beneficiary may
deem advisable to cause the interest of such purchaser to be protected by any
of such policies.
(f) Grantor shall give Beneficiary immediate notice of
any loss or damage covered by any Required Insurance, including a brief
description of the nature and extent of any damage to the Mortgaged Property,
and, if such loss or damage is in excess of $500,000;
(i) Beneficiary shall have the right to
adjust such loss or damage and to execute and deliver on behalf of Grantor
all proofs of loss, receipts, vouchers and acquittance in connection
therewith, and Grantor agrees to execute all of the foregoing on demand of
Beneficiary.
(ii) Grantor appoints Beneficiary as
attorney-in-fact for Grantor, said power being coupled with an interest to
negotiate with, settle and otherwise handle all claims or other matters
arising under Grantor's insurance policies.
(iii) Any monies received as payment for any
loss under any of the Required Insurance shall be paid over to Beneficiary
and be applied, at the option of Beneficiary, after payment of all costs and
expenses incurred by Beneficiary in obtaining such insurance proceeds, to the
payment of any portion, as Beneficiary may select, of the Indebtedness or to
the reimbursement of Grantor for expenses incurred by Grantor in the
restoration, repair and/or replacement of the Mortgaged Property which has
been lost, damaged or destroyed. Each insuring company concerned is hereby
authorized and directed to make payment for any such loss directly to
Beneficiary rather than jointly to Beneficiary and any other party or parties.
(iv) If Beneficiary elects to apply the
proceeds (or any part thereof) of any Required Insurance to the reimbursement
of Grantor for expenses incurred by Grantor in the restoration, repair and/or
replacement of the Mortgaged Property, the proceeds shall be disbursed by
Beneficiary in such manner and subject to such conditions as Beneficiary
shall determine in its sole discretion. If upon completion of the repairs,
restoration and/or replacement of the Mortgaged Property there shall be
unexpended insurance proceeds held by Beneficiary, Beneficiary may, in its
sole discretion, apply the amount of any such remaining proceeds to the
payment of the Indebtedness.
(v) Notwithstanding any prior election by
Beneficiary, at any time Grantor is in default hereunder or under any other
Loan Document, Beneficiary may apply all or any part of such insurance
proceeds to the payment of the Indebtedness.
(vi) No application of insurance proceeds to
the payment of the Indebtedness shall have the effect of reducing or
otherwise affecting the obligation of Grantor to make any payments as and
when the same become due and payable in accordance with the terms of the
Guaranty. Any balance of such insurance proceeds remaining after payment in
full of the Indebtedness shall be paid by Beneficiary to Grantor. Application
of all or any portion of such insurance proceeds shall not cure or waive any
Default (defined in paragraph 11) or notice thereof.
In no event shall Grantor do or permit any action with respect
to the Mortgaged Property which will increase the risk of hazard to the
Mortgaged Property without first causing such increased risk to be fully
insured.
(g) Grantor hereby waives any and all right to claim
or recover against Beneficiary, its employees, agents, officers, and
directors, for loss of or damage to Grantor, the Mortgaged Property,
Grantor's property or the property of others under Grantor's control from any
cause insured against or required to be insured against by the provisions of
this paragraph 4.
(h) Grantor shall not carry any separate insurance
without the prior written consent of Beneficiary. All insurance shall
provide that Beneficiary is the second mortgagee, an additional insured and a
loss payee.
5. Taxes. Grantor will pay and discharge or cause to be paid
and discharged when due, and before any penalty attaches, all taxes of every
kind and nature (including real and personal property taxes), general and
special assessments, water rates and sewer rents, and all other governmental,
municipal and public dues, charges, fines and impositions whether of a like
or different nature, imposed upon or assessed against Grantor or the
Mortgaged Property or arising in respect of the occupancy, use or possession
thereof; provided, however, that Grantor shall not be required to pay and
discharge or cause to be paid and discharged any such tax, assessment,
charge, levy or claim so long as the validity or amount thereof shall be
contested in good faith and by appropriate proceedings by Grantor and Grantor
shall have set aside on its books adequate reserve therefor; and provided
further, that such deferment of payment is permissible only so long as
Grantor's title to, and its right to use, the Mortgaged Property is not
adversely affected thereby and Beneficiary's lien and priority on the
Mortgaged Property are not adversely affected, altered or impaired thereby.
Grantor will deliver to Beneficiary, not later than 30 days after date on
which any such taxes, assessments or other charges are due and payable,
duplicate receipts evidencing the payment of all such taxes, assessments and
other charges. If Grantor fails to pay any such taxes, assessments or other
charges, Beneficiary may (but shall not be obligated to) make such payment
and Grantor agrees to reimburse Beneficiary as provided in paragraph 7 hereof
for all monies so paid.
6. Affirmative and Negative Covenants of Grantor. Grantor
covenants and agrees that, unless Beneficiary shall otherwise consent in
writing, it will:
(a) Maintain a standard system of accounting in
accordance with general accepted accounting principles and furnish or cause
to be furnished to Beneficiary: (i) as soon as available and in any event on
or before the last day of the fourth month following the end of Grantor's
fiscal year, annual financial statements prepared in reasonable detail
satisfactory to Beneficiary, showing the financial condition of Grantor as at
the close of such fiscal year and for such year, all prepared in accordance
with general accepted accounting principles and certified to Beneficiary by
the manager or chief financial officer of Grantor. Such financial statement
shall include a balance sheet and a profit and loss statement; (ii) as soon
as available and in any event on or before the last day of the month
following the end of each fiscal quarter of Grantor after the date hereof,
quarterly operating statements with respect to the Mortgaged Property on a
fiscal quarter basis prepared in accordance with generally accepted
accounting principles and a quarterly patient census and payor mix at the
Mortgaged Property for such quarter, in each case certified to Beneficiary by
the manager or chief financial officer of Grantor; (iii) as soon as available
and in any event on or before the last day of the fourth month following the
end of each of Grantor's fiscal years, an annual operating statement with
respect to the Mortgaged Property audited by an independent certified public
accountant acceptable to Beneficiary and prepared in accordance with
generally acceptable accounting principles and, as soon as available and in
any event on or before the last day of the first month following the end of
Grantor's fiscal year, an annual patient census and payor mix at the
Mortgaged Property, in each case certified by the manager or chief financial
officer of Grantor; and (iv) such other reports and additional financial and
other information relating to the business, affairs and financial condition
of Grantor and with respect to the collateral for the Indebtedness as
Beneficiary reasonably may request in writing from time to time. All such
reports and financial information shall be in form acceptable to
Beneficiary. If Grantor fails to provide any of the foregoing statements and
reports as and when required by this subparagraph (a), Beneficiary shall have
the right to conduct an independent audit at Grantor's expense.
(b) At all reasonable times and as often as
Beneficiary may request, following reasonable written notice by Grantor,
permit authorized representatives of Beneficiary to: (i) have access to the
collateral and to the financial records of Grantor and other records relating
to the operations and procedures of Grantor; and (ii) discuss the affairs,
finances and accounts of Grantor with, and be advised as to the same by, the
managers of the Mortgaged Property and financial personnel of Grantor, all as
shall be relevant to the performance or observance of the terms, covenants
and conditions of this Deed of Trust or the financial condition of Grantor.
(c) Notify Beneficiary in writing, promptly upon
learning thereof, of any: (i) litigation commenced against Grantor which may
have a material adverse effect on the business, assets, operations, prospects
or financial or other condition of Grantor, Grantor's ability to pay the
Indebtedness in accordance with the terms of the Guaranty or the collateral;
and (ii) mechanic's lien or other lien filed or asserted against the Real
Estate or Improvements.
(d) Immediately inform Beneficiary by written notice
of the occurrence of any event or condition of any nature which may, upon the
giving of notice or a lapse of time or both, constitute or may lead to or
result in Default (an "Unmatured Default").
(e) Perform and promptly comply, and cause the
Mortgaged Property to be maintained, used and operated in accordance, in each
case in all material respects, with all: (i) present and future laws,
ordinances, rules, regulations, orders and requirements (including, without
limitation, zoning ordinances, building codes and Environmental Laws (as that
term is defined in the following subparagraph (h)), and the regulations
adopted pursuant thereto and any other similar applicable federal, state or
local laws, rules, regulations or ordinances) of every duly constituted
governmental or quasi-governmental authority or agency applicable thereto;
(ii) similarly applicable orders, rules and regulations of any regulatory,
licensing, accrediting, insurance underwriting or rating organization or
other body exercising similar functions, to the extent usually complied with
by companies owning similar properties in the same general area as the
Mortgaged Property; and (iii) similarly applicable duties or obligations of
any kind imposed under any certificate of occupancy or otherwise by law,
covenant or conditions running with the land, material agreement or easement,
public or private.
(f) Not, nor will it permit any person or entity to,
sell, transfer or otherwise dispose of any interest in Grantor without first
receiving the written consent of Beneficiary, which consent may be granted or
withheld in Beneficiary's sole discretion.
(g) Not enter into any contract or transaction of any
nature whatsoever with any Affiliate unless the contract or transaction is on
terms as favorable to Grantor as those that could be obtained from an
unaffiliated third party. The term "Affiliate" shall mean, with respect to
any person or entity, any partner, officer, shareholder or director of such
person or entity or any member of their immediate family and any person or
entity or group acting in concert in respect of the person or entity in
question that, directly or indirectly, controls or is controlled by or is
under common control with such person or entity. For the purposes of this
definition, the term "control" (including, with correlative meanings, the
terms "controlled by" and "under common control with"), as used with respect
to any person or entity or group of persons or entities, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of management or policies of such person or entity, whether through
the ownership of voting securities, by contract or otherwise.
(h) Not use, generate, manufacture, produce, store,
release, discharge, or dispose of on, under or about the Mortgaged Property
or transport to or from the Mortgaged Property any Hazardous Substances
(hereinafter defined) or allow any other person or entity to do so except in
minor amounts under conditions permitted by applicable laws including,
without limitation, all Environmental Laws. Grantor shall keep and maintain
the Mortgaged Property in compliance with, and shall not cause or permit the
Mortgaged Property to be in violation of any Environmental Laws. The term
"Environmental Laws" shall mean all federal, state and local laws and
implementing regulations, now or hereafter effective, relating to pollution
or protection of the environment, including laws or regulations relating to
or permitting emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including without limitation
ambient air, surface water, ground water, or land), or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, chemicals, industrial wastes, or
hazardous substances. Environmental Laws shall include, but not be limited
to: (a) the Comprehensive Environmental Response, Compensation and Liability
Act, as amended, 42 U.S.C. Sub-section 9601 et seq. ("CERCLA"); (b) the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Sub-section
6901 et seq., including the statutes regulating underground storage tanks,
42 U.S.C. Sub-section 6991-6991h; (c) the Clean Air Act, as mended, 42 U.S.C.
Sub-section 7401 et seq.; and (d) the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Sub-section 1251 et seq., including the statute regulating
the National Pollutant Discharge Elimination System ("NPDES"), 33 U.S.C.
Sub-section 1342. "Hazardous Substances" shall mean and include each and all
of the following:
(i) Those substances now or hereafter
included within the definitions of "hazardous substances," "hazardous
materials," "toxic substances," "pollutant", "contaminant" or "solid waste"
in CERCLA, the Resource Conservation and Recovery Act of 1976 (42 U.S.C.
Sub-section 6901 et seq.) ("RCRA"), and the Hazardous Materials Transportation
Act, 49 U.S.C. Sub-section 1801 et seq., and in the regulations promulgated
pursuant to said laws, all as amended from time-to-time.
(ii) Those substances now or hereafter listed
in the United States Department of Transportation Table (49 CFR 172.101 and
amendments thereto) or by the Environmental Protection Agency (or any
successor agency) as hazardous substances (40 CFR Part 302 and amendments
thereto).
(iii) Any material, waste or substance which is
(A) crude oil or any fraction thereof which is liquid at standard conditions
of temperature and pressure, (B) asbestos, (C) polychlorinated biphenyls,
(D) designated as a "hazardous substance" pursuant to Section 311 of the
Clean Water Act, 33 U.S.C. Sub-section 1251 et seq. (33 U.S.C. Sub-section
1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C.
Sub-section 1317); (E) flammable substances; (F) explosives; (G) radioactive
materials; or (H) listed or designated, now or hereafter, as a "hazardous"
or "toxic" air pollutant under the Clean Air Act (42 U.S.C. Sub-section 7401),
as amended.
(iv) Those substances defined as "hazardous
chemicals" by the Occupational Safety and Health Administration (29 C.F.R.
Sub-section 1910.1200 and amendments thereto).
(v) Such other substances, materials and
wastes which are or become regulated as pollutants, contaminants, hazardous
or toxic under applicable local, state or federal law, or by the United
States government, or which are classified as hazardous or toxic under
federal, state, or local laws or regulations.
Grantor shall defend, indemnify and hold harmless Beneficiary,
its employees, agents, attorneys, officers and directors, from and against
any claims, liabilities, damages, losses, fines, penalties, costs and
expenses (including, without limitation, attorneys' and paralegals' fees and
court costs) arising out of or in any way related to (i) any breach or
default by Grantor in the observance or performance of its covenants under
this subparagraph (h), (ii) any obligation or any liability of Beneficiary
under any Environmental Laws to clean-up any contamination of the soil or the
ground water on, under or about the Mortgaged Property or perform any
remediation of the Mortgaged Property, (iii) any claims by or liabilities to
any third parties arising out of or deriving from existing or future
presence, discharge or disposal of Hazardous Substances on the Mortgaged
Property, the release of any Hazardous Substances from the Mortgaged Property
or any violation of any Environmental Laws originating or occurring during
the period prior to the date on which Grantor ceases to possess and control
the Mortgaged Property. The provisions of this paragraph shall be in
addition to any and all other obligations and liabilities Grantor may have to
Beneficiary at law or in equity and shall survive the repayment of the
Guaranty, the release or foreclosure of this Deed of Trust or the transfer of
the Mortgaged Property to Beneficiary or its nominee or assignee in lieu of
foreclosure; provided, however, that in the event Beneficiary acquires title
to the Real Estate by foreclosure of this Deed of Trust or deed in lieu
thereof, the indemnity obligations of Grantor under this subparagraph (h)
shall cease and terminate five (5) years from the date Beneficiary so
acquires title to the Real Estate unless Beneficiary has advised Grantor by
notice of an event or circumstance that had occurred or was existing on the
date of the foreclosure or receipt of the deed in lieu thereof; which may
give rise to a claim by Beneficiary against Grantor for indemnification
hereunder, in which event the indemnity obligations under this
subparagraph (h) shall survive and continue in full force and effect as to
such event or circumstance and any claims, liabilities, damages, losses,
fines, penalties, costs and expenses arising therefrom or in any way related
thereto.
(i) Notify Beneficiary in writing, promptly upon
learning thereof, of any suspected violation of Environmental Laws or
threatened investigation or inquiry by any governmental authority in
connection with any Environmental Laws.
(j) Not enter into any consolidation or merger with
any person or entity without the prior written consent of Beneficiary.
7. Protection of Security by Beneficiary. Each and every
covenant in this Deed of Trust shall be performed and kept by Grantor solely
at Grantor's expense. At its option, but without any duty or obligation of
any sort to do so and without in any way waiving or relieving any Default by
Grantor under this Deed of Trust, and after giving Grantor five (5) business
days notice, Beneficiary may make any payment and perform any act required of
Grantor to be made or performed by this Deed of Trust, in the event Grantor
fails to make such payment when due or timely perform any such act, including
but not limited to: payment of insurance premiums, taxes, charges and
assessments; payment of prior encumbrances; and purchase, discharge,
compromise or settlement of any tax lien or other lien or title, prior or on
a parity with the lien of this Deed of Trust. As between Grantor and
Beneficiary, all such liens and taxes shall be deemed valid. All monies so
paid and all expenses incurred in connection therewith, including reasonable
attorneys' and paralegals' fees, and any other monies advanced and expenses
incurred by Beneficiary to protect the Mortgaged Property, and the security
intended to be given by this Deed of Trust, including all reasonable costs,
expenses and attorneys' and paralegals' fees, incurred by Beneficiary in
respect of any and all legal or equitable proceedings which relate to this
Deed of Trust or to the Mortgaged Property, shall constitute Indebtedness
secured by this Deed of Trust and shall be due and payable by Grantor five
(5) business days after notice and demand by Beneficiary with interest
thereon at the Default Interest Rate (as defined in the Guaranty).
8. Transfer or Encumbrance of Mortgaged Property. Grantor
shall not, without the prior written consent of Beneficiary, directly or
indirectly (whether voluntarily, involuntarily, by operation of law or
otherwise) sell (whether outright or by land contract, conditional sales
contract or any other such agreement), lease, alienate, convey, transfer or
in any way further encumber, mortgage, pledge, or assign the Mortgaged
Property or any of Grantor's rights, title or interests therein (whether
legal or equitable), nor shall any membership interest, stock or any
beneficial interest, voting rights, title or other interest in Grantor be
transferred, directly or indirectly (whether voluntarily, involuntarily, by
operation of law or otherwise), by any of the owners or holders thereof,
other than transfers to family members or living trusts made for estate
planning purposes, without the prior written consent of Beneficiary (each of
such actions or events being hereinafter called a "Transfer"), except for
sales and dispositions of items of the Mortgaged Property that are obsolete
and are being replaced. Beneficiary's consent thereto shall be at its sole
discretion and may be conditioned on an increase in the interest rate payable
under the Guaranty and the payment of fees and charges or otherwise.
9. Condemnation Proceeds. Grantor shall cause all awards of
damages and all other compensation payable directly or indirectly by reason
of a condemnation for public or private use affecting any interest in the
Mortgaged Property to be paid to Beneficiary. Beneficiary shall hold such
proceeds from condemnation and payments in lieu thereof and may, at its sole
and absolute discretion, apply such proceeds, after deducting Beneficiary's
reasonable costs and expenses, to the Indebtedness in whatever order and
amounts Beneficiary elects or make the same available for acquisition of
property in replacement of the portion of the Mortgaged Property which was
taken or for the repair or rebuilding of the portion of the Mortgaged
Property which suffered damage or loss, as the case may be, in such manner
and subject to such conditions as the Beneficiary shall determine in its sole
discretion. No such application of such proceeds to the payment of the
Indebtedness shall have the effect of reducing or otherwise affecting the
obligation of Grantor to make any payments as and when the same become due
and payable in accordance with the terms of the Guaranty. Any balance of
such proceeds remaining after payment in full of the Indebtedness shall be
paid by Beneficiary to Grantor. Application of all or any portion of such
proceeds shall not cure or waive any Default or notice thereof. Grantor
appoints Beneficiary as its attorney-in-fact, coupled with an interest to
negotiate, receive and execute releases and conveyances for condemnation
proceeds.
10. Security Agreement; Financing Statement.
(a) This Deed of Trust is intended to be a security
agreement pursuant to the Commonwealth of Virginia Uniform Commercial Code
("UCC") for (i) any and all items of personal property specified above as
part of the Mortgaged Property which, under applicable law, may be subject to
a security interest pursuant to the UCC and which are not herein effectively
made part of the real property, and (ii) any and all items of property
specified above as part of the Mortgaged Property which, under applicable
law, constitute fixtures and may be subject to a security interest under
Article 9 of the UCC (collectively, the "Collateral"); and Grantor hereby
grants Beneficiary a security interest in the Collateral and in all
accessions and additions thereto, substitutions therefor and proceeds
thereof, for the purpose of securing all Indebtedness now or hereafter
secured by this Deed of Trust. Grantor agrees to execute and deliver
financing and continuation statements and amendments and supplements thereto
covering the Collateral from time to time and in such form as Beneficiary may
require to perfect and continue the perfection of Beneficiary's lien or
security interest with respect to the Collateral. Beneficiary shall have full
authority to execute and file financing and continuation statements and
amendments and supplements thereto signed only by a representative of
Beneficiary to protect, preserve and perfect Beneficiary's security interest
in the Collateral. Grantor shall pay all costs of filing such statements and
renewals and releases thereof and shall pay all costs and expenses of any
record searches for financing statements Beneficiary may require. Upon the
occurrence of any Default hereunder, Beneficiary shall have the rights and
remedies of a secured party under the UCC, as well as all other rights and
remedies available at law or in equity, and, at Beneficiary's option,
Beneficiary may also invoke the remedies provided elsewhere in this Deed of
Trust as to the Collateral.
(b) This Deed of Trust constitutes a financing
statement filed as a fixture filing under the UCC in the real estate records
of the city in which the Mortgaged Property is located with respect to any
and all fixtures included within the term Mortgaged Property and with respect
to any goods or other personal property that may now be or hereafter become
such a fixture. PARTS OF THE MORTGAGED PROPERTY ARE, OR ARE TO BECOME,
FIXTURES ON THE REAL ESTATE. For purposes thereof, the following information
is set forth:
Name and address of debtor:
PHC of Virginia, Inc.
405 Kimball Avenue
Salem, Virginia 24153
Name and address of secured party:
HCFP Funding II, Inc.
2 Wisconsin Circle, Fourth Floor
Chevy Chase, Maryland 20815
11. Default and Acceleration. It is expressly agreed by
Grantor that time is of the essence of this Deed of Trust. Upon the
occurrence of any Default and at any time thereafter, then, in any and every
such case, the entire Indebtedness shall, at the option of Beneficiary,
become immediately due and payable without any notice, presentment, demand,
protest, notice of protest, or other notice of dishonor or demand of any
kind, all of which are hereby expressly waived by Grantor, and Beneficiary
shall have the right immediately to foreclose the lien created by this Deed
of Trust against the Mortgaged Property, to enforce every other security
interest created by this Deed of Trust and to institute any action, suit or
other proceeding which Beneficiary may deem necessary or proper for the
protection of its interests; provided that if an event described in
paragraph 11(j) or (k) below shall occur, all Indebtedness shall become
immediately due and payable without any need for a declaration of Default.
This, which Beneficiary or Trustee may incur (i) in enforcing, defending,
construing or administering this Deed of Trust (or defending its priority) or
the Guaranty, (ii) for any inspection, evaluation (including environmental
valuation), appraisal, survey or other service in connection with the
Mortgaged Property, (iii) for any title examination or title insurance policy
relating to the title to any of the Mortgaged Property, (iv) in connection
with any environmental clean-up or decontamination or any other expenses,
costs, fines, penalties or other liabilities incurred by Beneficiary with
respect to the Mortgaged Property under or pursuant to any Environmental Laws
or in an attempt to comply therewith, or (v) in the exercise by Beneficiary of
any rights or remedies granted by this Deed of Trust, shall be paid by Grantor
upon demand by Beneficiary, together with interest thereon from the date of
expenditure until payment in full, at the Default Interest Rate and shall
constitute a part of the Indebtedness secured by this Deed of Trust.
12. Remedies. After a Default and the expiration of any
applicable grace and/or cure period, Beneficiary may, at its option, exercise
any or all of its rights and remedies at law or in equity, including the
following applicable rights and remedies:
(a) Acceleration. Declare the entire unpaid portion
of the Indebtedness to be immediately due and payable, without notice or
demand (each of which hereby is expressly waived by Grantor), whereupon the
same shall become immediately due and payable in full, and the liens and
security interests granted hereby shall be subject to foreclosure as provided
for herein and by law.
(b) Entry on Mortgaged Property. Enter upon the
Mortgaged Property and take possession thereof, including all books, records
and accounts relating thereto.
(c) Operation of Mortgaged Property. Enter and take
possession of the Mortgaged Property and exclude Grantor its agents and
servants wholly therefrom. In such event, Beneficiary and/or its agents may
use, operate, manage and control the Mortgaged Property or any part thereof,
and upon such entry by Beneficiary and/or its agents, for the benefit of the
Mortgaged Property, from time to time may make all necessary or appropriate
repairs, renewals, replacements and useful or required alterations,
additions, betterments, and improvements to and upon the Mortgaged Property
and pay all reasonable costs and expenses of so taking, holding and managing
the same, including reasonable compensation to its agents, servants,
attorneys and counsel, and payment of any Impositions which Beneficiary may
elect to pay. All such amounts shall constitute additional Indebtedness due
under the Guaranty and shall accrue interest at the Default Interest Rate
from the date such cost is incurred until irrevocably and unconditionally
paid in full and shall be secured hereby. In such case Beneficiary or its
agents shall have the right to manage the Mortgaged Property and to carry on
the business and exercise all rights and powers of Grantor, either in the
name of Grantor, or otherwise, as Beneficiary and/or its agents shall deem
advisable. Upon request by Beneficiary, Grantor shall enter into a
management or similar agreement with Beneficiary, in form and substance
acceptable to Beneficiary in its sole discretion, whereby Grantor agrees to
operate the Mortgaged Property for and at the direction of Beneficiary until
such time as Beneficiary is able to obtain in its name, or the name of a
designee of Beneficiary, all permits, certificates and licenses (including
liquor licenses) necessary or desirable to operate the Mortgaged Property and
that Grantor shall receive no compensation whatsoever for the foregoing. In
connection with any action taken by Beneficiary or its agents pursuant to
this Paragraph, Beneficiary shall not be liable for any loss sustained by
Grantor, or any other Person resulting from any failure to let the Mortgaged
Property, or any part thereof, or from any other act or omission of
Beneficiary or its agents in managing the Mortgaged Property unless such loss
is caused by the willful misconduct and bad faith of Beneficiary or its
agents, nor shall Beneficiary or its agents be obligated to perform or
discharge any obligation, duty or liability under any Leases or occupancy
agreements, contracts or other matters covering or relating to the Mortgaged
Property or any part thereof by reason of this instrument or the exercise of
rights or remedies hereunder. Grantor shall, and does hereby agree to,
indemnify Beneficiary for, and hold Beneficiary harmless from and against,
any and all liabilities, loss or damage which may or might be incurred by
Beneficiary under any such Leases and occupancy agreements, contracts or
under this Deed of Trust or the exercise of rights or remedies hereunder and
other matters relating thereto, and from any and all claims and demands
whatsoever which may be asserted against Beneficiary by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants or agreements contained in any such Leases and occupancy
agreements, contracts or other matters relating to the Mortgaged Property.
Should Beneficiary incur any such liability, the amount thereof, including
reasonable costs and all reasonable fees and expenses, shall be secured
hereby and shall be a demand obligation hereunder and immediately due and
payable, together with interest at the Default Interest Rate until paid in
full. Nothing in this subparagraph (c) shall impose any duty, obligation or
responsibility upon Beneficiary for the control, care, management or repair
of the Mortgaged Property, or for the carrying out of any of the terms and
conditions of any such contracts or Leases and occupancy agreements, or other
matters relating to the Mortgaged Property; nor shall it operate to make
Beneficiary responsible or liable for any waste committed on the Mortgaged
Property by any tenants or occupants or by any other parties or for any
dangerous or defective condition of the Mortgaged Property, or for any
negligence in the management, upkeep, repair or control of the Mortgaged
Property resulting in loss or injury or death to any tenant or occupant,
licensee, employee or stranger. Grantor hereby assents to, ratifies and
confirms any and all actions of Beneficiary with respect to the Mortgaged
Property taken under this subparagraph (c).
(d) Appointment of Receiver. After a Default and the
expiration of any applicable grace or cure period, with or without actual or
threatened waste to the Mortgaged Property, Beneficiary shall be entitled,
upon application to a court of competent jurisdiction, without notice to
Grantor (any and all such notice being waived hereby) and without regard to
the adequacy of any security for the Indebtedness or the solvency of Grantor
or any other party liable for payment of all or any part of the Indebtedness,
to the appointment of a receiver(s) to take possession of and to operate the
Mortgaged Property, and at Beneficiary's option, to collect the rents and
profits, and Grantor hereby irrevocably and unconditionally consents thereto.
Such receiver(s) shall have the following powers and authorities in addition
to all other powers and authorities permitted by applicable law:
(i) to take possession of the Mortgaged
Property (or any portion thereof, and at Beneficiary's option, to collect the
rents and profits, including accrued and past due rents and profits, and to
lease the Mortgaged Property in such parcels, portions, and/or units and for
such time and on such terms as said receiver(s) may see fit, and, with
Beneficiary's consent or at Beneficiary's direction, to cancel any Lease or
occupancy agreement or other contract or agreement of whatever nature
affecting the Mortgaged Property (or any portion thereof) for any cause or on
any ground which would entitle Grantor to cancel the same. The receiver
shall apply any rents and profits collected hereunder as directed by
Beneficiary. Beneficiary may, in its sole discretion, without obligation,
permit all or any portion of the rents and profits to be utilized to pay the
costs and expenses of operating the Mortgaged Property and any costs and
expenses of the receiver. If Beneficiary permits the use of the rents and
profits for any purpose other than the retirement of Indebtedness, such
permission will not constitute an undertaking on Beneficiary's part to permit
the application of rents and profits for similar purposes in the future nor
shall it constitute the assumption by Beneficiary of any liabilities or
obligations of Grantor. Further, unless Beneficiary, in its sole and
complete discretion, elects otherwise, nothing contained herein shall be
construed as constituting Beneficiary a mortgagee-in-possession. At
Beneficiary's option, in its sole and absolute discretion, possession of the
Mortgaged Property by a court-appointed receiver will not be considered
possession of the Mortgaged Property by Beneficiary;
(ii) to make and enter into agreement(s) with
one or more real estate sales, rental, management, construction and/or
consulting firm(s) (at such compensations as the receiver(s) deem to be the
prevailing rate for such services), to permit such firm(s) to act as agent
for the receiver(s) in: (A) the negotiation of Leases and occupancy
agreements for the Mortgaged Property (or portions thereof), or individual
suites or units therein and advertising therefor; (B) the detailed management
and operation of the Mortgaged Property (or any portion thereof); (C) at
Beneficiary's option, the collection of the rents and profits from the
Mortgaged Property (or any portion thereof); (D) the supervision of the
maintenance and restoration of the Mortgaged Property (or any portion
thereof); and (E) the disbursement of funds coming into the hands of the
receiver(s);
(iii) insofar as the rents and profits
emanating from the Mortgaged Property (or any portion thereof) permit, or any
loan herein provided for allows, at Beneficiary's option, to: (A) restore
the Improvements to a good and rentable condition; (B) make the Mortgaged
Property fit for sale, tenancy and occupancy; (C) bring the Mortgaged
Property into compliance with all applicable legal requirements; and (D)
bring the Mortgaged Property into full occupancy by steps which may include
entering into construction, architects' and maintenance contracts, obtaining
required government permits, advertising the Mortgaged Property (or any
portion thereof) for occupancy and rent and all other actions which the
receiver(s) deem necessary or desirable to avoid losses occasioned by waste
of the Mortgaged Property (or any portion thereof), or failure to restore and
maintain the Mortgaged Property in good and rentable condition at full
occupancy;
(iv) to obtain from Grantor or the agents,
servants, employees and officers of Grantor, and all other parties in
interest, all Leases and occupancy agreements, contracts, permits, plans,
franchises, insurance policies, maintenance contracts, employment records and
all other documents, books and records necessary for, or incidental to,
holding, operating and maintaining the Mortgaged Property (or any portion
thereof);
(v) to obtain a court order that directs and
orders Grantor and any and all Mortgaged Property obligors (such as tenants
and occupants, contractors, architects, suppliers, materialmen, servicers and
managers of the Mortgaged Property) to honor the status of the receiver(s),
as such, at Beneficiary's option, to remit to the receiver(s) any security
deposits relating to the Mortgaged Property (or any portion thereof) and all
of the rents and profits collected on or after the date the receiver(s) are
appointed to take control of the Mortgaged Property (or any portion thereof),
immediately upon notice of the appointment of said receiver(s), and to
recognize, upon request, the receiver(s) as the appropriate successors in
interest to Grantor; and
(vi) to enter into loan agreement(s) with
Beneficiary, at its option, to borrow such funds in excess of the rents and
profits to which such receiver(s) are permitted hereunder in order to fulfill
the duties imposed upon them as receiver(s), including the funds necessary to
properly maintain and restore the Mortgaged Property (or any portion thereof
to a good and rentable condition, to bring the Mortgaged Property to full
occupancy and to bring the Mortgaged Property into compliance with applicable
legal requirements. Any such funds borrowed from Beneficiary shall, upon
advance, be secured by this Deed of Trust, and the lien of this Deed of Trust
shall secure such advances automatically and without further act or deed;
provided, however, that the existence of said lien shall in no way waive,
diminish or prejudice any other rights or remedies Beneficiary may have under
the applicable laws in the collection of such funds as a loan(s) to the
receiver(s).
Grantor will pay to Beneficiary, upon demand, all reasonable expenses,
including reasonable receiver's fees, legal fees and expenses, accountant's
fees, costs and agents' compensation, advanced by Beneficiary and incurred
pursuant to the provisions contained in this subparagraph (d)., and all such
unpaid expenses shall, at Beneficiary's option, be: (A) a lien against the
Mortgaged Property in favor of Beneficiary only (no third parties are intended
beneficiaries thereof); (B) deemed to be advances hereunder, and at
Beneficiary's option, added to the principal amount evidenced by the Guaranty
and secured by this Deed of Trust; and/or (C) payable on demand, with interest
accruing at the Default Interest Rate from and including the date each such
advance is made until unconditionally and irrevocably paid in full.
(e) Foreclosure and Sale.
(i) Notice of Sale, Advertisement Required.
Beneficiary may direct that Trustee take possession of the Mortgaged Property
and proceed to foreclose and sell the Mortgaged Property, as a whole or in
parcels, and all the right, title and interest of Grantor and its legal
representatives, successors and assigns therein, by one or more sales at
public auction, for cash or credit, upon such terms as Trustee shall deem
appropriate and in accordance with applicable law, after such notice and/or
advertisement as is required by applicable law, or in the absence of any
advertisement prescribed by law, such public advertisement as the Trustee
deems advisable. Beneficiary may become the purchaser of the Mortgaged
Property so sold and no purchaser shall be required to see to the proper
application of the purchase money.
(ii) Expenses of Sale. All reasonable costs
and expenses incurred by Beneficiary in connection with any foreclosure of
the lien of this Deed of Trust (whether by judicial action or pursuant to the
power of sale set forth herein), including reasonable attorney fees and
expenses, title charges, recording costs, appraisal fees and advertisement
costs, shall be and constitute additional Indebtedness secured by this Deed
of Trust, shall be due and payable to Beneficiary upon demand and shall
accrue interest at the Default Interest Rate from the time incurred until
unconditionally and irrevocably paid in full. In any suit to foreclose the
lien hereof, the foregoing costs and expenses shall be specifically allowed
and included as additional Indebtedness in any decree of sale.
(iii) Application of Proceeds of Sale. The
proceeds of any sale held by the Trustee, any public officer or receiver
shall be applied: (A) first, to the payment of the costs and expenses
incident to such sale and foreclosure, including legal fees and expenses,
other professional fees and costs, and a commission to Trustee of two percent
(2%) of such proceeds; (B) second, to the payment of all taxes, charges and
assessments due on the Mortgaged Property that have priority over this Deed
of Trust and are unpaid at the time of such sale; (C) third, to the payment
of all sums paid out or expended by Trustee or by Beneficiary under the
covenants and agreements contained in this Deed of Trust; (D) fourth, to the
payment of all additional Indebtedness under the Guaranty (whether principal,
interest, prepayment premium, legal fees and expenses or other charges) not
previously provided for, in such manner and order as Beneficiary shall
determine in its sole and absolute discretion; and (E) finally, to such
persons or entity (entities) as their lawful interests may appear of record
or as required by applicable law or court order.
(iv) Extension, Forbearance or Release.
Beneficiary and Trustee (with the permission of Beneficiary) may grant any
extension, forbearance or other indulgence, may release any part of the
Mortgaged Property from the lien hereof and may release any person or entity
from liability without affecting the personal liability of any person or
entity or the Mortgaged Property for payment of the Indebtedness or the lien
hereof. Neither any delay in exercising any rights and remedies provided for
herein, nor any granting of any extension, forbearance or other indulgence
shall constitute, or be deemed to constitute, a waiver by Beneficiary of any
Default or of any of Beneficiary's rights and remedies hereunder, under the
Guaranty, at law or in equity.
(v) Commissions. Trustee shall be entitled
to retain as compensation a commission of two percent (2%) of the proceeds of
sale on foreclosure.
(vi) Commissions Upon Advertisement.
Immediately upon the first insertion of an advertisement of any sale of the
Mortgaged Property, or any part thereof, under this Deed of Trust, there
shall be and become due and owing by Grantor, in addition to all other
amounts owing hereunder and under the Guaranty a commission of one percent
(1%) of the total amount of the Indebtedness then-outstanding.
(vii) Separate Sales. Any real estate or any
interest or estate therein sold pursuant to this Deed of Trust, pursuant to
any writ of execution issued on a judgment obtained by virtue of this Deed of
Trust or the Guaranty or pursuant to any other judicial proceedings under
this Deed of Trust or the Guaranty, may be sold in one parcel, as an
entirety, or in such parcels, and in such manner or order as Beneficiary, in
its sole discretion, may direct. Any foreclosure and sale pursuant to this
Deed of Trust of a portion or portions of the Mortgaged Property shall not
affect the continuance of the liens and security interests of this Deed of
Trust or the Guaranty, all of which shall remain in full force and effect,
unmodified, as to the portions of the Mortgaged Property not sold, to secure
the full, unconditional and irrevocable payment and performance of any
remaining Indebtedness and obligations, whether such remaining Indebtedness
and obligations are due before or after such foreclosure.
(viii) Information in Deeds/Affidavits
Conclusive. In the event of a sale of Grantor's interest in the Mortgaged
Property, or any part thereof, and the execution of a deed or deeds and/or
requisite affidavits therefor under this Deed of Trust and applicable law,
the recitals and statements therein of any matters or facts shall be
conclusive proof of the truthfulness thereof and of the fact that such sale
was regularly and validly made in accordance with all requirements of the
Commonwealth of Virginia and of this Deed of Trust; and any such deed or
deeds and/or affidavits, with such recitals and statements therein, shall be
effective and conclusive against Grantor and all other Persons; and the
receipt for the purchase money recited or contained in any deed executed to
the purchaser shall be sufficient to discharge such purchaser from all
obligations to see to the proper application of the purchase money according
to such trusts.
(ix) Application of Insurance Proceeds. In
case of an insured loss after foreclosure proceedings have been instituted,
the proceeds of any Insurance Policy, shall be used to pay the amount due in
accordance with the terms of the Guaranty and, if applicable, any decree of
foreclosure that may be entered in any proceedings, and the balance, if any,
shall be paid as provided in this paragraph 14, or if applicable, as the
court may direct. In the event of foreclosure sale, Beneficiary is hereby
authorized, without the consent of Grantor, to assign any and all insurance
policies to the purchaser at the sale, provided such insurance policies are
assignable, or to take such other steps as Beneficiary may deem advisable to
cause the interest of such purchaser to be protected by any of the Insurance
Polices without credit or allowance to Grantor for prepaid premiums thereon.
(f) Other. Exercise any other remedy specifically
granted under the Guaranty or now or hereafter existing in equity, at law, by
virtue of statute or otherwise including an action in equity for specific
performance of any term, provision or condition of the Guaranty or to recover
judgment on the Guaranty. Further, subject to court approval, Beneficiary
shall be entitled to relief from any automatic stay imposed under Section 362
of the Bankruptcy Code or otherwise on or against Beneficiary's exercise of
its rights and remedies hereunder, at law and in equity.
(g) Remedies Cumulative and Concurrent; No Waiver.
The rights and remedies of Beneficiary as provided in this paragraph 14 and
in the Guaranty, at law or in equity, shall be cumulative and concurrent and
may be pursued separately, successively or together against Grantor or
against other obligors or guarantors or against the Mortgaged Property, or
any one or more of them, at the sole discretion of Beneficiary, and may be
exercised as often as occasion therefor shall arise, as determined by
Beneficiary in its sole discretion. The exercise of any one right or remedy
shall not be a waiver of the right to exercise at the same time or thereafter
any other right or remedy, and no delay in exercising or failing to exercise
any rights or remedies of Beneficiary or Trustee hereunder, at law or in
equity, following any Default, or any event which, with the giving of notice
or the passage of time or both would constitute a Default, in any one or more
instances, or acceptance by Beneficiary of partial payments or partial
performance, shall constitute, or be deemed to constitute, a waiver of any
such Default, a waiver of the right to exercise any such rights or remedies
at any time thereafter or upon the occurrence of any subsequent Default, or a
release, satisfaction or discharge of the terms hereof, all such rights,
remedies, terms and documents remaining continuously in force. Any waiver,
release or discharge by Beneficiary of any term hereof or of any Default, or
any event which, with the giving of notice or the passage of time or both
would constitute a Default, or any waiver of rights or remedies hereunder, at
law or in equity (no obligation or agreement to waive, release or discharge
any of the foregoing being implied hereby), may be effected only through a
written document executed by Beneficiary and then only to the extent of any
waiver, release, discharge or satisfaction specifically set forth therein. A
waiver or release in connection with any one event or any particular right or
remedy shall not be construed as a waiver or release of any subsequent event
or as a bar to any subsequent exercise of Beneficiary's rights or remedies
hereunder, or under the Guaranty, at law or in equity. Except as
specifically provided herein, neither Beneficiary nor Trustee, is required to
give notice of the exercise of its rights or remedies hereunder, or under the
Guaranty, at law or in equity.
(h) Strict Performance. Any delay in insisting, or
failure by Beneficiary to insist, upon strict performance by Grantor of any
of the terms and provisions of the Guaranty shall not be deemed to be a
waiver of any of the terms or provisions of this Deed of Trust or such other
documents, and Beneficiary shall have the right to insist upon strict
performance by Grantor of any and all of them. Delay in or failure of
Beneficiary to exercise the option for acceleration of maturity or
foreclosure following any Default as aforesaid or to exercise any other
rights or options granted to Beneficiary hereunder or thereunder in any one
or more instances, or the acceptance by Beneficiary of partial payments or
partial performance, shall not constitute a waiver of any such Default, but
all such rights and options shall remain continuously in force. Acceleration
of maturity, once claimed hereunder by Beneficiary, may at the option of
Beneficiary, be rescinded by written acknowledgment to that effect by
Beneficiary only, but the tender and acceptance of partial payments alone,
and the collection of rents and profits pursuant to the terms of the
Assignment of Leases and Rents, shall not in any way affect or rescind such
acceleration of maturity and shall not constitute a waiver of Grantor's
obligation to pay irrevocably and unconditionally the Indebtedness in full
and to fully and timely perform and discharge each and all of the obligations
under the Guaranty.
(i) No Conditions Precedent to Exercise of Remedies.
Neither Grantor nor any other person or entity now or hereafter obligated for
payment for all or any part of the Indebtedness shall be relieved of such
obligation by reason of the failure of Beneficiary to comply with any request
of Grantor or of any other person or entity so obligated to take action to
foreclose on this Deed of Trust or otherwise enforce any provisions of the
Guaranty, or by reason of any agreement or stipulation between any subsequent
owner of the Mortgaged Property and Beneficiary extending the time of payment
or modifying the terms of the Guaranty, without first having obtained the
consent of Grantor or such other person or entity.
(j) Release of Security. Beneficiary may release,
regardless of consideration, any part of the Mortgaged Property held for the
Indebtedness or obligations without, as to the remainder of the security, in
any way impairing or affecting the liens of the Guaranty, or any rights and
benefits contained in any such documents or their priority over any
subordinate lien.
(k) Other Security. For payment of the Indebtedness
and performance of the obligations, Beneficiary shall have recourse to any
other security therefor held by Beneficiary in such order and manner as
Beneficiary may elect.
(l) Waiver of Notice, Marshaling, Other Rights, Etc.
Grantor hereby waives and releases: (i) all benefit that might accrue to
Grantor by virtue of any present or future law exempting the Mortgaged
Property, or any part of the proceeds arising from any sale thereof, from
attachment, levy or sale on execution, or providing for any appraisement,
valuation, stay of execution, exemption from civil process, homestead
exemption, moratorium, notice of election or intention to accelerate the
Indebtedness or extension of time for payment, including the stay or
injunctive relief provided or permitted by Sections 105 and 362(a) of the
Bankruptcy Code; (ii) unless specifically required herein or in the Guaranty,
all notices of Grantor's Default or of Beneficiary's election to exercise, or
Beneficiary's actual exercise, of any option or remedy under the Guaranty;
(iii) any right to have the Mortgaged Property or any portion thereof
securing the Indebtedness marshaled; and (iv) rights of redemption (including
rights of redemption provided in the Code) and reinstatement on its own
behalf, on behalf of all persons or entities claiming or having an interest
(direct or indirect) by, through or under Grantor and on behalf of each and
every person or entity acquiring any interest in or title to the Mortgaged
Property subsequent to the date hereof, it being the intent hereof that any
and all such rights of reinstatement and redemption of Grantor and such other
persons or entities, are and shall be deemed to be hereby waived to the full
extent permitted by applicable law. Grantor hereby expressly waives all
benefits or advantages of any statute, law, or regulation permitting Grantor
to hinder, delay or impede the execution of any power granted or delegated to
Beneficiary in this Deed of Trust or the Guaranty, but agrees to permit the
execution of every such power as though such statute, law, or regulation had
not been made or enacted. To the full extent permitted by law, Grantor
hereby agrees that no action for the enforcement of the lien or any provision
hereof shall be subject to any defense which would not be good and valid in
an action at law upon the Guaranty.
(m) Discontinuance of Proceedings. In case
Beneficiary shall have proceeded to enforce any right under the Guaranty and
such proceedings shall have been discontinued or abandoned for any reason,
then in every such case Grantor and Beneficiary shall be restored to their
former positions and the rights, remedies and powers of Beneficiary shall
continue as if no such proceedings had been taken.
(n) Payment of Indebtedness After Default. Upon any
Default by Grantor and following the acceleration of maturity as herein
provided, a tender of payment of the amount necessary to satisfy the entire
Indebtedness, made at any time prior to foreclosure said (including sale
under power of sale) by Grantor, its successors or assigns or by anyone on
behalf of Grantor, shall constitute an evasion of the prepayment terms of the
Guaranty and be deemed to be a voluntary prepayment thereunder, and any such
payment shall therefore include the premium, if any, required under the
prepayment privilege contained in the Guaranty.
(o) Grantor's Assent and General Waiver. Upon the
occurrence of any Default and the expiration of all applicable grace and cure
periods, Grantor agrees that Trustee shall have the power to sell and, in the
event of default by any purchaser at the foreclosure sale, to resell the
Mortgaged Property. Grantor hereby waives and releases any requirement or
obligation that Beneficiary or Trustee present evidence or otherwise proceed
before any court or clerk of any other judicial or quasi-judicial body as a
condition or otherwise incident to the exercise of the powers of sale
contained in this Deed of Trust. If Beneficiary or Trustee elects to proceed
before any court or clerk of any other judicial or quasi-judicial body with
respect to any foreclosure sale, Grantor hereby unconditionally and
irrevocably consents to the entry of a decree of sale.
13. No Exclusive Remedy. Each and every right, power and remedy
herein conferred upon or reserved to Beneficiary is cumulative and is not
intended to be exclusive of any other remedy or remedies, and shall be in
addition to every other right, power and remedy given hereunder or now or
hereafter existing at law or in equity or by statute. No delay or omission
of Beneficiary in the exercise of any right, power or remedy or any other
right, power or remedy then or thereafter existing, shall constitute or shall
be construed to be a waiver of any Default or any acquiescence therein; and
every right, power and remedy given by this Deed of Trust to Beneficiary may
be exercised from time to time as often as and in such order as may be deemed
expedient by Beneficiary.
14. Assignment of Leases and Rents.
(a) To secure payment and performance by Grantor of
the Indebtedness, Grantor hereby grants, transfers and assigns to Beneficiary
all of Grantor's rights, title and interests in, to and under all leases and
tenancies now existing or hereafter entered into by and between Grantor and
each and any lessee or tenant of the Mortgaged Property or any part thereof
as said Leases may have been, or may from time to time be hereafter modified,
extended or renewed (the "Leases"), and all rents, including (without
limitation) all rentals reserved in any of the Leases now or hereafter due
and any amendments, modifications, extensions and renewals thereof
("Rents"). Grantor will, on request of Beneficiary, execute further
assignments of its rights, interests and privileges and any future leases
affecting any part of the Premises.
After a Default and the expiration of all applicable grace
and cure periods, Grantor shall have the right to collect and receive, upon
but not prior to accrual, all Rents under and from the Leases and with
respect to the Mortgaged Property. Upon or at any time after the occurrence
of a Default, Beneficiary at its option and without notice or demand, may
enter upon, take possession of and operate the Mortgaged Property, as lessor,
enforce, modify, and accept the surrender of any or all of the Leases, obtain
and evict any of the lessees or sublessees under any of the Leases, fix or
modify rentals under the Leases, and do any acts which Beneficiary deems
proper to protect the security hereof, and, in its own name, sue for or
otherwise collect and receive all Rents and security and other tenant
deposits due to Grantor under or pursuant to the Leases, including those past
due and unpaid. Such rights may be exercised by Beneficiary without regard
to other security, if any, for payment of the Indebtedness and without
releasing Grantor from any obligation. Grantor hereby irrevocably appoints
and constitutes Beneficiary as its true and lawful attorney-in-fact with full
power of substitution for and on behalf of Grantor to request, demand,
enforce payment of, collect and receive the rentals payable under the Leases,
to change, modify, release, waive, terminate, alter, or amend the Leases or
any of the terms or provisions thereof, including the rentals thereunder, to
endorse any checks, drafts or orders evidencing payment of rentals under the
Leases, and to do and perform any acts which Grantor might do for and on
Grantor's own behalf.
All Rents collected by Beneficiary or a receiver pursuant
to this paragraph 16 shall be applied in such amounts and in such order as
Beneficiary shall determine in its sole discretion to the payment of the
outstanding Indebtedness secured hereby or, at the option of Beneficiary and
without obligation to do so, against the reasonable costs of taking control
of, and managing and operating, the Mortgaged Property and collecting the
Rents, including, but not limited to, reasonable attorneys' and paralegals'
fees, receiver's fees, premiums on receiver's bonds, costs of repairs to the
Mortgaged Property, premiums on insurance policies, taxes, assessments and
other charges on the Mortgaged Property, and the costs of discharging any
obligation or liability of Grantor as lessor or landlord of the Mortgaged
Property ("Operating Expenses"). Any and all Rents applied against Operating
Expenses shall not reduce or be deemed to reduce the amount of outstanding
Indebtedness secured hereby. Beneficiary shall have access to the books and
records used in the operation and maintenance of the Mortgaged Property and
shall be liable to account only for those Rents actually received.
Beneficiary shall not be liable to anyone claiming under or through Grantor
or anyone having an interest in the Mortgaged Property by reason of anything
done or left undone by Beneficiary under the assignment made by this
paragraph 16.
If the Rents are not sufficient to meet the Operating
Expenses, any funds expended by Beneficiary for such purposes shall become
Indebtedness of Grantor to Beneficiary secured by this Deed of Trust, and
such amounts shall be payable upon notice from Beneficiary to Grantor
requesting payment thereof and shall bear interest from the date of
disbursement until repaid at the Default Interest Rate.
The entering upon and taking and maintaining of control of
the Mortgaged Property by Beneficiary or a receiver and the application of
Rents as provided herein shall not cure or waive any Default.
(b) Grantor hereby covenants and warrants to
Beneficiary that (i) Grantor is and will remain the lawful owner of the
Leases and has not made any prior assignment of Grantor's right, title and
interest in, to and under any of the Leases or the Rents; (ii) Grantor has
not and will not accept any advance rental payments under the Leases other
than one month's advance and security deposits; (iii) Grantor has not granted
and will not grant any oral modification or amendment of any of the existing
Leases; and (iv) Grantor has not done and will not do anything which impairs
the validity or security of this assignment.
(c) The assignment made by this paragraph 16 shall not
operate to release or relieve Grantor, as lessor under the Leases, from the
full performance of all of Grantor's obligations and covenants under the
Leases. Grantor shall: faithfully abide by, perform and discharge each and
every material obligation, covenant and agreement to be performed by Grantor
under the Leases; give prompt notice to Beneficiary of any notice of claim of
default on the part of Grantor given or made by any tenant under any of the
Leases; and, at the sole cost and expense of Grantor, use all reasonable
efforts to enforce or secure the performance of each and every material
obligation, covenant, condition and agreement to be performed by the tenants
under the Leases. Without the prior written consent of Beneficiary, Grantor
shall not further encumber its rights, title and interest in and to the
Leases or the Rents. Grantor shall not anticipate rentals under the Leases
more than one month in advance or, except in the ordinary course of Grantor's
business, waive, excuse, condone or in any manner release or discharge any
lessee thereunder of or from the material obligations, covenants, conditions
and agreements to be performed by such lessees, including the obligation to
pay rentals in the manner and at the place and time specified therein.
Grantor further covenants and agrees that (i) upon request, Grantor shall
furnish Beneficiary with executed copies of all Leases, (ii) all renewals of
Leases and all proposed Leases shall provide for rentals comparable to
existing local market rates and shall be for a stated term of not more than
one (1) year, (iii) all proposed Lease forms shall be subject to the prior
written approval of Beneficiary, and (iv) all Leases shall provide that they
are subordinate to this Deed of Trust and that the lessee agrees to attorn to
Beneficiary.
(d) Grantor shall, at Grantor's sole cost and expense,
appear in and defend any action or proceeding arising under, growing out of
or in any manner connected with the Leases or the obligations, duties or
liabilities of Grantor or the lessees or sublessees under
the Leases, and shall pay all reasonable costs and expenses, with
interest thereon at the Default Interest Rate, including reasonable
attorneys' and paralegals' fees incurred by Beneficiary in any such action or
proceeding in which Beneficiary may appear, all such expenses being
Indebtedness secured by this Deed of Trust.
(e) After a Default and the expiration of all
applicable grace and cure periods, Beneficiary, at its option but without the
assumption of any of Grantor's obligations as lessor and without notice to or
demand on Grantor, and without releasing Grantor from any obligation under
the Leases or this Deed of Trust, may perform any obligation of Grantor under
any of the Leases. In the exercise of such power, Beneficiary shall be
entitled to reimbursement by Grantor for all of Beneficiary's reasonable
costs and expenses, including reasonable attorneys' and paralegals' fees, and
the same shall be payable upon demand, with interest thereon from the date
paid or incurred at the Default Interest Rate, and shall be Indebtedness
secured by this Deed of Trust.
(f) Beneficiary shall not be obligated to perform or
discharge, nor does it hereby undertake to perform or discharge any
obligation, duty or liability of Grantor under the Leases or otherwise.
Beneficiary shall not be liable for any loss sustained by the Grantor
resulting from Beneficiary's failure to let the Mortgaged Property after
Default or from any other act or omission of the Beneficiary in managing the
Mortgaged Property after Default, unless such loss is caused by the willful
misconduct and bad faith of Beneficiary. Grantor agrees to indemnify
Beneficiary against and hold it harmless from any and all liability, loss or
damage which it may or might incur under the Leases or under or by reason of
this assignment and of and from any and all claims and demands whatsoever
which may be asserted against Beneficiary by reason of any alleged obligation
or undertaking on its part to perform or discharge any of the terms,
covenants or agreements contained in the Leases. In the event Beneficiary
incurs any such liability, loss or damage, the amount thereof, including
reasonable costs, expenses and attorneys' and paralegals' fees, together with
interest at the Default Interest Rate, shall be payable by Grantor upon
demand and is Indebtedness secured by this Deed of Trust. This assignment
shall not operate to place responsibility for the control, care, management
or repair of the Mortgaged Property or any improvements thereon upon
Beneficiary, nor shall it operate to make the Beneficiary responsible or
liable for any waste committed on the Mortgaged Property or for any dangerous
or defective condition of the property.
(g) Grantor hereby authorizes and directs each and
every tenant and occupant of the Mortgaged Property, or any part thereof,
upon receipt from Beneficiary of written notice to the effect that a Default
exists under this Deed of Trust, to pay over to Beneficiary all Rents arising
or accruing from the Mortgaged Property, and to continue to do so until
otherwise
notified by the Beneficiary. Grantor agrees to facilitate in all
reasonable ways Beneficiary's collection of such rents, and upon request will
execute a written notice to each tenant and occupant directing payment to the
Beneficiary. Upon the payment in full of all of the Indebtedness secured
hereby, the assignment made in this paragraph 16 shall terminate.
15. Provisions Severable. In the event any one or more of the
provisions contained in this Deed of Trust or the Guaranty shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall, at the option of the
Beneficiary, not affect any other provision of this Deed of Trust, but this
Deed of Trust shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein or therein. The invalidity of any
provision of this Deed of Trust in any jurisdiction shall not affect the
validity or enforceability of such provision in any other jurisdiction.
16. Further Assurances and Fees. Grantor will, at the cost of
Grantor and without expense to Beneficiary, do, execute, acknowledge and
deliver all and every such further act, deed, conveyances, mortgage, security
agreement, assignment, notice of assignment, transfer and assurance as
Beneficiary shall from time to time reasonably require, for the better
assuring, conveying, assigning, transferring, securing and confirming unto
Beneficiary the property and rights hereby conveyed or assigned or intended
now or hereafter so to be, or which Grantor may be or may hereafter become
bound to convey or assign to Beneficiary, or for carrying out the intention
or facilitating the performance of the terms of this Deed of Trust, or for
filing, registering or recording this Deed of Trust. Grantor will pay for
filing, registration or recording fees, and all expenses incident to the
execution and acknowledgment of this Deed of Trust, any security instrument
supplemental hereto, any financing statement and continuation statement and
any instrument of further assurance, and all federal, state, county and
municipal stamp taxes and other taxes, duties, imposts, assessments and
charges arising out of or in connection with the execution and delivery of
this Deed of Trust, any security instrument supplemental hereto, or any
instrument of further assurance. Such amounts shall be payable five (5)
business days after notice and demand by Beneficiary and shall bear interest
from the date of expenditure until payment in full at the Default Interest
Rate.
17. Defense of Claims--Subrogation. Grantor promptly shall
notify Beneficiary in writing of the commencement, or threat of institution,
of any legal proceedings affecting or which may affect Beneficiary's interest
in the Mortgaged Property, or any part thereof, and shall take such action,
employing attorneys reasonably satisfactory to Beneficiary, as may be
necessary fully to preserve, protect and defend Grantor's and Beneficiary's
rights affected thereby. Beneficiary may take such independent action in
connection therewith as Beneficiary in its discretion may deem proper.
Grantor will indemnify and save Beneficiary harmless from any loss, damage,
expense, and reasonable attorneys' and paralegals' fees which may be incurred
by Beneficiary by reason of any suit or proceeding to which Beneficiary is
made a party on account of this Deed of Trust, and any loss, damage, expense
and attorneys' and paralegals' fees so incurred by Beneficiary shall be a
part of the Indebtedness secured by this Deed of Trust and shall be due and
payable by Grantor five (5) business days after notice and demand by
Beneficiary with interest thereon at the Default Interest Rate. In the event
Beneficiary pays, discharges or satisfies, in whole or in part, any prior
lien or encumbrance upon the Mortgaged Property, or any part thereof, from
the proceeds of this Deed of Trust, Beneficiary shall be subrogated to the
rights of the holder of such lien as fully as if such lien had been assigned
to Beneficiary.
20. No Marshaling. Grantor, on its own behalf and on behalf of
its successors and assigns hereby expressly waives all rights, if any, to
require a marshaling of assets by Beneficiary or to require that Beneficiary
first resort to some or any portion of the collateral before foreclosing upon
selling or otherwise realizing on any other portion thereof.
21. Reinstatement of Obligations and Security. To the extent
that Grantor makes a payment to Beneficiary or Beneficiary receives any
payment(s) or proceeds of the collateral for Grantor's benefit, which
payment(s) or proceeds or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law,
state or federal law, common law or equitable doctrine, then, to the extent
of such payment(s) or proceeds received, Grantor's obligations or part
thereof intended to be satisfied thereby shall be reinstated and continue in
full force and effect, and all collateral security therefor shall remain in
full force and effect (or be reinstated), as if such payment(s) or proceeds
had not been received by Beneficiary, and an appropriate adjustment to the
Grantor's loan balance may be recorded, until payment shall have been made to
Beneficiary, which payment shall be due without demand or notice of any kind.
22. Stamp or Tax. Should any stamp tax, intangible tax, or
other tax (excluding income, franchise, gross receipts or similar taxes with
respect to Beneficiary), now or hereafter become payable with respect to this
Deed of Trust or the Guaranty or their execution or delivery, Grantor will
pay the tax before its due date and hold Beneficiary harmless from the cost
of the tax.
23. Assignment of Guaranty. Beneficiary may assign to any
person or entity all or any part of, or any interest in, Beneficiary's rights
and benefits under this Deed of Trust and the Guaranty and to the extent of
the assignment, the assignee shall have the same rights and benefits against
Grantor as it would have had if it were Beneficiary under this Deed of
Trust. Beneficiary shall have the right to participate and syndicate the
Loan with other lending institutions. The rights of Grantor under this Deed
of Trust and the Guaranty are not assignable.
24. Conflicts and Inconsistencies. In the event of any
conflicts or inconsistencies between the terms of the Guaranty and this Deed
of Trust, the terms of the Guaranty shall govern and control.
25. Applicable Law. This Deed of Trust encumbers property
located in the Commonwealth of Virginia, and shall be governed by the laws of
the Commonwealth of Virginia.
26. Successors and Assigns. The grants, covenants, terms,
provisions and conditions of this Deed of Trust shall (i) run with the land,
(ii) apply and extend to, be binding upon and inure to the benefit of
Grantor, Grantor's successors and assigns and all persons claiming under or
through Grantor, and the word "Grantor", when used herein, shall include all
such persons, and (iii) shall apply and extend to, be binding upon and inure
to the benefit of Beneficiary and its successors and assigns. The word
"Beneficiary" when used herein shall include the successors and assigns of
Beneficiary.
27. Waiver of Claims. To the extent permitted by applicable
law, Grantor hereby waives the right to bring any claim or counterclaim
against Beneficiary for an amount in excess of the outstanding principal
balance of the Guaranty and all accrued and unpaid interest thereon (but
specifically reserves the right to raise any defenses, affirmative defenses
and compulsory counterclaims) in any suit or action in any court of law or
equity in which Grantor and Beneficiary are parties arising out of or in any
way related to this Deed of Trust or the Guaranty or in any way connected
with, related to or incidental to any dealings of Grantor and Beneficiary
with respect to this Deed of Trust or the Guaranty or the transactions
contemplated thereby, whether now existing or hereafter arising and whether
sounding in contract, tort or otherwise.
28. Notices. All notices pursuant to this Deed of Trust shall
be in writing and shall be deemed to have been sufficiently given or served
for all purposes when presented personally or five (5) days after being sent
by registered or certified United States mail addressed as follows:
To Grantor:
PHC of Virginia, Inc.
405 Kimball Avenue
Salem, Virginia 24153
To Beneficiary:
HCFP Funding II, Inc.
2 Wisconsin Circle, Fourth Floor
Chevy Chase, Maryland 20815
Attention: Ethan D. Leder, President
To Trustee:
c/o HealthCare Financial Partners, Inc.
Two Wisconsin Circle
Fourth Floor
Chevy Chase, Maryland 20815
with a copy (which does not constitute notice) to:
Samuel M. Spiritos, Esquire
Shulman, Rogers, Gandal, Pordy & Ecker, P.A.
11921 Rockville Pike
3rd Floor
Rockville, Maryland 20852
or at such other place or address as either party may, by similarly
given notice, designate as a place or address for service of notice.
29. Right of Entry. Beneficiary and its agents shall have the
right to enter and inspect the Property during normal business hours upon
reasonable notice.
30. Actions and Proceedings. After the occurrence and during
the continuance of and Default, Beneficiary has the right to appear in and
defend any action or proceeding brought with respect to the Property and to
bring any action or proceeding, in the name and on behalf of Grantor, which
Beneficiary, in its discretion, decides should be brought to protect its
interest in the Mortgaged Property. Beneficiary shall, at its option, be
subrogated to the lien of any other security instrument discharged in whole
or in part by the Indebtedness, any such subrogation rights shall constitute
additional security for the payment of the Indebtedness.
31. Waiver of Setoff and Counterclaim. All amounts due under
this Deed of Trust, the Guaranty shall be payable without setoff,
counterclaim or any deduction whatsoever. Grantor hereby waives the right to
assert a counterclaim (other than a mandatory or compulsory counterclaims) in
any action or proceeding brought against it by Beneficiary, or arising out of
or in any way connected with this Deed of Trust and the Guaranty or the
Indebtedness.
32. Recovery of Sums Required To Be Paid. Beneficiary shall
have the right from time to time to take action to recover any sum or sums
which constitute a part of the Indebtedness as they become due, without
regard to whether or not the balance of the Indebtedness shall be due, and
without prejudice to the right of Beneficiary thereafter to bring an action
of foreclosure, or any other action, for a default or defaults by Grantor
existing at the time such earlier action was commenced.
33. Indemnification.
(a) In addition to any other indemnifications provided
herein, in the Environmental Indemnity Agreement or in the Guaranty, Grantor
shall protect, defend, indemnify and save harmless the Indemnified Parties
(defined herein) from and against all liabilities, obligations, claims,
demands, damages, penalties, causes of action, losses, fines, reasonable
costs and expenses (including, without limitation, reasonable attorneys' fees
and expenses), imposed upon or incurred by or asserted against Beneficiary by
reason of (i) ownership of this Deed of Trust, the Mortgaged Property or any
interest therein or receipt of any profits; (ii) any accident, injury to or
death of persons or loss of or damage to property occurring in, on or about
the Mortgaged Property or any part thereof or on the adjoining sidewalks,
curbs, adjacent property or adjacent parking areas, streets or ways; (iii)
any use, nonuse or condition in, on or about the Mortgaged Property or any
part thereof or on adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways; (iv) any failure on the part of Grantor to
perform or comply with any of the terms of this Deed of Trust; (v)
performance of any labor or services or the furnishing of any materials or
other property in respect of the Mortgaged Property or any part thereof; (vi)
the presence, disposal, escape, seepage, leakage, spillage, discharge,
emission, release, or threatened release of any Hazardous Substance on, from,
or affecting the Mortgaged Property or any other property; (vii) any personal
injury (including wrongful death) or property damage (real or personal)
arising out of or related to such Hazardous Substance; (viii) any lawsuit
brought or threatened, settlement reached, or government order relating to
such Hazardous Substance; (ix) any violation of the Environmental Laws, which
are based upon or in any way related to such Hazardous Substance including,
without limitation, the costs and expenses of any remedial action, reasonable
out-of-pocket attorneys' and consultants' fees, investigation and laboratory
fees, court costs, and litigation expenses; (x) any failure of the Mortgaged
Property to comply with any regulations and laws providing for access for
handicapped or disabled persons; (xi) any representation or warranty made in
the Guaranty or this Deed of Trust being false or misleading in any respect
as of the date such representation or warranty was made; (xii) any claim by
brokers, finders or similar persons claiming to be entitled to a commission
in connection with any lease or other transaction involving the Mortgaged
Property or any part thereof under any legal requirement or any liability
asserted against Beneficiary with respect thereto; (xiii) the claims of any
lessee of all or any portion of the Mortgaged Property or any person acting
through or under any lessee or otherwise arising under or as a consequence of
any lease; and (xiv) claims of any persons arising under or as a consequence
of any of the operating agreements for the Mortgaged Property. Any amounts
payable to Beneficiary by reason of the application of this Section 33 shall
be immediately due and payable, shall be secured by this Deed of Trust and
shall bear interest at the Default Rate from the date loss or damage is
sustained by Beneficiary until paid. Notwithstanding the foregoing, Grantor
shall not be liable for any losses incurred by Beneficiary arising solely as
a direct result of Beneficiary's gross negligence or willful misconduct. The
obligations and liabilities of Grantor under this paragraph shall survive any
termination, satisfaction or assignment of this Deed of Trust or the entry of
a judgment of foreclosure, sale of the Mortgaged Property by nonjudicial
foreclosure sale, or delivery of a conveyance in lieu of foreclosure.
(b) "Indemnified Parties" means Beneficiary and any
person or entity who is or will have been involved in the origination of this
loan, any person or entity who is or will have been involved in the servicing
of this loan, any person or entity in whose name the encumbrance created by
this Deed of Trust is or will have been recorded, persons and entities who
may hold or acquire or will have held a full or partial interest in this loan
(including, but not limited to, investors or prospective investors in the
securities, as well as custodians, trustees and other fiduciaries who hold or
have held a full or partial interest in this loan for the benefit of third
parties) as well as the respective directors, officers, shareholders,
members, partners, employees, agents, attorneys, servants, representatives,
contractors, subcontractors, affiliates, subsidiaries, participants,
successors and assigns of any and all of the foregoing (including, but not
limited to, any other person or entity who holds or acquires or will have
held a participation or other full or partial interest in this loan or the
Mortgaged Property, whether during the term of this loan or as a part of or
following a foreclosure of this loan and including, but not limited to, any
successors by merger, consolidation or acquisition of all or a substantial
portion of Beneficiary's assets and business).
34. Authority. Grantor represents and warrants that (a) it has
full power, authority and right to execute, deliver and perform its
obligations pursuant to this Deed of Trust, give, grant, bargain, sell,
alien, enfeoff, convey, confirm, warrant, pledge, hypothecate and assign the
Mortgaged Property pursuant to the terms hereof and to keep and observe all
of the terms of this Deed of Trust on Grantor's part of be performed; and (b)
Grantor is not a "foreign person" within the meaning of Section 1445(f)(3) of
the Internal Revenue Code of 1986, as amended, and the related Treasury
Department regulations, including temporary regulations. Beneficiary
represents and warrants that it has full power, authority and right to
execute, deliver and perform its obligations pursuant to this Deed of Trust.
35. Waiver of Notice. To the extent permitted by applicable
law, Grantor shall not be entitled to any notices of any nature whatsoever
from Beneficiary except with respect to matters for which this Deed of Trust
specifically and expressly provides for the giving of notice by Beneficiary
to Grantor and except with respect to matters for which Beneficiary is
required by applicable law to give notice, and Grantor hereby expressly
waives the right to receive any notice from Beneficiary with respect to any
matter for which this Deed of Trust does not specifically and expressly
provide for the giving of notice by Beneficiary to Grantor, including,
without limitation, notice of default, notice of intention to accelerate sums
under the Guaranty, and notice of acceleration of sums under the Guaranty.
All notices required hereunder must be in writing, delivered by certified
mail (return receipt requested), personal delivery or overnight delivery.
36. Remedies of Grantor. In the event that a claim or
adjudication is made that Beneficiary has acted unreasonably or has
unreasonably delayed acting in any case where by law or under the Guaranty or
this Deed of Trust, it has an obligation to act reasonably or promptly,
Beneficiary shall not be liable for any monetary damages, and Grantor's
remedies shall be limited to injunctive relief or declaratory judgment.
37. Sole Discretion of Beneficiary. Wherever pursuant to this
Deed of Trust, Beneficiary exercises any right given to it to approve or
disapprove, or any arrangement or term is to be satisfactory to Beneficiary,
the decision of Beneficiary to approve or disapprove or to decide that
arrangements or terms are satisfactory or not satisfactory shall be in the
sole discretion of Beneficiary and shall be final and conclusive, except as
may be otherwise expressly and specifically provided herein.
38. Non-Waiver. The failure of Beneficiary to insist upon
strict performance of any term hereof shall not be deemed to be a waiver of
any term of this Deed of Trust. Grantor shall not be relieved of Grantor's
obligations hereunder by reason of (a) the failure of Beneficiary to comply
with any request of Grantor to take any action to foreclose this Deed of
Trust or otherwise to enforce any of the provisions hereof or of the
Guaranty; (b) the release, regardless of consideration, of the whole or any
part of the Mortgaged Property, or of any person liable for the Debt or any
portion thereof; or (c) any agreement or stipulation by Beneficiary extending
the time of payment or otherwise modifying or supplementing the terms of the
Guaranty or this Deed of Trust. Beneficiary may resort for the payment of the
Debt to any other security held by Beneficiary in such order and manner as
Beneficiary, in its discretion, may elect. Beneficiary may take action to
recover the Debt, or any portion thereof, or to enforce any covenant hereof
without prejudice to the right of Beneficiary thereafter to foreclosure this
Deed of Trust. The rights and remedies of Beneficiary under this Deed of
Trust shall be separate, distinct and cumulative and none shall be given
effect to the exclusion of the others. No act of Beneficiary shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision. Beneficiary shall not be limited
exclusively to the rights and remedies herein stated but shall be entitled to
every right and remedy now or hereafter afforded at law or in equity.
39. No Oral Change. This Deed of Trust, and any provisions
hereof, may not be modified, amended, waived, extended, changed, discharged
or terminated orally or by any act or failure to act on the part of Grantor
or Beneficiary, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
40. Liability. If Grantor consists of more than one person,
the obligations and liabilities of each such person hereunder shall be joint
and several. Subject to the provisions hereof requiring Beneficiary's
consent to any transfer of the Mortgaged Property, this Deed of Trust shall
be binding upon and inure to the benefit of Grantor and Beneficiary and their
respective successors and assigns forever.
41. Inapplicable Provisions. If any term, covenant or
condition of this Deed of Trust is held to be invalid, illegal or
unenforceable in any respect, this Deed of Trust shall be construed without
such provisions.
42. Paragraph Headings. The headings and captions of the
various paragraphs or subparagraphs of this Deed of Trust are for convenience
of reference only and are not to be construed as defining or limiting, in any
way, the scope or intent of the provisions hereof.
43. Counterparts. This Deed of Trust may be executed in any
number of duplicate originals and each such duplicate original shall be
deemed to be an original. This Deed of Trust may be executed in several
counterparts, each of which counterparts shall be deemed an original
instrument and all of which together shall constitute a single Deed of
Trust.
44. Certain Definitions. Unless the context clearly indicates
a contrary intent or unless otherwise specifically provided herein, words
used in this Deed of Trust may be used interchangeably in singular or plural
form and the word "Grantor" shall mean "each Grantor or any part thereof or
any interest therein", the word "Beneficiary" shall mean "Beneficiary, its
successors and assigns, and any subsequent holder of the Guaranty", the word
"Indebtedness" shall mean "the Guaranty and any other evidence of
indebtedness secured by this Deed of Trust", the word "person" shall include
an individual, corporation, partnership, trust, unincorporated association,
government, governmental authority and any other entity, and the words
"Mortgaged Property" shall include any portion of the Mortgaged Property and
any interest therein and the words "attorneys' fees" shall include any and
all attorneys' fees, paralegal and law clerk fees including, without
limitation, fees at the pretrial, trial and appellate levels incurred or paid
by Beneficiary in protecting its interest in the Mortgaged Property and
collateral and enforcing its rights hereunder. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa.
45. Homestead. Grantor hereby waives and renounces all
homestead and exemption rights provided by the constitution and the laws of
the United States and of any state, in and to the Mortgaged Property as
against the collection of the Debt, or any part thereof.
46. Assignments. Beneficiary shall have the right to assign or
transfer its rights under this Deed of Trust without limitation. Any
assignee or transferee shall be entitled to all the benefits afforded
Beneficiary under this Deed of Trust. Grantor shall not, without the prior
written consent of Beneficiary, which consent may be withheld in
Beneficiary's sole discretion, assign or transfer its rights under this Deed
of Trust or the Guaranty.
47. Submission To Jurisdiction. GRANTOR HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY VIRGINIA STATE OR FEDERAL COURT SITTING IN
THE COUNTY IN WHICH THE PROPERTY IS LOCATED OVER ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THE SECURED LOAN, THE GUARANTY OR
THIS DEED OF TRUST AND HEREBY AGREES NOT TO ASSERT THAT IT IS NOT SUBJECT TO
THE JURISDICTION OF THE FOREGOING COURTS. BENEFICIARY MAY, AT ITS SOLE
DISCRETION, ELECT THE UNITED STATES DISTRICT COURT FOR THE DISTRICT IN WHICH
THE PROPERTY IS LOCATED OR ANY COURT OF COMPETENT JURISDICTION OF THE STATE
IN WHICH THE PROPERTY IS LOCATED AS THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING. GRANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO SUCH VENUE AS
BEING AN INCONVENIENT FORUM OR IMPROPER VENUE.
48. Service of Process. Grantor hereby consents to process
being served in any suit, action, or proceeding instituted in connection with
the Guaranty and this Deed of Trust by mailing of a copy thereof by certified
mail, postage prepaid, return receipt requested, to Grantor. Grantor
irrevocably agrees that such service shall be deemed to be service of process
upon Grantor in any such suit, action, or proceeding. Nothing in this Deed
of Trust shall affect the right of Beneficiary to serve process in any manner
otherwise permitted by law and nothing in this Deed of Trust will limit the
right of Beneficiary otherwise to bring proceedings against Grantor in the
courts of any jurisdiction or jurisdictions. Initiating such proceeding or
taking such action in any other jurisdiction or state shall not, however,
constitute a waiver of the agreement contained herein that the laws of the
Commonwealth of Virginia shall govern the rights and obligations of the
parties hereunder.
49. Waiver of Jury Trial. GRANTOR HEREBY AGREES NOT TO ELECT A
TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO
TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST WITH REGARD TO THE GUARANTY OR THIS DEED OF TRUST, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY WHILE REPRESENTED
BY COUNSEL BY GRANTOR, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH
INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD
OTHERWISE ACCRUE. BENEFICIARY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS
SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY GRANTOR.
50. Time of Essence. Time is of the essence of this Deed of
Trust and of each and every term, covenant and condition herein.
51. Survival. All covenants, representations and warranties
made herein shall survive the making of the Loan and the delivery of the
Guaranty. Except as hereinafter specifically set forth below, the
representations and warranties, covenants, and other obligations arising
under paragraphs 6(h) and 33 of this Deed of Trust shall in no way be
impaired by any satisfaction or other termination of this Deed of Trust, any
assignment or other transfer of all or any portion of this Deed of Trust or
Beneficiary's interest in the Mortgaged Property (but, in such case, shall
benefit both Beneficiary and any assignee or transferee), any exercise of
Beneficiary's rights and remedies pursuant hereto including, but not limited
to foreclosure or acceptance of a deed in lieu of foreclosure, any exercise
of any rights and remedies pursuant to the Guaranty, any transfer of all or
any portion of the Mortgaged Property (whether by Grantor or by Beneficiary
following foreclosure or acceptance of a deed in lieu of foreclosure or at
any other time), any amendment to this Deed of Trust or the Guaranty and any
act or omission that might otherwise be construed as a release or discharge
of Grantor from the obligations pursuant hereto.
52. No Third-Party Beneficiary Rights Created. The parties
hereto expressly declare that it is their joint and mutual intention that
this Deed of Trust and the transactions contemplated hereby shall not be
construed as creating a third party beneficiary contract, and neither this
Deed of Trust nor the Guaranty shall be construed as giving or conferring any
rights or benefits whatsoever to or upon any other persons or entities other
than Grantor and Beneficiary.
53. Discharge. If all indebtedness secured hereby is promptly
paid when due and all other provisions hereof are faithfully performed, the
conveyance of the Mortgaged Property shall be null and void, and Beneficiary,
at Grantor's expense, shall promptly execute appropriate documents releasing
this Deed of Trust.
54. Maintaining Priority of Deed of Trust. Grantor shall, at
its expense, cause the recordation of this Deed of Trust and of any other
instrument evidencing or securing the Guaranty wherever such recording would
or might be required in order to protect the second lien and priority of this
Deed of Trust or such instrument against the claims of third parties.
Grantor hereby covenants and agrees at all times, at its sole expense, take
such other action and execute and record such other instruments as may be
necessary or desirable to preserve and protect the second lien and priority
of this Deed of Trust and all other instruments evidencing or securing the
Guaranty.
55. Usury. This Deed of Trust and the Guaranty are subject to
the express condition that at no time shall Grantor be obligated or required
to pay interest on the Indebtedness or loan charges at a rate which could
subject the holder of the Guaranty to either civil or criminal liability as a
result of being in excess of the maximum interest rate which Grantor is
permitted by applicable law to contract or agree to pay. If by the terms of
this Deed of Trust or the Guaranty, Grantor is at any time required or
obligated to pay interest on the Indebtedness or loan charges at a rate in
excess of such maximum rate, the rate of interest or loan charges under this
Deed of Trust and the Guaranty shall be deemed to be immediately reduced to
such maximum rate and the interest payable shall be computed at such maximum
rate and all prior interest payments or loan charges in excess of such
maximum rate shall be applied and shall be deemed to have been payments in
reduction of the principal balance of the Guaranty. All sums paid or agreed
to be paid to Beneficiary for the use, forbearance, or detention of the
Indebtedness or for loan charges shall, to the extent permitted by applicable
law, be amortized, prorated, allocated, and spread throughout the full stated
term of the Guaranty until payment in full so that the rate or amount of
interest on account of the Indebtedness does not exceed the maximum lawful
rate of interest from time to time in effect and applicable to the
Indebtedness for so long as the Indebtedness is outstanding.
56. Costs.
(a) Grantor acknowledges and confirms that Beneficiary
shall impose certain administrative processing and/or commitment fees in
connection with (i) the extension, renewal, modification, amendment and
termination of its loans, (ii) the release or substitution of collateral
therefor, (iii) obtaining certain consents, waivers and approvals with
respect to the Mortgaged Property, or (iv) the review of any Lease or
proposed Lease or the preparation or review of any subordination,
non-disturbance agreement. Grantor further acknowledges and confirms that it
shall be responsible for the payment of all reasonable costs of reappraisal
of the Mortgaged Property or any part thereof, whether required by law,
regulation, Beneficiary or any governmental or quasi-governmental authority.
Grantor hereby acknowledges and agrees to pay, immediately, with or without
demand, all such reasonable fees (as the same may be increased or decreased
from time to time), and any additional fees of a similar type or nature which
may be imposed by Beneficiary from time to time, upon the occurrence of any
such event or otherwise. Wherever it is provided for herein that Grantor pay
any costs and expenses, such costs and expenses shall include, but not be
limited to, all reasonable legal fees and disbursements of Beneficiary,
whether of retained firms, the reimbursement for the expenses of in-house
staff or otherwise.
(b) (i) Grantor shall pay all reasonable legal fees
incurred by Beneficiary in connection with (A) the preparation of the
Guaranty and this Deed of Trust; and (B) the items set forth in paragraph
56(a) above, and (ii) Grantor shall pay to Beneficiary on demand any and all
its interest in the Mortgaged Property or personal property or in collecting
any amount payable hereunder or in enforcing its rights hereunder with
respect to the Mortgaged Property or personal property, whether or not any
legal proceeding is commenced hereunder or thereunder and whether or not any
Default shall have occurred and is continuing, together with interest thereon
at the Default Rate from the date paid or incurred by Beneficiary until such
expenses are paid by Grantor.
57. Statutory Provisions. This Deed of Trust is made
under and pursuant to the provisions of the Code of Virginia, Sections 26-49,
55-58.2, 55-59, 55-59.1 through 55-59.4 and 55-60, as amended, and shall be
construed to impose and confer upon the parties hereto and Beneficiary all
the rights, duties, and obligations prescribed by said Sections 26-49,
55-58.1, 55-58.2, 55-59, 55-59.1 through 55-59.4 and 55-60, as amended,
except as herein otherwise restricted, expanded or changed, including without
limitation the following rights, duties and obligations described in short
form:
(a) All exemptions are hereby waived.
(b) Subject to (c) all on default.
(c) Renewal, extension, or reinstatement permitted.
(d) Substitution of trustees collectively or of any of
them individually by the beneficiary is permitted for any reason whatsoever,
and any number of times without exhaustion of the right to do so.
(e) Advertisement required, once a week for two
successive weeks in any newspaper of general circulation in the County or
City in which the Property is situate.
(f) Any trustee may act.
(g) The trustee may require a deposit in the amount of
two percent (2%) of the unpaid principal indebtedness then secured hereby or
Twenty Thousand Dollars ($20,000.00), whichever is greater, to accompany each
bid at foreclosure sale or sale in lieu thereof.
58. Miscellaneous. Any and all covenants in this Deed of Trust
from time to time may by instrument in writing signed by Beneficiary be
waived to such extent and in such manner as Beneficiary may desire, but no
such waiver shall affect or impair Beneficiary's rights hereunder, except to
the extent specifically stated in such written instrument. No waiver by
Beneficiary of any Default shall constitute a waiver of, or consent to, any
subsequent Default. All changes to or modifications of this Deed of Trust
must be in writing signed by Beneficiary and Grantor. Nothing herein
contained shall be construed as constituting Beneficiary a mortgagee in
possession of the Mortgage Property in the absence of a taking of actual
possession of the Mortgage Property by Beneficiary.
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<PAGE>
IN WITNESS WHEREOF, Grantor has duly executed and delivered this
Deed of Trust as of the day and year first above written.
PHC OF VIRGINIA, INC.
WITNESS: a Virginia corporation
X /s/ T. A. Bates By: /s/ Bruce A. Shear
Title: President
X /s/ Grace E. Powell
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<PAGE>
NOTARY ACKNOWLEDGMENT
STATE OF Massachusetts)
COUNTY OF Essex)
Before me, a Notary Public in and for said County and State, on
this day personally appeared Bruce A. Shear known to me (or proved to me on
the oath of ____________) to be the person whose name is subscribed to the
foregoing instrument, and known to me to be the managing member of PHC OF
VIRGINIA, INC., a Virginia corporation, and acknowledged to me that he
executed said instrument for the purposes and consideration therein
expressed, as the act of said limited liability company.
Given under my hand and seal this 13th day of June, 1998.
/s/ Stuart Kaufman
Stuart Kaufman
Notary Public
My Commission Expires: February 26, 2004
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<PAGE>
SECOND DEED OF TRUST SCHEDULES
Schedule 3(b) - Liens, Encumbrances and Exceptions
See Title Insurance Policy
Schedule 3(i) - Governmental Authorizations and Permits
None to be listed
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<PAGE>
CROSS-COLLATERALIZATION AND CROSS-DEFAULT AGREEMENT
THIS CROSS-COLLATERALIZATION AND CROSS-DEFAULT AGREEMENT (this
"Agreement") is made as of the ____ day of June, 1998, by and among PHC,
INC., a Massachusetts corporation ("PHC"), PHC OF MICHIGAN, INC., a
Massachusetts corporation ("PHCM"), PHC OF UTAH, INC., a Massachusetts
corporation ("PHCU"), PHC OF VIRGINIA, INC., a Massachusetts corporation
("PHCVA"), PHC OF RHODE ISLAND, INC., a Massachusetts corporation ("PHCRI"),
and PIONEER COUNSELING OF VIRGINIA, INC., a Massachusetts corporation
("Pioneer," and collectively with PHC, PHCM, PHCU, PHCVA, PHCRI and Pioneer,
"Borrower"), HCFP FUNDING, INC., a Delaware corporation ("HCFP"), and HCFP
FUNDING 11, INC., a Delaware corporation ("HCFPII"), and U. S. BANK NATIONAL
ASSOCIATION, a national banking association ("Bank," and, collectively with
HCFP and HCFPII, "Lenders").
R E C I T A L S:
Borrowers are currently indebted to Lenders (or one or more of them)
pursuant to the following existing loans (collectively, the "Existing Loans"):
The "Revolving Loan": A revolving loan from HCFP to PHCM, PHCU, PHCVA, PHCRI,
and Pioneer ("Revolver Borrowers") in the original maximum aggregate
principal sum of Four Million and No/ 100 Dollars ($4,000,000.00), which loan
is evidenced by that certain amended and restated Revolving Credit Note made
by Revolver Borrowers payable to HCFP, dated as of February 20. 1998, and
that certain amended and restated Loan and Security Agreement dated as of
February 20, 1998 between Revolver Borrowers and HCFP, and which loan is
secured by a third priority Mortgage dated as of March 12, 1997 and recorded
on May 5, 1997 in the Macomb County Records at Liber 07442 Pages 186-196, as
amended by that certain First Amendment to Mortgage dated as of April 30,
1998 and recorded on ________, 1998 in the Macomb County Records at Liber
_____ Pages (collectively, the "Revolver Mortgage"); and
The "First Term Loan": A term loan from HCFPII to PHCM in the original
principal sum of One Million One Hundred Thousand and No/ 100 Dollars
($1,100,000.00), which loan is evidenced by that certain Secured Term Note of
PHCM payable to HCFP II, dated as of March 12, 1997, and which loan is
secured by a first priority Mortgage dated as of March 12, 1997 and recorded
on May 5, 1997 in the Macomb County Records at Liber 07442 Pages 175-185 (the
"First Term Mortgage").
The "Second Term Loan": A term loan from HCFPII to PHCM in the original
principal sum of Five Hundred Thousand and No/100 Dollars ($500,000.00),
which loan is evidenced by that certain Secured Term Note of PHCM payable to
HCFPII, dated as of December 9, 1997, and which loan is secured by a second
priority Mortgage dated as of December 9, 1997 and recorded on January 9,
1998 in the Official Records of Macomb County, Michigan at Liber 07804 Pages
73-85 (the "Second Term Mortgage"). (The Revolver Loan, the First Term Loan
and the Second Term Loan are sometimes collectively referred to in this
Agreement as the "Existing Loans.")
The "Third Term Loan": A term loan from HCFPII to PHC in the original
principal sum of Three Hundred Fifty Thousand and No/100 Dollars
($350,000.00), which loan is evidenced by that certain Secured Bridge Note of
PHC payable to HCFPII, dated as of March 10, 1998, and which loan is to be
secured by the Second Term Mortgage.
The First Term Loan has been assigned by HCFPII to Bank.
PHC has requested a term loan of Two Hundred Thousand and No/ 100 Dollars
($200,000.00) from HCFP (the "New Loan"). HCFP has agreed to make the New
Loan, provided that (1) the New Loan is cross-collateralized with the Third
Term Loan and the Existing Loans and (2) the Existing Loans are
cross-defaulted with one another AND with the Third Term Loan and the New
Loan. Borrowers are all affiliated entities under common control and
ownership (except that PHC is a public company) and will receive direct and
indirect benefits from the New Loan and the continuation of the financing
arrangements represented by the Existing Loans and the Third Term Loan, which
benefits, among others, provide adequate consideration for them to enter into
this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, to induce
HCFP to make the New Loan and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Borrowers agree
with Lenders, and Lenders agree with Borrowers, as follows:
1. Description of New Loan. The New Loan is evidenced by an Overline
Letter Agreement dated as of June 8, 1998 pursuant to which PHC agrees to pay
the original principal sum of Two Hundred Thousand and No/100 Dollars
($200,000.00).
2. Loan Documents. As used in this Agreement, the term "Loan
Documents" shall mean any and all Loan Documents evidencing or securing the
Revolving Loan, the First Term Loan, the Second Term Loan, the Third Term
Loan and the New Loan, including, without limitation. those loan documents
described above. The term "Loans" shall mean, collectively, the Revolving
Loan, the First Term Loan, the Second Term Loan, the Third Term Loan and the
New Loan.
3. Cross-Collateralization. The Third Term Loan and the New Loan are
hereby cross-collateralized with each other and with the Existing Loans, and
Borrowers agree that the collateral described in the respective Loan
Documents shall secure, in addition to such respective Existing Loans and on
a pari passu basis with each of the other Existing Loans, the obligations of
PHC under (a) the New Loan and New Loan Documents, including, without
limitation, PHC's obligation to pay the principal and interest on the New
Loan, as the same may hereafter be renewed, modified, amended or extended,
and to pay all other indebtedness and other agreed charges and to perform all
of the terms and conditions under the New Loan Documents, and (b) the Third
Term Loan and the Third Term Loan Documents, including, without limitation,
PHC's obligation to pay the principal and interest on the Third Term Loan, as
the same may hereafter be renewed, modified, amended or extended, and to pay
all other indebtedness and other agreed charges and to perform all of the
terms and conditions under the Third Term Loan Documents
4. Cross-Default. The Existing Loans, the Third Term Loan and the New
Loan are hereby cross-defaulted with one another, and Borrowers agree that
the occurrence of an Event of Default as defined in, and pursuant to any of
the Loan Documents, which Event of Default is not cured within the applicable
grace or curative periods, shall constitute an immediate Event of Default
(without need of notice or the expiration of any additional cure period other
than as specified in such Loan Documents) under all other Loan Documents.
5.Miscellaneous.
(a) This Agreement will be recorded in the Official Records of
Macomb County, Michigan and the City of Salem, Virginia. Upon the filing of
this Agreement, all necessary recording, intangible, or documentary stamp
taxes will be duly paid by the Borrowers. THIS AGREEMENT IS BEING GIVEN AS
ADDITIONAL COLLATERAL TO SECURE THE OBLIGATIONS OF THE RESPECTIVE BORROWERS
UNDER THEIR RESPECTIVE LOAN DOCUMENTS.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, administrators,
successors and assigns.
6. Controlling Law. This Agreement shall be governed by the laws of
the State of Maryland.
7. WAIVER OF JURY TRIAL. BORROWERS HEREBY WAIVE ANY RIGHT TO A TRIAL
BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION
(A) ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE LOANS, OR
(B) IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO
ANY DEALINGS OF LENDERS AND/OR BORROWERS WITH RESPECT TO THE LOAN DOCUMENTS
OR IN CONNECTION WITH THIS AGREEMENT OR THE EXERCISE OF ANY PARTY'S RIGHTS
AND REMEDIES UNDER THIS AGREEMENT OR OTHERWISE, OR THE CONDUCT OR THE
RELATIONSHIP OF THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE. BORROWERS AGREE THAT LENDER MAY FILE A COPY OF THIS AGREEMENT
WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND BARGAINED
AGREEMENT OF BORROWERS IRREVOCABLY TO WAIVE THEIR RIGHTS TO TRIAL BY JURY,
AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR
CONTROVERSY WHATSOEVER (WHETHER OR NOT MODIFIED HEREIN) BETWEEN BORROWERS AND
LENDERS SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE SITTING WITHOUT A JURY.
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, Borrowers have caused this Agreement to be properly
executed on the date of the notaries acknowledgments below.
BORROWERS:
WITNESS: PHC, INC.
a Massachusetts corporation
Grace E. Powell
Name
T. A. Bates By: /s/ Bruce A. Shear
Name President
WITNESS: PHC, OF MICHIGAN, INC.
a Massachusetts corporation
Grace E. Powell
Name
T. A. Bates By: /s/ Bruce A. Shear
Name President
WITNESS: PHC, OF UTAH, INC.
a Massachusetts corporation
Grace E. Powell
Name
T. A. Bates By: /s/ Bruce A. Shear
Name President
WITNESS: PHC, OF VIRGINIA, INC.
a Massachusetts corporation
Grace E. Powell
Name
T. A. Bates By: /s/ Bruce A. Shear
Name President
[SIGNATURES CONTINUED]
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<PAGE>
WITNESS: PHC, OF RHODE ISLAND, INC.
a Massachusetts corporation
Grace E. Powell
Name
T. A. Bates By: /s/ Bruce A. Shear
Name President
WITNESS: PIONEER COUNSELING OF VIRGINIA, INC.
a Massachusetts corporation
Grace E. Powell
Name
T. A. Bates By: /s/ Bruce A. Shear
Name President
HCFP:
WITNESS: HCFP FUNDING, INC.
a Delaware corporation
________________________________
Name:
________________________________ By: ___________________________
Name: Name:
Title:
HCFPII:
WITNESS: HCFP FUNDING 11, INC. a Delaware
corporation
________________________________
Name:
________________________________ By: ___________________________
Name: Name:
Title:
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<PAGE>
NOTARY ACKNOWLEDGMENT
STATE OF Massachusetts
COUNTY OF Essex
Before me, a Notary Public in and for said County and State, on
this day personally appeared Bruce A. Shear known to me (or proved to me on
the oath of ____________) to be the person whose name is subscribed to the
foregoing instrument, and known to me to be the managing member of PHC, INC.,
a Massachusetts corporation, and acknowledged to me that he executed said
instrument for the purposes and consideration therein expressed, as the act
of said limited liability corporation.
Given under my hand and seal this 13th day of July, 1998.
/s/ Stuart Kaufman
Stuart Kaufman
Notary Public
My Commission Expires: February 26, 2004
NOTARY ACKNOWLEDGMENT
STATE OF Massachusetts
COUNTY OF Essex
Before me, a Notary Public in and for said County and State, on
this day personally appeared Bruce A. Shear known to me (or proved to me on
the oath of ____________) to be the person whose name is subscribed to the
foregoing instrument, and known to me to be the managing member of PHC OF
MICHIGAN, INC., a Massachusetts corporation, and acknowledged to me that he
executed said instrument for the purposes and consideration therein
expressed, as the act of said limited liability corporation.
Given under my hand and seal this 13th day of July, 1998
/s/ Stuart Kaufman
Stuart Kaufman
Notary Public
My Commission Expires: February 26, 2004
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<PAGE>
NOTARY ACKNOWLEDGMENT
STATE OF Massachusetts
COUNTY OF Essex
Before me, a Notary Public in and for said County and State, on
this day personally appeared Bruce A. Shear known to me (or proved to me on
the oath of ____________) to be the person whose name is subscribed to the
foregoing instrument, and known to me to be the managing member of PHC OF
UTAH, INC., a Massachusetts corporation, and acknowledged to me that he
executed said instrument for the purposes and consideration therein
expressed, as the act of said limited liability corporation.
Given under my hand and seal this 13th day of July, 1998
/s/ Stuart Kaufman
Stuart Kaufman
Notary Public
My Commission Expires: February 26, 2004
NOTARY ACKNOWLEDGMENT
STATE OF Massachusetts
COUNTY OF Essex
Before me, a Notary Public in and for said County and State, on
this day personally appeared Bruce A. Shear known to me (or proved to me on
the oath of ____________) to be the person whose name is subscribed to the
foregoing instrument, and known to me to be the managing member of PHC OF
VIRGINIA, INC., a Virginia corporation, and acknowledged to me that he
executed said instrument for the purposes and consideration therein
expressed, as the act of said limited liability corporation.
Given under my hand and seal this 13th day of July, 1998.
/s/ Stuart Kaufman
Stuart Kaufman
Notary Public
My Commission Expires: February 26, 2004
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<PAGE>
NOTARY ACKNOWLEDGMENT
STATE OF Massachusetts
COUNTY OF Essex
Before me, a Notary Public in and for said County and State, on
this day personally appeared Bruce A. Shear known to me (or proved to me on
the oath of ____________) to be the person whose name is subscribed to the
foregoing instrument, and known to me to be the managing member of PHC OF
RHODE ISLAND, INC., a Massachusetts corporation, and acknowledged to me that
he executed said instrument for the purposes and consideration therein
expressed, as the act of said limited liability corporation.
Given under my hand and seal this 13th day of July, 1998.
/s/ Stuart Kaufman
Stuart Kaufman
Notary Public
My Commission Expires: February 26, 2004
NOTARY ACKNOWLEDGMENT
STATE OF Massachusetts
COUNTY OF Essex
Before me, a Notary Public in and for said County and State, on
this day personally appeared Bruce A. Shear known to me (or proved to me on
the oath of ____________) to be the person whose name is subscribed to the
foregoing instrument, and known to me to be the managing member of PIONEER
COUNSELING OF VIRGINIA, INC., a Massachusetts corporation, and acknowledged
to me that he executed said instrument for the purposes and consideration
therein expressed, as the act of said limited liability corporation.
Given under my hand and seal this 13th day of July, 1998
/s/ Stuart Kaufman
Stuart Kaufman
Notary Public
My Commission Expires: February 26, 2004
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<PAGE>
NOTARY ACKNOWLEDGMENT
STATE OF _________________
COUNTY OF _______________
Before me, a Notary Public in and for said County and State, on
this day personally appeared __________ known to me (or proved to me on the
oath of ____________) to be the person whose name is subscribed to the
foregoing instrument, and known to me to be the managing member of HCFP
FUNDING, INC., a Delaware corporation, and acknowledged to me that he
executed said instrument for the purposes and consideration therein
expressed, as the act of said limited liability corporation.
Given under my hand and seal this _____ day of July, 1998
_________________________________
Notary Public
My Commission Expires: _____________________
NOTARY ACKNOWLEDGMENT
STATE OF _________________
COUNTY OF _______________
Before me, a Notary Public in and for said County and State, on
this day personally appeared __________ known to me (or proved to me on the
oath of ____________) to be the person whose name is subscribed to the
foregoing instrument, and known to me to be the managing member of HCFP
FUNDING II, INC., a Delaware corporation, and acknowledged to me that he
executed said instrument for the purposes and consideration therein
expressed, as the act of said limited liability corporation.
Given under my hand and seal this _____ day of July, 1998
_________________________________
Notary Public
My Commission Expires: _____________________
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<PAGE>
This Instrument prepared by, and upon recording should be returned to:
Stephen L. Burlingame, Esq.
Fraser Trebilcock Davis & Foster
1000 Michigan National Tower
Lansing, Michigan 48933
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<PAGE>
Exhibit 10.61
AMENDMENT NO. 1 TO SECURED BRIDGE NOTE
THIS AMENDMENT NO. 1 TO SECURED BRIDGE NOTE (the "Amendment") is
hereby entered into as of the 10th day of July. 1998. by and among PHC, INC.,
a Massachusetts corporation ("Borrower"), and HCFP FUNDING 11, INC., a
Delaware corporation ("Lender").
A. Borrower and Lender entered into that certain Secured Bridge Note
(the "Note") dated March 10, 1998 in the principal sum of Three Hundred Fifty
and 00/100 Dollars ($350,000.00).
B. Borrower has requested that the Maturity Date of the Note be
extended for an additional four (4) months, which extension of the Maturity
Date is essential to Borrower in continuing to finance its operations.
C. Lender has agreed to extend the Maturity Date upon the terms and
conditions of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Capitalized terms used and not otherwise defined in this
Amendment shall have the meanings ascribed to them in the Note.
2. Borrower and Lender hereby affirm and agree that the Maturity
Date of the Note is hereby extended to November 10, 1998.
3. Borrower acknowledges and agrees to pay on July 10, 1998 the
Success Fee due and payable to Lender on that date.
4. This Amendment may be executed in several counterparts, and each
copy so executed shall be deemed an original.
5. Except as expressly stated in this Amendment, the terms,
conditions, and provisions of the Note, as amended by this Amendment, shall
remain in full force and effect and shall not be modified or otherwise
effected by the execution of this Amendment.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed or caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
LENDER:
HCFP FUNDING 11, INC.
a Delaware corporation
By: /s/ Michael G. Gardullo
Title. Vice President
BORROWER:
PHC, INC.
a Massachusetts corporation
By: /s/ Bruce A. Shear
Title: President
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<PAGE>
Exhibit 10.62
PROMISSORY NOTE
Peabody, Massachusetts
$50,000.00
May 28, 1998
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the undersigned PHC, Inc., a Massachusetts corporation
having its principal offices at 200 Lake Street, Suite 102, Peabody,
Massachusetts, ("Borrower"), promises to pay to the order of TOT CARE, INC. a
Massachusetts Corporation with its principal offices at 483 Water Street,
Wakefield, Massachusetts, ("Lender"), the principal sum of FIFTY THOUSAND
($50,000.00) DOLLARS.
This Note shall bear interest on the unpaid principal at 12% annually, to
be paid in arrears monthly; provided that in no event shall the amount payable
by the Borrower as interest on this Note exceed the highest lawful rate
permissible under any law applicable hereto.
Payment of principal shall be made upon demand of the Lender at any time
after May 28, 1998. Demand shall be made in writing with thirty (30) days notice
to Borrower.
This Note may be prepaid, in whole or in part, at any time or from time to
time
without penalty to Borrower.
This note shall be binding upon borrower and its successors and assigns,
and shall inure to the benefit or Lender and its successors and assigns.
Borrower shall not assign this Note without the express written consent of
the Lender, except Borrower may assign this Note to an affiliate of Borrower
without such consent.
This Note shall be governed by and construed according to the laws of the
Commonwealth of Massachusetts.
Executed as a sealed instrument as of the date first written above.
BORROWER: LENDER:
PHC, Inc. TOT CARE, INC.
/s/ Paula C. Wurts /s/ Bruce A. Shear
Ass't Treas Treasurer
/s/ T. A. Bates /s/ T. A. Bates
Witness Witness
<PAGE>
Exhibit 10.63
PROMISSORY NOTE
Peabody, Massachusetts
$50,000.00
June 9, 1998
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the undersigned PHC, Inc., a Massachusetts corporation
having its principal offices at 200 Lake Street, Suite 102, Peabody,
Massachusetts, ("Borrower"), promises to pay to the order of TOT CARE, INC. a
Massachusetts Corporation with its principal offices at 483 Water Street,
Wakefield, Massachusetts, ("Lender"), the principal sum of FIFTY THOUSAND
($50,000.00) DOLLARS.
This Note shall bear interest on the unpaid principal at 12% annually, to
be paid in arrears monthly; provided that in no event shall the amount payable
by the Borrower as interest on this Note exceed the highest lawful rate
permissible under any law applicable hereto.
Payment of principal shall be made upon demand of the Lender at any time
after May 28, 1998. Demand shall be made in writing with thirty (30) days notice
to Borrower.
This Note may be prepaid, in whole or in part, at any time or from time to
time
without penalty to Borrower.
This note shall be binding upon borrower and its successors and assigns,
and shall inure to the benefit or Lender and its successors and assigns.
Borrower shall not assign this Note without the express written consent of
the Lender, except Borrower may assign this Note to an affiliate of Borrower
without such consent.
This Note shall be governed by and construed according to the laws of the
Commonwealth of Massachusetts.
Executed as a sealed instrument as of the date first written above.
BORROWER: LENDER:
PHC, Inc. TOT CARE, INC.
/s/ Paula C. Wurts /s/ Bruce A. Shear
Ass't Treas Treasurer
/s/ T. A. Bates /s/ T. A. Bates
Witness Witness
