SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 29, 1998
PHC, Inc.
(Exact Name of Registrant as Specified in its Charter)
Massachusetts
(State of Incorporation or Organization)
0-23524 04-260571
(Commission File Number) (I.R.S. Employer
Identification No.)
200 Lake Street, Suite 102, Peabody, Massachusetts 01960
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (978) 536-2777
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4. Changes in Registrant's Certifying Accountant
"Effective April 1, 1998, the Boston office of Richard A. Eisner & Company,
LLP ("RAE") was merged into the Boston office of BDO Seidman, LLP ("BDO"). This
merger resulted in RAE no longer having an office in the Boston area and the
Company concluded that it would be appropriate to select a new accounting firm.
At a meeting of the Board of directors of the Company on April 27, 1998, it was
voted to approve to retain BDO to serve as the Company's independent auditors.
During the Company's two most recent fiscal years or any subsequent interim
period, there were no disagreements between the Company and RAE on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to the satisfaction of RAE, would have
caused it to make reference to the subject matter of the disagreement in
connection with its report on the audited financial statements.
SIGNATURE
Pursuant to the requirements of the securities exchange act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHC, INC.
Date: April 29, 1998 By: /s/ Bruce A. Shear
Bruce A. Shear
President
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
Exhibit Description
4.27 Warrant Agreement by and between PHC, Inc. and ProFutures Special Equities
Fund, LP for 3,000 shares of Class A Common Stock.
4.28 Subscription Agreement and Warrants 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.
10.133 Asset Purchase Agreement by and between Lexington Healthcare Group, Inc.
and Quality Care Center of Massachusetts dated February 2, 1998.
10.134 Termination of Sale and Purchase Agreement by and between Finova Capital
Corporation, PHC of Rhode Island d/b/a Good Hope Center, PHC of Virginia,
Inc. d/b/a Mount Regis Center dated February 20, 1998.
10.135 Agreement by and between PHC, Inc., and Irwin Mansdorf and Yakov Burstein
dated March 2, 1998
10.136 Secured Bridge Loan to be made to PHC, Inc. by HCFP Fundiong, II, Inc. in
the amount of $350,000 dated March 10, 1998.
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: April 29, 1998 /s/ Bruce A. Shear
President
Chief Executive Officer
Date: April 29, 1998 /s/ Paula C. Wurts
Controller
Assistant Treasurer
<PAGE>
Exhibit Description
4.27 Warrant Agreement by and between PHC, Inc. and ProFutures Special Equities
Fund, LP for 3,000 shares of Class A Common Stock.
4.28 Subscription Agreement and Warrants 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.
99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
10.133 Asset Purchase Agreement by and between Lexington Healthcare Group Inc.
and Quality Care of Massachusetts dated February 2, 1998.
10.134 Termination of Sale and Purchase Agreement by and between Finova Capital
Corporation, PHC of Rhode Island d/b/a Good Hope Center, PHC of Virginia,
Inc. d/b/a Mount Regis Center dated February 20, 1998.
10.135 Agreement by and between PHC, Inc., and Irwin Mansdorf and Yakov Burstein
dated March 2, 1998
10.136 Secured Bridge Loan to be made to PHC, Inc. by HCFP Fundiong, II, Inc. in
the amount of $350,000 dated March 10, 1998.
<PAGE>
Exhibit 4.27
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF
THIS WARRANT.
Shares Issuable Upon Exercise: Up to 3,000 shares of the
Class A Common Stock, $.01 par value,
of PHC, Inc.
WARRANT AGREEMENT
THIS WARRANT AGREEMENT dated as of March 10, 1998 is entered into by PHC,
Inc. (the "Company") and ProFutures Special Equities Fund, L.P. (the "Holder").
W I T N E S S E T H:
WHEREAS, the Board of Directors has of the Company has authorized the
issuance to the Holder of the warrant (the "Warrant") of the Company represented
by this Warrant Agreement, which Warrant entitled the Holder to purchase, upon
the terms and conditions hereinafter set forth, shares of the Company's Class A
common stock, $0.01 per value per share (the "Class A Common Stock").
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
ARTICLE I
GRANT OF WARRANT
For value received, this Warrant Agreement entitles the Holder to subscribe
for and purchase up to 3,000 shares of Class A Common Stock, at a price per
share of $2.90 (the "Warrant Price"). As used herein, the term "Shares" shall
mean the Company's Class A Common Stock, or any stock into or for which such
Class A Common Stock shall have been or may hereafter be converted or exchanged
pursuant to the Articles of Organization of the Company as from time to time
amended as provided by law and in such articles (hereinafter the "Charter"), and
the term "Grant Date" shall mean March 10, 1998. The number of shares of Class A
Common Stock purchasable pursuant to the rights granted hereunder and the
purchase price for such shares of Class A Common Stock are subject to adjustment
pursuant to the provisions contained in this Warrant Agreement.
ARTICLE II
EXERCISE OF WARRANT; EXERCISE PRICE
Section 2.1 Term. Subject to the provisions of this Warrant Agreement, the
purchase right represented by this Warrant Agreement is exercisable, in whole or
in part, at any time and from time to time from and after the Grant Date and on
or prior to March 10, 2003 (the "Exercise Period").
Section 2.2 Method of Exercise. The purchase right represented by this
Warrant Agreement may be exercised by the holder hereof, in whole or in part and
from time to time, by the surrender of this Warrant (with the Form of Election
attached hereto as Exhibit A duly executed) at the principal office of the
Company and by the payment to the Company by certified or bank check or by wire
transfer, of an amount equal to the Warrant Price multiplied by the number of
shares then being purchased (the "Exercise Price").
Section 2.3 Issuance of Shares of Common Stock. As soon as reasonably
practicable after the exercise of all or part of the purchase right represented
by this Warrant Agreement, the Company shall (provided that it has received the
Form of Election duly executed, accompanied by payment of the Exercise Price
pursuant to Section 2.2 hereof for each of the shares of Class A Common Stock to
be purchased) cause certificates for the number of shares of Class A Common
Stock to be issued in respect of this Warrant Agreement to be delivered to or
upon the order of the Holder, registered in such name as may be designated by
such holder; provided that if the Class A Common Stock is to be registered in
the name of any entity or person other than the Holder, the Company may require
evidence of compliance by the Holder with all applicable securities laws.
ARTICLE III
RESERVATION AND AVAILABILITY OF COMMON STOCK;
ADJUSTMENTS; REGISTRATION
Section 3.1 Reservation of Common Stock. The Company covenants and agrees
that it will cause to be kept available out of its authorized and unissued Class
A Common Stock, or its authorized and issued Class A Common Stock held in its
treasury, the number of shares of Class A Common Stock that will be sufficient
to permit the exercise in full of this Warrant Agreement.
Section 3.2 Common Stock to be Duly Authorized and Issued, Fully Paid and
Nonassessable. The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Class A Common Stock
delivered upon exercise of this Warrant Agreement shall, at the time of delivery
of the certificates for such shares, be duly and validly authorized and issued
and fully paid and non-assessable shares.
Section 3.3 Common Stock Record Date. Each person or entity in whose name
any certificate for shares of Class A Common Stock is issued upon the exercise
of this Warrant Agreement shall for all purposes be deemed to have become the
holder of record of the shares of Class A Common Stock represented thereby on,
and such certificate shall be dated, if practicable, the date upon which the
Form of Election was duly executed and payment of the aggregate Exercise Price
was made pursuant to Section 2.2 hereof. Prior to the exercise of this Warrant
Agreement, the Holder shall not be entitled to any rights of a stockholder of
the Company with respect to the shares of Class A Common Stock for which this
Warrant Agreement shall be exercisable, including, without limitation, the right
to vote, to receive dividends or other distributions or to exercise any
preemptive rights and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 3.4 Adjustment of Warrant Price and Number of Shares. The number
and kind of securities purchasable upon the exercise of the Warrant Agreement
and the Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
3.4 (a) Reclassification. In case of any reclassification, change or
conversion of the Company's Class A Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), the Company, shall execute a new
Warrant Agreement (in form and substance reasonably satisfactory to the Holder)
providing that the Holder of this Warrant Agreement shall have the right to
exercise such new Warrant Agreement and upon such exercise and payment of the
then applicable Warrant Price to receive, in lieu of each Share theretofore
issuable upon exercise of this Warrant Agreement, the kind and amount of shares
of stock, other securities, money and property receivable upon such
reclassification or change by a holder of one share of Class A Common Stock.
Such new Warrant Agreement shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
3.4. The provisions of this Section 3.4 (a) shall similarly apply to successive
reclassifications and changes.
3.4 (b) Subdivision or Combination of Shares. If the Company at any time
while this Warrant Agreement remains outstanding and unexpired shall subdivide
or combine its Class A Common Stock, the Warrant Price and the number of Shares
issuable upon exercise hereof shall be equitably adjusted.
3.4 (c) Stock Dividends. If the Company at any time while this Warrant
Agreement is outstanding and unexpired shall pay a dividend payable in shares of
Class A Common Stock (except any distribution specifically provided for in the
foregoing Sections 3.4 (a) and (b)), then the Warrant Price shall be adjusted,
from and after the date of determination of shareholders entitled to receive
such dividend or distribution, to that price determined by multiplying the
Warrant Price in effect immediately prior to such date of determination by a
fraction (a) the numerator of which shall be the total number of shares of Class
A Common Stock outstanding immediately prior to such dividend or distribution,
and (b) the denominator of which shall be the total number of shares of Class A
Common Stock outstanding immediately after such dividend or distribution and the
number of Shares subject to this Warrant Agreement shall be appropriately
adjusted.
3.5 Registration of Shares. The Company covenants and agrees that it will
use its best efforts to ensure that all shares of Class A Common Stock
deliverable upon exercise in full of the purchase right represented by this
Warrant Agreement are registered under the Securities Act of 1933, as amended
(the "Act") at the same time as the Registrable Shares issuable on the
conversion of the Series A Convertible Preferred Stock issued to the Holder.
3.6 No Impairment. The Company will not, by amendment of its Charter or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant Agreement
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder of this Warrant Agreement against
impairment.
3.7 Notices of Record Date. In the event of any taking by the Company of a
record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, or for the
purpose of determining shareholders who are entitled to vote in connection with
any proposed merger or consolidation of the Company with or into any other
corporation, or any proposed sale, lease or conveyance of all or substantially
all of the assets of the Company, or any proposed liquidation, dissolution or
winding up of the Company, the Company shall mail to the holder of this Warrant
Agreement, at least fifteen (15) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or vote, and the amount and character of
such dividend, distribution or vote.
ARTICLE IV
HOLDER REPRESENTATIONS, WARRANTIES AND COVENANTS
The Holder represents and warrants to and covenants with the Company as
follows:
Section 4.1 Representations. It understands the risks of investing in the
Company and can afford a loss of its entire investment. It is acquiring the
Warrant for investment for its own account and not with the view to, or for
resale in connection with any distribution thereof. It understands that the
Warrant and the shares of Class A Common Stock issuable upon exercise thereof
have not been registered under the Act, or any state blue sky laws, by reason of
specified exemptions from the registration provisions of the Act and such laws.
It acknowledges that the Warrant and the shares of Common Stock issuable upon
exercise thereof must be held indefinitely unless they are subsequently
registered under the Act or an exemption from such registration is available. It
has been advised or is aware of the provisions of Rule 144 promulgated under the
Act, which permits the resale of shares purchased in a private placement subject
to the satisfaction of certain conditions and that such Rule may not be
available for resale of the shares issuable upon the exercise of the Warrant. It
has had an opportunity to (i) discuss the Company's business, management and
financial affairs with its management (ii) review the financial statements
relating to the Company's last two fiscal years and (iii) review the Company's
facilities.
Section 4.2 Restrictions on Transferability. Neither the Warrant, nor the
shares of Class A Common Stock received upon exercise thereof, shall be
transferable, except upon the conditions specified in and in accordance with the
terms of this Article IV or until such time as an effective registration
statement covering the shares issuable upon the exercise of this Warrant has
been filed with the Securities and Exchange Commission (the "Commission").
Section 4.3 Restrictive Legend. Each certificate representing shares of the
Company's Class A Common Stock issuable upon exercise of the Warrant, or any
other securities issued in respect of the Class A Common Stock issued upon
exercise of the Warrant, upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall be stamped or otherwise imprinted
with a legend in substantially the following form (in addition to any legend
required under applicable state securities laws) unless and until such shares
have been registered under the Act.:
THE SHARES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED
IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS
THEREUNDER OR THE PROVISIONS OF THIS WARRANT.
Section 4.4 Restrictions on, and Notice of, Proposed Transfers. The Holder
agrees that prior to any proposed transfer of this Warrant or any of the shares
of Class A Common Stock issuable upon exercise of this Warrant (collectively,
the "Restricted Securities"), in the absence of an effective registration
statement filed with the Commission covering the shares of Class A Common Stock
issuable upon exercise of the Warrant, the Holder shall give written notice to
the Company of its intention to effect such transfer. Each such notice shall
describe the manner and circumstances of the proposed transfer in sufficient
detail, and shall be accompanied by a written opinion of legal counsel who shall
be reasonably satisfactory to the Company, addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Act or under any applicable state or other
securities laws.
ARTICLE V
MISCELLANEOUS
Section 5.1 Notices. Notices or demands relating to this Warrant Agreement
shall be sufficiently given or made if sent by facsimile, first-class mail,
postage prepaid, addressed as follows, or telecopied, or delivered by
nationally-recognized overnight or other courier:
If to the Holder: ProFutures Special Equities Fund, L.P.
1310 Highway 620 South
Suite 200
Austin TX 77734
If to the Company: PHC, Inc.
200 Lake Street
Peabody, MA 01960
Attention: Bruce A. Shear
Fax (978) 536-2677
copy to: Arnold Westerman, Esq.
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut AVE NW
Washington DC 20036
Fax: (202) 857-6462
Section 5.2 Successors. All the covenants and provisions of this Warrant
Agreement by or for the benefit of the Company or the Holder shall bind and
inure to the benefit of their respective successors and assigns hereunder;
provided that this Warrant Agreement may be assigned by the Holder only with the
prior written consent of the Company, and without such consent any attempted
transfer shall be null and void.
Section 5.3 MASSACHUSETTS CONTRACT. THIS WARRANT AGREEMENT AND THE WARRANT,
AND ALL QUESTIONS RELATING TO THE INTERPRETATION, CONSTRUCTION AND
ENFORCEABILITY OF THIS WARRANT AGREEMENT AND THE WARRANT, SHALL BE GOVERNED IN
ALL RESPECTS BY THE SUBSTANTIVE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
Section 5.4 Amendments and Waivers. Except as otherwise provided herein,
the provisions of this Warrant Agreement may not be amended, modified or
supplemented, other than by a written instrument executed by the Company and the
Holder.
Section 5.5 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
Company the Holder shall be enforceable to the fullest extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed and delivered, all as of the date and year first above
written.
PHC, INC.
By: /s/ Bruce A. Shear
Name: Bruce A. Shear
Title: President
PROFUTURES SPECIAL EQUITIES FUND, L.P.
By: ProFutures Fund Management, Inc.,
a General Partner
By: /s/ Gary D. Halbert
Name: Gary D. Halbert
Title: President
<PAGE>
EXHIBIT A
Form of Election
To: PHC, Inc.
200 Lake Street
Peabody, MA 01960
Attention: Bruce A. Shear
1. The undersigned hereby elects to purchase ______ shares of Class A
Common Stock PHC, Inc. pursuant to the terms of the attached Warrant Agreement,
and tenders herewith payment of the Exercise Price of such shares in full.
2. Please issue a certificate or certificates representing the shares
deliverable upon the exercise set forth in paragraph 1 in the name of the
undersigned or, subject to compliance with the restrictions on transfer set
forth in Article IV of the Warrant Agreement, in such other name or names as are
specified below:
_____________________________________
(Name)
_____________________________________
_____________________________________
_____________________________________
(Address)
3. The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares until and unless
such shares are registered under the Securities Act of 1933.
_____________________________________
Signature
______________
Date
<PAGE>
Exhibit 4.28
SUBSCRIPTION AGREEMENT
PHC, INC.
THE SECURITIES WHICH ARE THE SUBJECT OF THIS SUBSCRIPTION AGREEMENT (AS IT MAY
BE AMENDED FROM TIME TO TIME, THE "AGREEMENT") HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER THE
APPLICABLE SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE
ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THESE LAWS BY VIRTUE OF PHC,
INC.'S INTENDED COMPLIANCE WITH SECTIONS 3(b), 4(2) AND 4(6) OF THE SECURITIES
ACT, THE PROVISIONS OF REGULATION D UNDER SUCH ACT AND SIMILAR EXEMPTIONS UNDER
STATE LAW. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION ("SEC"), ANY STATE SECURITIES COMMISSION OR
ANY OTHER REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The undersigned purchaser (hereafter, the "Purchaser") hereby offers to
purchase certain Series A Convertible Preferred Stock (referred to herein as a
"Share" or collectively as "Shares") of PHC, Inc. (the "Company"), a publicly
held corporation formed under the laws of the Commonwealth of Massachusetts.
This offer to purchase may, for any reason whatsoever, be revoked by the
Purchaser or rejected by the Company prior to acceptance of this offer by the
Company.
Section 1.1 Purchase and Sale of Shares. Upon the following terms and
conditions, the Company shall issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company, the number of Shares indicated herein, which
Shares shall have the rights, designations and preferences set forth in Schedule
I hereto.
Section 1.2 Purchase Price. The purchase price for the Shares (the
"Purchase Price") shall be $1,000 per Share.
Section 1.3 The Closing.
(a) The closing of the purchase and sale of the Shares (the "Closing"),
shall take place at the law offices of Arent, Fox, Kintner, Plotkin & Kahn, 1050
Connecticut Avenue, N.W., Washington, D.C. 20036, at 10:00 a.m., local
Washington, D.C. time, on the later of the following: (i) the date on which the
last to be fulfilled or waived of the conditions set forth in Section 4.1 and
4.2 hereof and applicable to the Closing shall be fulfilled or waived in
accordance herewith, or (ii) such other time and place and/or on such other date
as the Purchaser and the Company may agree. The date on which the Closing occurs
is referred to herein as the "Closing Date."
(b) On the Closing Date, the Company shall deliver to the Purchaser (i) a
certificate representing the Shares registered in the name of the Purchaser or
deposit such Shares into accounts designated by the Purchaser and (ii) the
Warrant for the number of shares of the Company's Common Stock indicated herein,
in the form attached hereto as Exhibit A, incorporated herein by reference. The
Purchaser shall on the Closing Date deliver to the Company the Purchase Price
for all the Shares by cashier's check or wire transfer in immediately available
funds to such account as shall be designated in writing by the Company. In
addition, each party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Closing.
<PAGE>
Section 1.4 Covenant to Register.
(a) For purposes of this Section, the following definitions shall apply:
The terms "register," "registered," and "registration" refer to a
registration under the Securities Act of 1933, as amended (the "Act"), effected
by preparing and filing a registration statement or similar document in
compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the shares of the Company's
Class A Common Stock, par value $.01 per share (the "Common Stock"), issuable
upon conversion of shares of the Shares and upon exercise of the Warrant, or
upon conversion of any other stock issued in payment of dividends on the Shares
or otherwise issuable pursuant to this Agreement or the provisions of Schedule I
hereto, and any securities of the Company or securities of any successor
corporation issued as, or issuable upon the conversion or exercise of any
warrant right or other security that is issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of, the
Shares.
(iii) The term "holder of Registrable Securities" means the Purchaser and
any permitted assignee of registration rights pursuant to Section 1.4(h).
(b) (i) The Company shall as soon as possible file a registration statement
on Form SB-2 or Form S-3 covering at least 200% of the number of Registrable
Securities which would then be issuable upon conversion of the Shares at the
conversion price then in effect, and shall use its best efforts to cause such
registration statement to become effective on or before ninety (90) days after
the Closing Date (the "Initial Registration"). In the event such registration is
not so declared effective or does not include all Registrable Securities, a
holder of Registrable Securities shall have the right to require by notice in
writing that the Company register all or any part of the Registrable Securities
held by such holder (a "Demand Registration") and the Company shall thereupon
effect such registration in accordance herewith (which may include adding such
shares to an existing shelf registration). The parties agree that if the holder
of Registrable Securities demands registration of less than all of the
Registrable Securities, the Company, at its option, may nevertheless file a
registration statement covering all of the Registrable Securities. If such
registration statement is declared effective with respect to all Registrable
Securities and the Company is in compliance with its obligations under
Subsection (d) of this Section 1.4, the demand registration rights granted
pursuant to this Subsection (b)(i) shall cease. If such registration statement
is not declared effective with respect to all Registrable Securities or if the
Company is not in compliance with such obligations, the demand registration
rights described herein shall remain in effect.
(ii) The Company shall not be obligated to effect a Demand Registration
under Subsection (b)(i) above: (A) if all of the Registrable Securities held by
the holder of Registrable Securities which are demanded to be covered by the
Demand Registration are, at the time of such demand, included in an effective
registration statement and the Company is in compliance with its obligations
under Subsection (d) of this Section 1.4; (B) if all of the Registrable
Securities may be sold under Rule 144(k) of the Act and the Company's transfer
agent has accepted an instruction from the Company to such effect; or (C) at any
time after two (2) years from the Closing Date.
(iii) Subject to Subsection (iv)(B) hereof, the Company may suspend the
effectiveness of any such registration effected pursuant to this Subsection (b)
in the event and for such period of time as, such a suspension is required by
the rules and regulations of the Securities and Exchange Commission ("SEC"). The
Company will use its best efforts to cause such suspension to terminate at the
earliest possible date.
- 2 -
<PAGE>
(iv) (A) If the Company is advised by the SEC that a registration statement
filed hereunder is subject to a "no-review" and such registration statement is
not declared effective within five (5) business days thereafter (an
"Acceleration Date") or, irrespective of the SEC review, a registration
statement is not declared effective by the ninety first (91st) day after the
Closing Date (the "Target Date"), the Company shall pay Purchaser as liquidated
damages an amount equal to two percent (2%) of the total Purchase Price of the
Shares for each thirty (30) day period following the earlier of the Acceleration
Date or Target Date, as applicable, until such time as the registration
statement is declared effective; provided, however, that such damages shall not
be payable if the failure to meet the Acceleration Date or Target Date, as
applicable, is due to action or inaction by Purchaser with respect to providing
information for the registration statement. The payment set forth above shall be
pro-rated daily as to any period of less than thirty (30) days. Such payment
shall be made to the Purchaser either (I) by cashier's check or wire transfer in
immediately available funds to such account as shall be designated in writing by
the Purchaser or (II) in Shares, the number of which shall be equal to the
amount due under this Subsection divided by $1,000 per Share. The foregoing
amount shall be paid irrespective of the amount of Registrable Securities then
held by Purchaser.
(B) If, following effectiveness of a registration, either the effectiveness
of the registration statement is suspended or a current prospectus meeting the
requirements of Section 10 of the Act is not available for delivery by the
Purchaser (either referred to herein as a "suspension"), the Company shall
thereupon pay to Purchaser as liquidated damages an amount equal to two percent
(2%) of the Purchase Price of the Shares for each thirty (30) day period of the
suspension. The payment set forth above shall be pro-rated daily as to periods
of less than thirty (30) days. Such payment shall be made to the Purchaser by
cashiers check or wire transfer in immediately available funds to such account
as shall be designated in writing by the Purchaser, and shall be paid
irrespective of the amount of Registrable Securities held by Purchaser on or
after the date following the suspension.
(C) Any amount payable pursuant to the foregoing provisions of this
Subsection (iv) shall be delivered on or before the fifth (5th) day following
the end of the calendar month in which such payment obligation arose. The
"Purchase Price" of Registrable Securities shall be (1) if derived from
conversion or substitution of Shares, the Purchase Price of the Shares, and (2)
if received in satisfaction of a Company obligation, the dollar amount of such
obligation.
(D) This Subsection is in addition to the provisions of Section 7.2(a)
hereof.
(c) If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Purchaser)
any of its stock or other securities under the Act in connection with a public
offering of such securities (other than a registration on Form S-4, Form S-8 or
other limited purpose form) and all Registrable Securities have not theretofore
been included in a registration statement under Subsection (b) of this Section
1.4 which remains effective, the Company shall, at such time, promptly give all
holders of Registrable Securities written notice of such registration. Upon the
written request of any holder of Registrable Securities given within twenty (20)
days after receipt of such notice by the holder of Registrable Securities, the
Company shall use its best efforts to cause to be registered under the Act all
Registrable Securities that such holder of Registrable Securities requests to be
registered. However, the Company shall have no obligation under this Subsection
(c) if (i) the Registrable Securities may be sold without registration under
Rule 144(k) and the Company's transfer agent has accepted an instruction from
the Company to such effect, (ii) the Registration Statement is filed more than
two (2) years after the Closing Date, or (iii) to the extent that, with respect
to any underwritten offering initiated by the Company later than one calendar
year following the Closing, the managing underwriter of such offering reasonably
notifies such holder(s) in writing of its determination that the Registrable
Securities or a portion thereof shall be excluded therefrom.
(d) Whenever required under this Section 1.4 to effect the registration of
any Registrable Securities including, without limitation, the Initial
Registration, the Company shall, as expeditiously as reasonably possible:
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(i) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its best efforts to cause such registration
to become effective as provided in Section 1.4(b)(i), and keep such registration
statement effective for so long as any holder of Registrable Securities desires
to dispose of the securities covered by such registration statement; provided,
however, that in no event shall the Company be required to keep the Registration
Statement effective for a period greater than two (2) years from the Closing
Date;
(ii) Respond to comments made by the SEC with respect to a registration
statement filed pursuant to this Agreement within ten (10) business days after
the date of the comment letter, and prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement and notify the holders of the
filing and effectiveness of such Registration Statement and any amendments or
supplements;
(iii) Furnish to each holder of Registrable Securities such numbers of
copies of a current prospectus, including a preliminary prospectus, conforming
with the requirements of the Act, copies of the registration statement any
amendment or supplement to any thereof and any documents incorporated by
reference therein and such other documents, all free of charge, as such holder
of Registrable Securities may reasonably require in order to facilitate the
disposition of Registrable Securities owned by such holder of Registrable
Securities;
(iv) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or "Blue Sky" laws of
such jurisdictions as shall be reasonably requested by the holder of Registrable
Securities;
(v) Notify each holder of Registrable Securities immediately of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and use its best efforts to promptly update and/or
correct such prospectus;
(vi) Furnish, at the request of any holder of Registrable Securities in
connection with any underwritten public offering, (A) an opinion of counsel of
the Company, dated the effective date of the registration statement, in form and
substance reasonably satisfactory to the holder and its counsel and covering,
without limitation, such matters as the due authorization and issuance of the
securities being registered and certain matters pertaining to disclosure under
and compliance with securities laws by the Company in connection with the
registration thereof and/or (B) a "comfort" letter or letters of the Company's
independent public accountants provided at the Company's expense in form and
substance reasonably satisfactory to the holder and its counsel;
(vii) Use its best efforts to list the Registrable Securities covered by
such registration statement with any national market or securities exchange on
which such securities are then listed;
(viii) Make available for inspection by the holder of Registrable
Securities, upon request, all SEC Documents (as defined below) filed subsequent
to the Closing and require the Company's officers, directors and employees to
supply all information reasonably requested by any holder of Registrable
Securities in connection with such registration statement: and
(ix) Furnish to each holder of Registrable Securities prompt notice of the
commencement of any stop-order proceedings under the Act, together with copies
of all documents in connection therewith, and use its best efforts to obtain
withdrawal of any such stop order as soon as possible.
(e) Upon request of the Company, each holder of Registrable Securities will
furnish to the Company in connection with any registration under this Section
such information regarding itself, the Registrable Securities and other
securities of the Company held by it, and the intended method of disposition of
such securities as shall be reasonably required to effect the registration of
the Registrable Securities held by such holder of Registrable Securities. The
intended method of disposition (Plan of Distribution) of such securities as so
provided by Purchaser shall be included without alteration in the Registration
Statement covering the Registrable Securities and shall not be changed without
the prior written consent of the Purchaser.
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(f) (i) The Company shall indemnify, defend and hold harmless each holder
of Registrable Securities which are included in a registration statement
pursuant to the provisions of Subsections (b) or (c) hereof and each of its
officers, directors, employees, agents, partners or controlling persons (within
the meaning of the Act) (each, an "indemnified party") from and against, and
shall reimburse such indemnified party with respect to, any and all claims,
suits, demands, causes of action, losses, damages, liabilities, costs or
expenses ("Liabilities") to which such indemnified party may become subject
under the Act or otherwise, arising from or relating to (A) any untrue statement
or alleged untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement
thereto, or (B) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading; provided,
however, that the Company shall not be liable in any such case to the extent
that any such Liability arises out of or is based upon an untrue statement or
omission so made in strict conformity with information furnished by such
indemnified party in writing specifically for use in a registration statement.
(ii) In the event of any registration under the Act of Registrable
Securities pursuant to Subsections (b) or (c), each holder of such Registrable
Securities hereby severally agrees to indemnity, defend and hold harmless the
Company, and its officers, directors, employees, agents, partners, or
controlling persons (within the meaning of the Act) (each, an "indemnified
party") from and against, and shall reimburse such indemnified party with
respect to, any and all Liabilities to which such indemnified party may become
subject under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or (B) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
provided, that such holders will be liable in any such case to the extent and
only to the extent, that any such Liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, prospectus or amendment or supplement
thereto in reliance upon and in conformity with written information furnished by
such holder specifically for use in the preparation thereof.
(iii) Promptly after receipt by any indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against another party (the "indemnifying party")
hereunder, notify such party in writing thereof, but the omission so to notify
such party shall not relieve such party from any Liability which it may have to
the indemnified party other than under this Section and shall only relieve it
from any Liability which it may have to the indemnified party under this section
if and to the extent an indemnifying party is materially prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and such indemnified party shall notify an indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel reasonably satisfactory to such indemnified party, and, after
notice from the indemnifying party to the indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to the indemnified party under this section for any legal expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected; provided however, that if the defendants in any such action include
both parties and the indemnified party shall have reasonably concluded that
there may be reasonable defenses available to them which are different from or
additional to those available to the indemnifying party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of one such
separate counsel and other reasonable expenses related to such participation to
be reimbursed by the indemnifying party as incurred.
(g) (i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to Subsections (b) or (c), all fees, costs and
expenses of and incidental to such registration, inclusion and public offering
shall be borne by the Company, provided, however, that any securityholders
participating in such registration shall bear their pro-rata share of the
underwriting discounts and commissions, if any, incurred by them in connection
with such registration.
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(ii) The fees, costs and expenses of registration to be borne by the
Company as provided in this Subsection shall include, without limitation, all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, and all legal fees and disbursements
and other expenses of complying with state securities or Blue Sky laws of any
jurisdiction or jurisdictions in which securities to be offered are to be
registered and qualified. Subject to appropriate agreements as to
confidentiality, the Company shall make available to the holders of Registrable
Securities and their counsel its documents and personnel for due diligence
purposes. Except as otherwise provided herein, fees and disbursements of counsel
and accountants for the selling security holders shall be borne by the
respective selling security holders.
(h) The rights to cause the Company to register all or any portion of
Registrable Securities pursuant to this Section 1.4 may be assigned by Purchaser
to a transferee or assignee. Within a reasonable time after such transfer, the
Purchaser shall notify the Company of the name and address of such transferee or
assignee, and the securities with respect to which such registration rights are
being assigned. Such assignment shall be effective only if, immediately
following such transfer, the further disposition of such securities by the
transferee or assignee is restricted under the Act. Any transferee asserting
registration rights hereunder shall be bound by the applicable provisions of
this Agreement.
(i) The Company shall not agree to allow the holders of any securities of
the Company to include any of their securities in any registration statement
filed by the Company pursuant to Subsection (b) unless such inclusion will not
reduce the amount of the Registrable Securities included therein.
Section 1.5 Company Standoff, Except in a corporate reorganization,
business combination, stock or asset purchase, merger or consolidation, under
existing employee stock incentive or purchase plans or pursuant to this
Agreement, the Company shall not for its own account effect any public sale or
distribution of any securities similar to the Registrable Securities or any
securities exercisable for or convertible or changeable into the Registrable
Securities during the thirty (30) days prior to, and during the sixty (60) days
immediately following, the effective date of any registration statement filed or
amended pursuant to Section 1.4(b); provided, however, that the Company may
effect such public sale or distribution during the sixty (60) days immediately
following the effective date of such registration statement if such sale or
distribution of securities is at a price equal to or greater than 125% of the
last trade price of the Company's Common Stock on the day of Closing.
Section 2.1 Representations and Warranties of the Purchaser. The Purchaser
makes the following representations and warranties to the Company.
(a) Accredited Investor. The Purchaser is an "accredited investor", as such
term is defined in Rule 50 1 (a) of Regulation D, promulgated under the Act.
(b) Speculative Investment. The Purchaser is aware that an investment in
the Shares is highly speculative and subject to substantial risks. The Purchaser
is capable of bearing the high degree of economic risk and the burden of this
venture, including, but not limited to, the possibility of complete loss of the
Purchaser's investment in the Shares and underlying Common Stock which make
liquidation of this investment impossible for the indefinite future.
(c) Disposition. The Purchaser understands that (i) except as provided for
in Section 1.4, the Shares and underlying Common Stock of the Company (the
"Securities"), have not been and are not being registered under the Securities
Act or any applicable state securities laws, and may not be transferred unless
(A) subsequently registered thereunder, or (B) the Securities may be sold or
transferred pursuant to an exemption from securities registration under the
Securities Act and any applicable state securities laws or (C) sold pursuant to
Rule 144, promulgated under the Securities Act (or any successor Rule), or (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of such Rule and further, if such Rule is not
applicable, any resale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with another exemption under the Securities Act or the rules of the
SEC thereunder. Notwithstanding any provision to the contrary contained herein,
a holder may pledge such Securities as collateral for a revolving credit note
pursuant to a loan and security agreement with a lending institution.
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(d) Privately Offered. The offer to acquire the Shares was directly
communicated to the Purchaser in such manner that the Purchaser was able to ask
questions of and receive answers concerning the terms and conditions of this
transaction. At no time was the Purchaser presented with or solicited by or
through any leaflet, public promotional meeting, television advertisement, or
any other form of general advertising.
(e) Purchase for Investment, The Securities are being acquired solely for
the Purchaser's own account, for investment, and are not being purchased with
view to the resale, distribution, subdivision or fractionalization thereof
without proper registration with applicable securities administrators.
Section 2.2 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) Organizations and Qualifications. The Company is a corporation duly
incorporated and existing in good standing under the laws of the Commonwealth of
Massachusetts and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries except as listed in Exhibit B, attached hereto and incorporated
herein by reference. The Company and each such subsidiary, if any, is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect", for purposes of this Agreement, means any adverse effect on the
business operations, properties, prospects, or financial condition of the entity
with respect to which such term is used and which is material to such entity and
other entities controlled by such entity taken as a whole.
(b) Authorizations Enforcement. (i) The Company has the requisite corporate
power and authority to enter into and perform this Agreement and to issue the
Shares and Registrable Securities in accordance with the terms hereof, (ii) the
execution and delivery of this Agreement by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required, (iii) this
Agreement has been duly executed and delivered by the Company, (iv) this
Agreement constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditor' rights and remedies or by other equitable principles of general
application) and (v) prior to the Closing Date, any necessary Certificate of
Amendment to the Company's Charter authorizing Company to issue all of the
Shares and Registerable Securities, in accordance with Schedule 1, will have
been filed with the Massachusetts Secretary of State and will be in full force
and effect enforceable against the Company in accordance with the terms of such
amended Charter.
(c) Authorized Capital Rights or Commitments to Stock. The authorized
capital stock of the Company consists of 22,200,000 shares of Common Stock and
1,000,000 shares of Series A Preferred Stock; there are 4,704,956 shares of
Common Stock issued and 730,292 shares of Class B Common Stock outstanding;
there are no shares of such Preferred Stock issued and outstanding; and, upon
issuance of the Shares in accordance with the terms hereof, there will be
4,704,956 shares of Class B Common Stock and 950 shares of such Preferred Stock
issued and outstanding.
All of the outstanding shares of the Company's Common Stock have been
validly issued and are fully paid and nonassessable. Except as set forth in
Exhibit B hereto or as described in the SEC Documents, no shares of Common
Stock are entitled to preemptive rights or registration rights and there are
no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, or commitments to purchase
or acquire, any shares. or securities or rights convertible into shares, of
capital stock of the Company. The Company has furnished or made available to
the Purchaser true and correct copies of the Company's Articles of
Organization as in effect on the date hereof (the "Charter"), and the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
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(d) Issuance of Shares. The issuance of the Shares has been duly authorized
and, when paid for and issued in accordance with the terms hereof, the shall be
validly issued, fully paid and non-assessable and entitled to the rights and
preferences set forth in Schedule I hereto. The Common Stock issuable upon
conversion of the Shares will be duly authorized and reserved for issuance and,
upon conversion, will be validly issued, fully paid and non-assessable and the
holders shall be entitled to all rights and preferences accorded to a holder of
Common Stock.
(e) No Conflicts. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby do not and will not (i) result in a violation of the
Company's Charter or By-Laws or (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any federal,
state, local or foreign law, rule, regulation, order, judgment or decree
(including Federal and state securities laws and regulations) applicable to the
Company or any of its subsidiaries or by which any property or assets of the
Company or any of its subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect); provided that, for purposes of such representation as to
Federal, state, local or foreign law, rule or regulation, no representation is
made herein with respect to any of the same applicable solely to the Purchaser
and not to the Company. The business of the Company is not being conducted in
violation of any law, ordinance or regulations of any governmental entity,
except for violations which either singly or in the aggregate do not and will
not have a Material Adverse Effect. The Company is not required under Federal,
state or local law, rule or regulation in the United States to obtain any
consent, authorization or order of, or make any filing (other than any filing of
a vote establishing a class or series of stock with the Massachusetts Secretary
of State) or registration with, any court or governmental agency in order for it
to execute, deliver or perform any of its obligations under this Agreement or
issue and sell the Shares in accordance with the terms hereof (other than any
SEC, NASD or state securities filings which may be required to be made by the
Company subsequent to the Closing, and any registration statement which may be
filed pursuant hereto); provided that, for purposes of the representation made
in this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchaser herein.
(f) SEC Documents, Financial Statements. The Common Stock of the Company is
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and, except as set forth in Exhibit B, the Company
has filed on a timely basis all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
13(a) or 15(d), in addition to one or more registration statements and
amendments thereto heretofore filed by the Company with the SEC under the Act
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the "SEC Documents"). The Company directly or through its
agent has delivered to the Purchaser true and complete copies of the SEC
Documents except for the exhibits and incorporated documents. The Company has
not provided to the Purchaser any information which, according to applicable
law, rule or regulation, should have been disclosed publicly by the Company but
which has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement.
Except as set forth in Exhibit B, as of their respective dates the SEC
Documents complied in all material respects with the requirements of the Act or
the Exchange Act as the case may be and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except as set forth in Exhibit B, the financial statements of the
Company included in the SEC Documents comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
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(g) No Material Adverse Change. Since the date through which the most
recent quarterly report of the Company on Form 10-Q has been prepared and filed
with the SEC, a copy of which is included in the SEC Documents, no Material
Adverse Effect has occurred or exists with respect to the Company or any of its
subsidiaries.
(h) No Undisclosed Liabilities. The Company and its subsidiaries have no
material liabilities or obligations not disclosed in the SEC Documents, other
than those incurred in the ordinary course of the Company's or any of its
subsidiaries' respective businesses since the date of the most recently filed
SEC Documents which, individually or in the aggregate, do not or would not have
a Material Adverse Effect on the Company or any of its subsidiaries.
(i) No Undisclosed Events or Circumstances. No event or circumstance has
occurred or exists with respect to the Company or any of its subsidiaries or
their respective businesses, properties, prospects, operations or financial
condition which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed.
(j) No General Solicitation. Neither the Company, nor any of its
affiliates, or, to the best of its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) in connection with the offer
or sale of the Shares.
(k) No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Shares under the Act.
Section 3.1 Securities Compliance. The Company shall notify the SEC and
NASD, in accordance with their requirements, of the transactions contemplated by
this Agreement, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Shares, and the Common Stock issuable upon conversion
thereof, to the Purchaser.
Section 3.2 Registration and Listing. Until. at least two (2) years after
all Shares have been converted into Registrable Securities, the Company will
cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, will comply in all respects with its reporting and
filing obligations under such Exchange Act, will comply with all requirements
related to any registration statement filed pursuant to this Agreement and will
not take any action or file any document (whether or not permitted by the Act or
the Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Acts, except as permitted herein. Until at least two (2) years after
all Shares have been converted into Common Stock the Company will take all
action within its power to continue the listing or trading of its Common Stock
on the NASDAQ Small Cap Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the NASD and NASDAQ. The covenants set forth in this Section 3.2 shall not be
deemed to prohibit a merger, sale of all assets or other corporate
reorganization if the entity surviving or succeeding to the Company is bound by
this Agreement with respect to its securities issued in exchange for or in
replacement of the Shares or Common Stock or the consideration received for or
in replacement of the Shares or Common Stock is cash.
Section 3.3 Right of First Refusal and Most-Favored-Nation Clause. If at
any time during the period beginning on the fifth (5th) day prior to (but not
including) the Closing Date and ending sixty (60) days immediately following the
effective date of the Initial Registration, the Company proposes to issue Common
Stock or securities convertible into or exercisable for Common Stock or other
convertible securities, pursuant to an offering exempt from registration under
the Act, the Company shall provide to Purchaser reasonable advance notice of all
the terms of such proposed issuance. The Purchaser shall have the right to
purchase or refuse to purchase all or any part of such securities proposed to be
issued in such offering, and shall have at least seventy two (72) hours after
receipt of such notice to review the terms of the proposed issuance.
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If the Company issues Common Stock or securities convertible into or
exercisable for Common Stock or other convertible securities, at a time when any
of the Shares remain outstanding, at an effective price per share of Common
Stock which is lower than the conversion price of the Shares at that time, then
the Company shall, within five (5) business days, deliver to each holder upon
conversion an additional number of shares of Common Stock necessary to reduce
the effective conversion price to such lower issue price. This Section shall not
be applicable to issuances of Common Stock pursuant to (a) any business
combination, acquisition transaction, stock or asset purchase undertaken by the
Company or (b) any shareholder-approved option plan covering not more than 10%
of the Company's outstanding stock.
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to issue and/or sell the
Shares to the Purchaser is subject to the satisfaction, at or before the
Closing, of each of the conditions set forth below. These conditions may be
waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranting. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by the Purchaser. The Purchaser shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation. executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(d) Legal action. No legal action, suit or proceeding shall be pending or
threatened which seeks to restrain or prohibit the transactions contemplated by
this Agreement.
(e) Execution. The Purchaser shall have executed this Agreement, and
delivered such Agreement to the Company.
(f) Purchase Price. The Purchaser shall have delivered the Purchase Price
in accordance with Section 1.3(b) above.
Section 4.2 Conditions Precedent to the Obligation of the Purchaser to
Purchase the Shares. The obligation hereunder of the Purchaser to acquire and
pay for the Shares is subject to the satisfaction, at or before the Closing, of
each of the conditions set forth below. These conditions may be waived by the
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by the Company. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.
(c) NASDAO. From the date hereof to the Closing Date, trading in the
Company's Common Stock shall not have been suspended by the SEC or the NASDAQ
Small Cap Market (except for any suspension of trading of limited duration
agreed to between the Company and the NASDAQ Small Cap Market solely to permit
dissemination of material information regarding the Company), and trading in
securities generally as reported by NASDAQ shall not have been suspended or
limited or minimum prices shall not have been established on
securities whose trades are reported by NASDAQ.
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<PAGE>
(d) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(e) Opinion of Counsel Etc. The Purchaser shall have received before or at
the Closing an opinion of counsel to the Company (covering, without limitation,
such of the matters set forth in Section 2.2(a) through (e)), as are in form and
substance reasonably satisfactory to the Purchaser and its counsel, and such
other certificates and documents as the Purchaser or its counsel shall
reasonably require incident to the Closing.
(f) Execution. The Company shall have executed this Agreement, and
delivered such Agreement to the Purchaser.
Section 5.1 Legend on Stock. Each certificate representing the Shares and,
if necessary, Common Stock issued upon conversion thereof, shall be stamped or
otherwise imprinted with a legend substantially in the following form:
THESE SECURITIES [AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION
HEREOF] HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR, IN THE OPINION OF COUNSEL, REGISTRATION UNDER SUCH ACT
OR APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH SUCH SALE
OR OFFER, AND SUCH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY.
The Company agrees to reissue certificates representing the Shares or, if
applicable, the Common Stock issued upon conversion thereof, without the legend
set forth above at such time as (a) the holder thereof is permitted to dispose
of such Shares (or securities issued upon conversion thereof) pursuant to Rule
144(k) under the Act, (b) the securities are sold to a purchaser or purchasers
who (in the opinion of counsel to such holders, in form and substance reasonably
satisfactory to the Company and its counsel) are able to dispose of such
securities publicly without registration under the Act, or (iii) such securities
are registered under the Act
Section 6.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the mutual written consent of the Company,
and the Purchaser.
Section 6.2 Other Termination. This Agreement may be terminated by action
of the Board of Directors or other governing body of the Purchaser or the
Company at any time if the Closing shall not have been consummated by the fifth
(5th) business day following the date of this Agreement, provided that the party
seeking to terminate the Agreement is not in breach of the Agreement.
Section 6.3 Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the seventh (7th) business day following the date of this
Agreement, provided, however, that any such termination shall not terminate the
liability of any party which is then in breach of the Agreement.
Section 7.1 Fees and Expenses. Except as otherwise set forth in Section 1.4
hereof with respect to the registration of Registrable Securities, the Company
shall pay the fees, commissions and expenses of its advisers, brokers, finders,
counsel, accountants and other experts, if any, and all other expenses
associated therewith, and shall on the Closing Date reimburse ProFutures Special
Equities Fund, L.P. up to $5,000 for fees and expenses of its counsel in
connection with the preparation, negotiation and coordination of this Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares and Common Stock pursuant hereto.
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<PAGE>
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchaser acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) The Company and the Purchaser each (i) hereby irrevocably submits to
the jurisdiction of the United States District Court and other courts of the
United States sitting in the State of Texas for the purposes of any suit, action
or proceeding arising out of or relating to this Agreement and (ii) hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. The Company and the
Purchaser each consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
paragraph shall affect or limit any right to serve process in any other manner
permitted by law.
Section 7.3 Entire Agreement: Amendment. This Agreement contains the entire
understanding of the parties with respect to the matters covered hereby and,
except as specifically set forth herein, neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second (2nd) business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
to the Company: Bruce A. Shear, President and Chief Executive Officer
PHC, Inc.
200 Lake Street -- Suite 102
Peabody, Massachusetts 01960
to the Purchaser: At the address set forth at the foot of this Agreement or
as specified in writing by Purchaser.
Any party hereto may from time to time change its address for notices by giving
at least ten (10) days' written notice of such changed address to the other
party hereto.
Section 7.5 Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter.
Section 7.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
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<PAGE>
Section 7.7 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the present state
of incorporation of the Company without regard to such state's principles of
conflict of laws.
Section 7.8 Survival. The representations and warranties of the Company and
the Purchaser contained in herein and the agreements and covenants set forth in
Sections 1.1 through 1.5, 3.1 through 3.3 and 7.1 through 7.16 shall survive the
Closing for a period of two (2) years.
Section 7.9 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchaser without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
Section 7.10 NASDAO. The term "NASDAQ" or "NASDAQ Small Cap Market" herein
refers to the principal market on which the Common Stock of the Company is
traded. If the Common Stock is listed on a securities exchange. or if another
market becomes the principal market on which the Common Stock is traded or
through which price quotations for the Common Stock are reported, the term
"NASDAQ" or "NASDAQ Small Cap Market" shall be deemed to refer to such exchange
or other principal market.
Section 7.11 Acceptance. Execution and delivery of this Agreement shall
constitute an offer to purchase the Shares, which offer, unless previously
revoked by the Purchaser, may be accepted or rejected by the Company, in its
sole discretion for any cause or for no cause and without liability to the
Purchaser. The Company shall indicate acceptance of this Agreement by signing as
indicated on the signature page hereof.
Section 7.12 Binding Agreement. Upon acceptance of this Agreement by the
Company, the Purchaser agrees that he may not cancel, terminate or revoke any
agreement of the Purchaser made hereunder, and that this Agreement shall survive
the death or disability of the Purchaser and shall be binding upon heirs,
successors, assigns, executors, administrators, guardians, conservators or
personal representatives of the Purchaser.
Section 7.13 Incorporation by Reference. All information set forth on the
signature page is incorporated as integral terms of this Agreement.
Section 7.14 Counterparts. This Agreement may be signed in multiple
counterparts, which counterparts shall constitute one and the same original
instrument.
Section 7.15 Severability. If any portion of this Agreement shall be held
illegal, unenforceable, void or voidable by any court each of the remaining
terms hereof shall nevertheless remain in full force and effect as a separate
contract.
Section 7.16 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
[This space has been left blank intentionally. The signature page follows.]
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<PAGE>
IN WITNESS THEREOF, the Purchaser has executed this Agreement on the date set
forth below.
For the purchase price of $1,000 per Share, the Purchaser tenders herewith the
full purchase price of:
$500,000 (500 shares)
Number of Shares of Common Stock to be issuable under the Warrant:
26,315 shares
The exact name(s) (Including correct, legible spelling) and the information
under which title to the Shares will be taken is as follows (Please print or
type):
ProFutures Special Equities Fund, L.P.
Address of Purchaser: % ProFutures Fund Management, Inc.
1030 Highway 620 South - Suite 200
Austin, TX 78734
Social Security or IRS Employer Identification Number(s):
74-2786952
Signature of Purchaser: Dated March 13, 1998
IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:
______________________________________________
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)
IF PURCHASER IS AN ENTITY:
Name of Entity: ProFutures Special Equities Fund, L.P.
By ProFutures Fund Management, Inc., a General Partner
By: ______________________________________
(Signature)
Name: /s/ Gary D. Halbert
Title: President
Accepted by:
PHC, INC., a Massachusetts corporation
By: ___________________________________
(Signature)
Name: /s/ Bruce A. Shear
Title: President
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<PAGE>
IN WITNESS THEREOF, the Purchaser has executed this Agreement on the date set
forth below.
For the purchase price of $1,000 per Share, the Purchaser tenders herewith the
full purchase price of:
$150,000 (150 shares)
Number of Shares of Common Stock to be issuable under the Warrant:
7,890 shares
The exact name(s)(Including correct,legible spelling) and the information under
which title to the Shares will be taken is as follows (Please print or type):
Gary D. Halbert
Address of Purchaser: 1030 Highway 620 South - Suite 200
Austin, TX 78734
Social Security or IRS Employer Identification Number(s):
###-##-####
Signature of Purchaser: Dated March 13, 1998
IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:
/s/ Gary D. Halbert
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)
IF PURCHASER IS AN ENTITY:
Name of Entity: _______________________________________
By: ______________________________________
(Signature)
Name: ____________________________________________
Title: ____________________________________________
Accepted by:
PHC, INC., a Massachusetts corporation
By: ___________________________________
(Signature)
Name: /s/ Bruce A. Shear
Title: President
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<PAGE>
IN WITNESS THEREOF, the Purchaser has executed this Agreement on the date set
forth below.
For the purchase price of $1,000 per Share, the Purchaser tenders herewith the
full purchase price of:
$100,000 (100 shares)
Number of Shares of Common Stock to be issuable under the Warrant:
5,260 shares
The exact name(s) (Including correct, legible spelling) and the information
under which title to the Shares will be taken is as follows (Please print or
type):
John F. Mauldin
Address of Purchaser: 1000 Ballpark in Arlington - Suite 216
Arlington, TX 76011
Social Security or IRS Employer Identification Number(s):
###-##-####
Signature of Purchaser: Dated March 13, 1998
IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:
/s/ John F. Mauldin
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)
IF PURCHASER IS AN ENTITY:
Name of Entity: ________________________________
By: ______________________________________
(Signature)
Name: _________________________________
Title: _________________________________
Accepted by:
PHC, INC., a Massachusetts corporation
By: ___________________________________
(Signature)
Name: /s/ Bruce A. Shear
Title: President
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<PAGE>
IN WITNESS THEREOF, the Purchaser has executed this Agreement on the date set
forth below.
For the purchase price of $1,000 per Share, the Purchaser tenders herewith the
full purchase price of:
$200,000 (200 shares)
Number of Shares of Common Stock to be issuable under the Warrant:
10,525 shares
The exact name(s) (Including correct, legible spelling) and the information
under which title to the Shares will be taken is as follows (Please print or
type):
Augustine Fund, L.P.
Address of Purchaser: 141 West Jackson Boulevard - Suite 2182
Chicago, IL 60604
Social Security or IRS Employer Identification Number(s):
36-418-6782
Signature of Purchaser: Dated March 13, 1998
IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:
______________________________________________
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)
IF PURCHASER IS AN ENTITY:
Name of Entity: Augustine Fund, L.P.
By Augustine Capital Management, Inc., the General Partner
By: ______________________________________
(Signature)
Name: /s/ Thomas Duszynski
Title: Chief Operating Officer
Accepted by:
PHC, INC., a Massachusetts corporation
By: ___________________________________
(Signature)
Name: /s/ Bruce A. Shear
Title: President
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<PAGE>
SCHEDULE I
PHC, INC.
RESOLUTIONS ESTABLISHING RIGHTS AND PREFERENCES
FOR SERIES A CONVERTIBLE PREFERRED STOCK
RESOLVED, that there shall be a series of shares of the Corporation
designated "Series A Convertible Preferred Stock"; that the number of shares of
such series shall be 1,000, that the Corporation issue such shares, and that the
rights and preferences of such series (the "6% Preferred") and the limitations
or restrictions thereon, shall be as set forth herein.
The following terms and conditions shall be adopted and incorporated by
reference into the foregoing resolutions as if fully set forth therein:
1. Dividends.
(a) The holders of the 6% Preferred shall be entitled to receive out of any
assets legally available therefor cumulative dividends at the rate of $60 per
share per annum, accrued daily and payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, in preference and priority
to any payment of any dividend on the Common Stock or any other class or series
of stock of the Corporation. Such dividends shall accrue on any given share from
the day of original issuance of such share and shall accrue from day to day
whether or not earned or declared. If at any time dividends on the outstanding
6% Preferred at the rate set forth above shall not have been paid or declared
and set apart for payment with respect to all preceding periods, the amount of
the deficiency shall be fully paid or declared and set apart for payment, but
without interest, before any distribution, whether by way of dividend or
otherwise, shall be declared or paid upon or set apart for the shares of any
other class or series of stock of the Corporation.
(b) Any dividend payable on a dividend payment date may be paid, at the
option of the Corporation, either (i) in cash or (ii) in shares of 6% Preferred
valued at $1,000 per share, if the Common Stock issuable upon conversion of such
shares has been registered for resale under the Securities Act of 1933, as
amended (the "Act"), and the registration statement including a current
prospectus with respect thereto remains in effect at the date of delivery of
such shares, and if the Corporation shall have given written notice of its
intention to pay such dividend in stock to all holders of the 6% Preferred at
least ten (10) days before the record date for such dividend.
2. Liquidation Preference, Redemption.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the 6% Preferred
shall be entitled to receive, prior and in preference to any distribution of any
assets of the Corporation to the holders of any other class or series of shares,
the amount of $1,000 per share plus any accrued but unpaid dividends (the
"Liquidation Preference").
(b) A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation (other than a sale or transfer to a wholly-owned subsidiary
of the Corporation), shall, at the option of the holders of the 6% Preferred, be
deemed a liquidation, dissolution or winding up within the meaning of this
Section 2 if the shares of stock of the Corporation outstanding immediately
prior to such transaction represent immediately after such transaction less than
a majority of the voting power of the surviving corporation (or of the acquirer
of the Corporation's assets in the case of a sale of assets). Such option may be
exercised by the vote or written consent of holders of a majority of the 6%
Preferred at any time within thirty (30) days after written notice (which shall
be given promptly) of the essential terms of such transaction shall have been
given to the holders of the 6% Preferred in the manner provided by law for the
giving of notice of meetings of shareholders.
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<PAGE>
(c) The Corporation may, at its option, cause all outstanding shares of the
6% Preferred to be redeemed after the date on which a registration statement
under the Act ("Registration Statement") has been declared effective (the
"effective date"); provided the Corporation has given notice of its intention to
redeem to the holders of the 6% Preferred at least five (5) days prior to the
redemption date. In addition, if any conversion of 6% Preferred, when aggregated
with all prior conversions, will cause the Company to issue a number of shares
of Common Stock which exceeds twenty percent (20%) of the shares of Common Stock
then issued and outstanding, the Company shall redeem such number of shares of
6% Preferred as is necessary to limit such issuance of Common Stock to twenty
percent (20%) of the shares of Common Stock then issued and outstanding, unless
the Company has previously obtained stockholder approval to issue in excess of
twenty percent (20%) of the shares of Common Stock then issued and outstanding.
If a redemption will occur under either of the preceding sentences, on the
redemption date, the Corporation shall pay such holders by cashiers check or
wire transfer in immediately available funds the amount of $1,300 per share of
6% Preferred plus all accrued but unpaid dividends. Promptly thereafter, the
holders shall surrender the certificate or certificates representing the 6%
Preferred, duly endorsed, at the office of the Corporation or of any transfer
agent for such shares, or at such other place designated by the Corporation.
3. 6% Preferred - Forced Conversion.
(a) The Corporation may, at its option, cause all outstanding shares of the
6% Preferred to be converted into Common Stock at any time beginning one (1)
year after the date of issuance, on at least twenty (20) days' advance notice,
at a conversion price determined as set forth in Section 4 hereof (the
"Conversion Price") as of the date specified in such notice (the "Conversion
Date") and otherwise on the terms set forth in Section 4 hereof, provided, that
the Corporation may not exercise such right of conversion unless (i) the Closing
Price (last trade price) of the Common Stock as reported by NASDAQ for the
twenty (20) consecutive trading days prior to the date the Conversion Notice is
mailed has not on any day been less than one hundred forty percent (140%) of the
last trade price of the Company's Common Stock on the day of Closing (subject to
adjustment for stock dividends, stock splits and reverse stock splits), and (ii)
the shares issuable upon conversion of the 6% Preferred are registered for
resale by an effective Registration Statement which became effective not more
than one hundred twenty (120) days after the date of issuance of the 6%
Preferred, and a current prospectus meeting the requirements of Section 10 of
the Act is available for delivery at the Conversion Date.
(b) At least twenty (20) days prior to the Conversion Date, written notice
(the "Conversion Notice") shall be mailed, first class postage prepaid, by the
Corporation to each holder of record of the 6% Preferred, at the address last
shown on the records of the Corporation for such holder, notifying such holder
of the conversion which is to be effected, specifying the Conversion Date and
calling upon each such holder to surrender to the Corporation, in the manner and
at the place designated, a certificate or certificates representing the number
of shares of 6% Preferred held by such holder. Subject to the provisions of the
following subsection (c), on or after the Conversion Date, each holder of 6%
Preferred shall surrender to the Corporation the certificate or certificates
representing the shares of 6% Preferred owned by such holder as of the
Conversion Date, in the manner and at the place designated in the Conversion
Notice, and thereupon the shares issuable upon such conversion shall be
delivered as provided in Section 4(b) hereof.
(c) If, on the Conversion Date, the registration condition specified in
clause (ii) of subsection (a) shall not be satisfied, then no shares shall be
converted and the Conversion Notice shall be deemed to be withdrawn. In such
event, any certificates for 6% Preferred which have been surrendered for
conversion shall be returned to the persons surrendering the same; provided,
however, that if a holder has received shares of Common Stock upon conversion of
6% Preferred after the Conversion Notice was given but before the Conversion
Date, such holder may elect either to retain such Common Stock or rescind such
conversion by tendering such shares of Common Stock to the Corporation.
(d) On the second anniversary of the issuance of the 6% Preferred, all then
outstanding shares of 6% Preferred shall be automatically converted into Common
Stock at the Conversion Price and otherwise pursuant to the applicable
provisions set forth in Section 4 hereof.
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<PAGE>
4. 6% Preferred - Optional Conversion. The holders of the 6% Preferred
shall have optional conversion rights as follows:
(a) Right to Convert. At any time after the earlier of (i) the date on
which a Registration Statement has been declared effective, or (ii) the close of
business on the ninety first (91st) day following the date of issuance of the 6%
Preferred, shares of 6% Preferred shall become convertible, at the option of the
holder thereof, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing (A) the Liquidation Preference of the
6% Preferred determined pursuant to Section 2 hereof on the date the notice of
conversion is given, by (B) the Conversion Price determined as hereinafter
provided in effect on the applicable conversion date.
(b) Mechanics of Conversion. To convert shares of 6% Preferred into shares
of Common Stock, the holder shall give written notice to the Corporation (which
notice may be given by facsimile transmission) that such holder elects to
convert the shares and shall state therein date of the conversion, the number of
shares to be converted and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. Promptly
thereafter, the holder shall surrender the certificate or certificates
representing the shares to be converted, duly endorsed, at the office of the
Corporation or of any transfer agent for such shares, or at such other place
designated by the Corporation; provided that the holder shall not be required to
deliver the certificates representing such shares if the holder is waiting to
receive all or part of such certificates from the Corporation. The Corporation
shall, immediately upon receipt of such notice, issue and deliver to or upon the
order of such holder, against delivery of the certificates representing the
shares which have been converted, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled and such
certificate or certificates shall not bear any restrictive legend; provided (A)
the Common Stock evidenced thereby are sold pursuant to an effective
registration statement under the Act, (B) the holder provides the Corporation
with an opinion of counsel reasonably acceptable to the Corporation to the
effect that a public sale of such shares may be made without registration under
the Act, or (C) such holder provides the Corporation with reasonable assurance
that such shares can be sold free of any limitations imposed by Rule 144,
promulgated under the Act. The Corporation shall cause such issuance and
delivery to be effected within three (3) business days and shall transmit the
certificates by messenger or overnight delivery service to reach the address
designated by such holder within three (3) business days after the receipt of
such notice. The notice of conversion may be given by a holder at any time
during the day up to 5:00 p.m. Boston, Massachusetts time and such conversion
shall be deemed to have been made immediately prior to the close of business on
the date such notice of conversion is given (a "conversion date"). The person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock at the close of business on such date.
(c) Conversion, Redemption and Note Delivery Required. The Corporation
acknowledges and understands that a delay in the issuance of the Common Stock
upon conversion or pursuant to a redemption according to the provisions hereof,
or a delay in delivering the Promissory Note set forth in Subsection (d) hereof,
could result in economic loss to the holders of the 6% Preferred. As
compensation to any holder when the Corporation has failed with respect to such
holder to comply with the Corporation's obligations hereunder, and not as a
penalty, the Corporation shall pay to such holder liquidated damages of $500 per
day plus an amount equal to: (i) two percent (2%) of the total Purchase Price of
Shares for the first thirty (30) day period after the date on which the Common
Stock should have been issued by the Corporation (i.e., the end of the three (3)
business day period described in Subsection (b)), shares of 6% Preferred
redeemed by the Corporation or Promissory Note delivered to holder (i.e., the
end of the three (3) business day period described in Subsection (d)), as
applicable; plus (ii) an amount equal to three percent (3%) of the total
Purchase Price of Shares for each subsequent thirty (30) day period thereafter.
Amounts payable shall be pro-rated daily as to a periods of less than thirty
(30) days. Such amounts shall be paid to the holder at the end of each month in
which such amounts have accrued. Payment shall be made immediately by cashier's
check or wire transfer in immediately available funds to such account as shall
be designated in writing by the holder. Each holder shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of
hereof and. to enforce specifically the terms and provisions hereof, this being,
in addition to any other remedy to which a holder may be entitled by law or
equity.
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<PAGE>
(d) Determination of Conversion Price:
(i )The "Conversion Price" for purposes of hereof shall be equal to eighty
percent (80%) of the average of the closing bid prices of the Common Stock as
reported by NASDAQ during the five (5) consecutive trading days preceding the
conversion date (but not including such date); provided, however, that in no
event may the Conversion Price be more than three dollars and twenty cents
($3.20) (the "Maximum Conversion Price") or less than an amount equal to the
closing bid price per share of the Common Stock on the date of issuance minus
fifty cents ($0.50) (the "Minimum Conversion Price"). If, but for this Section
4(d)(i), the Conversion Price would have been below Minimum Conversion Price,
the Company shall pay the holder by delivering to holder a Promissory Note, the
form which has been delivered to the Corporation and is incorporated herein by
reference, bearing the principal amount equal to the difference between (A) the
number of shares of Common Stock that would have been issued at the amount the
Conversion Price would have been but for this Section 4(d)(i) multiplied by 100%
of the closing bid price of the Common Stock on the conversion date as
determined in accordance with the Subsection (d) (the latter amount being
referred to herein as the "Conversion Date Price"), minus (B) the number of
shares of Common Stock actually issued pursuant to the conversion multiplied by
the Conversion Date Price. Such Promissory Note shall be delivered to holder by
the third (3rd) day following the applicable conversion date.
(ii) The "closing bid price" of the Common Stock on a trading day shall be
the closing bid price of the Common Stock on the NASDAQ Small Cap Market or any
other principal securities price quotation system or market on which prices of
the Common Stock are reported. The term "trading day" means a day on which
trading is reported on the principal quotation system or market on which prices
of the Common Stock are reported.
(iii) If, during the period of consecutive trading days provided for above,
the Corporation shall declare or pay any dividend on the Common Stock payable in
Common Stock or in rights to acquire Common Stock, or shall effect a stock split
or reverse stock split, or a combination, consolidation or reclassification of
the Common Stock, the Conversion Price, Maximum Conversion Price and Minimum
Conversion Price shall be proportionately decreased or increased, as
appropriate, to give effect to such event.
(e) Distributions. If the Corporation shall at any time or from time to
time make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation or any of its subsidiaries other than additional
shares of Common Stock, then in each such event provision shall be made so that
the holders of 6% Preferred shall receive, upon the conversion thereof, the
securities of the Corporation which they would have received had they been the
owners on the date of such event of the number of shares of Common Stock
issuable to them upon conversion.
(f) Certificates as to Adjustments. Upon the occurrence of any adjustment
or readjustment of the Conversion Price, the Maximum Conversion Price and
Minimum Conversion Price pursuant to this Section 4, the Corporation at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and cause the independent public accountants regularly
employed to audit the financial statements of the Corporation to verify such
computation and prepare and furnish to each holder of 6% Preferred a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of 6%. Preferred, furnish or cause
to be furnished to such holder a like certificate prepared by the Corporation
setting forth (i) such adjustments and readjustments, and (ii) the number of
other securities and the amount, if any, of other property which at the time
would be received upon the conversion of 6% Preferred with respect to each share
of Common Stock received upon such conversion.
(g) Notice of Record Date. In the event of any taking by the Corporation of
a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any security or right convertible
into or entitling the holder thereof to receive additional shares of Common
Stock, or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to receive any
other right, the Corporation shall mail to each holder of 6% Preferred at least
ten (10) 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, security or right and the amount and character of such dividend,
distribution, security or right.
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<PAGE>
(h) Issue Taxes. The Corporation shall pay any and all issue and other
taxes, excluding any income, franchise or similar taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of
shares of 6% Preferred pursuant hereto; provided, however, that the Corporation
shall not be obligated to pay any transfer taxes resulting from any transfer
requested by any holder in connection with any such conversion.
(i) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the 6% Preferred, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the 6% Preferred, and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the 6% Preferred, the Corporation will take
such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose, including, without limitation, engaging in best efforts to
obtain any requisite shareholder approval.
(j) Fractional Shares. No fractional shares shall be issued upon the
conversion of any share or shares of 6% Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
6% Preferred by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share. If,
after the aforementioned aggregation, the conversion would result in the
issuance of a fraction of a share of Common Stock, the Corporation shall, in
lieu of issuing any fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the fair market value of such fraction on the
date of conversion (as determined in good faith by the Board of Directors of the
Corporation or an authorized Committee thereof).
(k) Notices. Any notice required by the provisions of this Section to be
given to the holders of shares of 6% Preferred shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at its address appearing on the books of the Corporation.
(1) Reorganization or Merger. In case of any reorganization or any
reclassification of the capital stock of the Corporation or any consolidation or
merger of the Corporation with or into any other corporation or corporations or
a sale of all or substantially all of the assets of the Corporation to any other
person (other than a sale or transfer to a wholly owned subsidiary of the
Corporation), and the holders of 6% Preferred do not elect to treat such
transaction as a liquidation, dissolution or winding up as provided in Section 2
hereof, then, as part of such reorganization, consolidation, merger or sale,
provision shall be made so that each share of 6% Preferred shall thereafter be
convertible into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common Stock
deliverable upon conversion of such share of 6% Preferred would have been
entitled upon the record date of (or date of, if no record date is fixed) such
event and, in any case, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holders of the 6%
Preferred, to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as equivalent as is practicable, in relation to any shares
of stock or the securities or property (including cash) thereafter deliverable
upon the conversion of the shares of 6% Preferred.
5. Re-issuance of Certificates. In the event of a conversion (or, if
applicable, redemption) of 6% Preferred in which less than all of the shares of
6% Preferred of a particular certificate are converted or redeemed, as the case
may be, the Corporation shall promptly without delay cause to be issued and
delivered to the holder of such certificate, a certificate representing the
remaining shares of 6% Preferred which have not been so
converted or redeemed.
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<PAGE>
6. Other Provisions. For all purposes of this Resolution, the term "date of
issuance" and the terms "Closing" or "Closing Date" shall mean the day on which
shares of the 6% Preferred are first issued by the Corporation. Any provision
herein which conflicts with or violates any applicable usury law shall be deemed
modified to the extent necessary to avoid such conflict or violation. The term
"NASDAQ" herein refers to the principal market on which the Common Stock of the
Corporation is traded. If the Common Stock is listed on a securities exchange,
or if another market becomes the principal market on which the Common Stock is
traded or through which price quotations for the Common Stock are reported, the
term "NASDAQ" shall be deemed to refer to such exchange or other principal
market.
7. Restrictions and Limitations. The Corporation shall not undertake the
following actions without the consent of the holders of a majority of the 6%
Preferred: (i) modify its Articles of Organization or Bylaws so as to amend or
change any of the rights, preferences, or privileges of the 6% Preferred, (ii)
authorize or issue any other preferred equity security senior to or on a parity
with the 6% Preferred as to dividends, liquidation preferences, conversion
rights, redemption rights or other rights, preferences or privileges for a
period of thirty (30) days after Closing, as applicable or (iii), purchase or
otherwise acquire for value any Common Stock or other equity security of the
Corporation either junior or senior to or on a parity with the 6% Preferred
while there exists any arrearage in the payment of cumulative dividends
hereunder other than redemptions of stock from terminating employees pursuant to
contractual rights in favor of the Corporation.
8. Voting Rights. Except as provided herein or as provided for by law, the
6% Preferred shall have no voting rights.
9. Attorney's Fees. Any holder of 6% Preferred shall be entitled to recover
from the Corporation the reasonable attorneys' fees and expenses incurred by
such holder in connection with enforcement by such holder of any obligation of
the Corporation hereunder.
10. No Adverse Actions. The Corporation shall not in any manner, whether by
amendment of the Articles of Organization (including, without limitation, any
vote establishing a class or series of stock), merger, reorganization,
recapitalization, consolidation, sales of assets, sale of stock tender offer,
dissolution or otherwise, take any action, or permit any action to be taken,
solely or primarily for the purpose of increasing the value of any class of
stock of the Corporation if the effect of such action is to reduce the value or
security of the 6% Preferred.
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<PAGE>
EXHIBIT A to the Subscription Agreement
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY OTHER SECURITIES
LAWS (THE "ACTS"). NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK
PURCHASABLE HEREUNDER MAY BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THIS WARRANT OR COMMON
STOCK PURCHASABLE HEREUNDER, AS APPLICABLE, UNDER THE ACTS, OR (B) AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.
PHC, INC.
WARRANT
Issue Date: March ___, 1998
1. Basic Terms. This Warrant (as it may be amended from time to time, the
"Warrant") certifies that, for value received, the registered holder specified
below or its registered assigns ("Holder"), is the owner of warrants of PHC,
Inc., a Massachusetts corporation (the "Corporation"), and is entitled, subject
to the terms and conditions of this Warrant, including adjustments as provided
herein, to purchase ______ ( ) (number to be pro-rated for a total of 50,000
share) shares of the Common Stock (the "Common Stock") of the Corporation from
the Corporation at the price per share shown below (the "Exercise Price").
Holder:
Exercise Price per share: ______ Dollars and ______
Cents ($ )per share
[This amount will be the Closing Bid Price of the
Corporation's Common Stock on the Issue Date]
Except as specifically provided otherwise, all references in this Warrant
to the Exercise Price and the number of shares of Common Stock purchasable
hereunder shall be to the Exercise Price and number of shares after any
adjustments are made thereto pursuant to this Warrant.
2. Corporation's Representations/Covenants. The Corporation represents and
covenants that the shares of Common Stock issuable upon the exercise of this
Warrant shall at delivery be fully paid and non-assessable and free from taxes,
liens, encumbrances and charges with respect to their purchase. The Corporation
shall take any necessary actions to assure that the par value per share of the
Common Stock is at all times equal to or less than the then current Exercise
Price per share of Common Stock issuable pursuant to this Warrant. The
Corporation shall at all times reserve and hold available sufficient shares of
Common Stock to satisfy all conversion and purchase rights of outstanding
convertible securities, options and warrants of the Corporation, including this
Warrant.
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<PAGE>
3. Method of Exercise: Fractional Shares. This Warrant is exercisable at
the option of the Holder in whole at any time or in part from time to time by
surrendering this Warrant, on any business day during the period (the "Exercise
Period") beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston, Massachusetts time) three (3) years after the issue date.
To exercise this Warrant, the Holder shall surrender this Warrant at the
principal office of the Corporation or that of the duly authorized and acting
transfer agent for its Common Stock, together with the executed exercise form
(substantially in the form of that attached hereto) and together with payment
for the Common Stock purchased under this Warrant. The principal office of the
Corporation is located at the address specified on the signature page of this
Warrant; provided, however, that the Corporation may change its principal office
upon notice to the Holder. At the option of the Holder payment shall be made
either in cash (by wire) or by certified or bank cashier's check payable to the
order of the Corporation or the Holder may elect to receive shares of Common
Stock calculated pursuant to paragraph 4. The Corporation shall, immediately
upon receipt of such notice, issue and deliver to or upon the order of such
Holder a certificate or certificates for the number of shares of Common Stock to
which such Holder shall be entitled and such certificate or certificates shall
not bear any restrictive legend; provided (A) the Common Stock evidenced thereby
are sold pursuant to an effective registration statement under the Act, (B) the
holder provides the Corporation with an opinion of counsel reasonably acceptable
to the Corporation to the effect that a public sale of such shares may be made
without registration under the Act, or (C) such holder provides the Corporation
with reasonable assurance that such shares can be sold free of any limitations
imposed by Rule 144, promulgated under the Act. The Corporation shall cause such
issuance and delivery to be effected within three (3) business days and shall
transmit the certificates by messenger or overnight delivery service to reach
the address designated by such holder within three (3) business days after the
receipt of such notice. This Warrant is not exercisable with respect to a
fraction of a share of Common Stock. In lieu of issuing a fraction of a share
remaining after exercise of this Warrant as to all full shares covered by this
Warrant the Corporation shall either at its option (a) pay for the fractional
share cash equal to the same fraction at the fair market price for such share;
or (b) issue scrip for the fraction in the registered or bearer form which shall
entitle the Holder to receive a certificate for a full share of Common Stock on
surrender of scrip aggregating a full share. As compensation to the Holder when
the Corporation has failed with respect to such Holder to comply with the
Corporation's obligations hereunder, and not as a penalty, the Corporation shall
pay to such holder liquidated damages of $500 per day until the certificates are
delivered as instructed. Such damages shall be paid to the Holder by cashiers
check or wire transfer in immediately available funds to such account as shall
be designated in writing by the Holder at the end of each month in which such
amounts have accrued. Holder shall be entitled to an injunction or injunctions
to prevent or cure breaches of the provisions of hereof and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which Holder may be entitled by law or equity.
4. Cashless Exercise.
(a) The Holder may, upon any full or partial exercise of this Warrant, pay
the Exercise Price applicable to such exercise by delivering this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being exercised which have a fair market value
on the date of exercise equal to the fair market value of the Warrant as
established in paragraph 4(b).
(b) The fair market value of this Warrant shall mean the fair market value
of the Common Stock purchasable under this Warrant minus the Exercise Price of
this Warrant.
(c) The fair market value of the Common Stock is, if the Common Stock is
traded on a national securities exchange or in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), the average of the daily market prices of such stock on the
ten (10) trading days immediately preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic exchanges on
which the Common Stock is then listed, or if there have not been sales on any
such exchange on such day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if the Common Stock is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization.
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<PAGE>
If at any time the Common Stock is not listed on any domestic exchange or
quoted in the NASDAQ System or the domestic over-the-counter market, the fair
market value shall be the higher of (i) the book value thereof, as determined by
any firm of independent public accountants of recognized standing selected by
the Corporation (which may be the Corporation's regular independent
accountants), as of the last day of any month ending within sixty days preceding
the date as of which the determination is to be made; or (ii) the fair market
value thereof, which shall be reasonably determined by the Corporation and the
Holder as of a date which is within fifteen days of the date as of which the
determination is to be made.
5. Protection Against Dilution. The number of shares of Common Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:
(a) takes a record of the holders of its outstanding shares of Common Stock
for the purposes of entitling them to receive a dividend payable in, or other
distribution of, Common Stock,
(b) subdivides its outstanding shares of Common Stock into a larger number
of shares of Common Stock; or
(c) combines its outstanding shares of Common Stock into a smaller number
of shares of Common Stock;
then, and in each such case, the Exercise Price shall be adjusted to that
price determined by multiplying the Exercise Price in effect immediately prior
to such event by a fraction (A) the numerator of which is the total number of
outstanding shares of Common Stock immediately prior to such event and (B) the
denominator of which is the total number of outstanding shares of Common Stock
immediately after such event. Upon each adjustment in the Exercise Price under
this Warrant such number of shares of Common Stock purchasable under this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction, the numerator of which is the Exercise Price immediately prior to
such adjustment and the denominator of which is the Exercise Price in effect
upon such adjustment.
6. Adjustment for Reorganization, Consolidation, Merger, Etc.
(a) During the Exercise Period, the Corporation shall, prior to
consummation of a consolidation with or merger into another corporation, or
conveyance of all or substantially all of its assets to any other corporation or
corporations, whether affiliated or unaffiliated (any such corporation being
included within the meaning of the term "successor corporation"), or agreement
to so consolidate, merge or convey assets, require the successor corporation to
assume, by written instrument delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock, securities or property as the
Holder shall be entitled to purchase or receive in accordance with the
provisions of paragraph 6(b) hereof.
(b) In the case of any capital reorganization or reclassification of the
Common Stock of the Corporation (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
during the Exercise Period or in case, during the Exercise Period, the
Corporation (or any such other corporation) shall consolidate with or merge into
another corporation or convey all or substantially all its assets to another
corporation, the Holder, upon exercise, at any time after the consummation of
such reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the Common Stock of the Corporation (or such other
corporation), the proportionate share of all stock, securities or other property
issued, paid or delivered for or on all of the Common Stock of the Corporation
(or such other corporation) as is allocable to the shares of Common Stock then
called for by this Warrant as if the Holder had exercised the Warrant
immediately prior thereto, all subject to further adjustment as provided in
paragraph 4 of this Warrant.
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<PAGE>
7. Notice of Adjustment. On the happening of an event requiring an
adjustment of the Exercise Price or the shares purchasable under this Warrant,
the Corporation shall immediately give written notice to the Holder stating the
adjusted Exercise Price and the adjusted number an kind of securities or other
property purchasable under this Warrant resulting from the event and settin
forth in reasonable detail the method of calculation and the facts upon which
the calculation is based.
8. Dissolution, Liquidation. In case the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation (other than in
connection with a reorganization, consolidation, merger, or other transaction
covered by paragraph 5 above) is at any time proposed, the Corporation shall
give at least thirty days prior written notice to the Holder. Such notice shall
contain: (a) the date on which the transaction is to take place; (b) the record
date (which shall be at least thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction; (c) a brief description of the transaction, (d) a
brief description of the distributions to be made to holders of Common Stock as
a result of the transaction; and (d) an estimate of the fair value of the
distributions. On the date of the transaction, if it actually occurs, this
Warrant and all rights under this Warrant shall terminate.
9. Rights of Holder. The Corporation shall deliver to the Holder all
notices and other information provided to its holders of shares of Common Stock
or other securities which may be issuable hereunder concurrently with the
delivery of such information to the holders. This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions, any
other rights as a shareholder of the Corporation. No dividends are payable or
will accrue on this Warrant or the Shares purchasable under this Warrant until,
and except to the extent that, this Warrant is exercised. Upon the surrender of
this Warrant and payment of the Exercise Price as provided above, the person or
entity entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the record holder of such shares
as of the close of business on the date of the surrender of this Warrant for
exercise as provided above. Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.
10. Exchange for Other Denominations. This Warrant is exchangeable, on its
surrender by the Holder to the Corporation, for a new Warrant of like tenor and
date representing in the aggregate the right to purchase the balance of the
number of shares Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.
11. Substitution. Upon receipt by the Corporation of evidence satisfactory
(in the exercise of reasonable discretion) to it of the ownership of and the
loss, theft or destruction or mutilation of the Warrant, and (in the case or
loss, theft or destruction) of indemnity satisfactory (in the exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and cancellation thereof, the Corporation will issue and deliver, in lieu
thereof, a new Warrant of like tenor.
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<PAGE>
12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock issuable on exercise of this Warrant have been registered under the
Securities Act or any other securities laws (the "Acts"). Neither this Warrant
nor the shares of Common Stock purchasable hereunder may be sold, transferred,
pledged or hypothecated in the absence of (a) an effective registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts, or (b) an opinion of counsel reasonably satisfactory to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an "accredited investor", as described in Section 17 hereof, and such
transfer or assignment is made expressly subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's counsel as Holder's counsel reasonably request for the purpose of
rendering such opinion. Each certificate evidencing shares of Common Stock
purchased hereunder will bear a legend describing the restrictions on transfer
contained in this paragraph unless, in the opinion of counsel reasonably
acceptable to the Corporation, the shares need no longer to be subject to the
transfer restrictions.
13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.
14. Recognition of Holder. Prior to due presentment for registration of
transfer of this Warrant, the Corporation shall treat the Holder as the person
exclusively entitled to receive notices and otherwise to exercise rights under
this Warrant.All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the Holder at the address of the Holder appearing in the records of the
Corporation.
15. Payment of Taxes. The Corporation shall pay all taxes and other
governmental charges, other than applicable income taxes and transfer taxes, if
any, which shall be payable by Holder, that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.
16. Headings. The headings in this Warrant are for purposes of convenience
in reference only, shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or construction of any of the provisions of this
Warrant.
17. Accredited Investor Status. The Holder represents and warrants to the
Corporation that Holder is an "accredited investor" as that term is defined in
Rule 501 of Regulation D, promulgated under the Securities Act of 1933, as
amended.
18. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the present state of
incorporation of the Company without regard to such state's principles of
conflict of laws.
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<PAGE>
19. Miscellaneous. This Warrant may not be changed, waived, discharged or
terminated except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the
Holder.
PHC, INC., a Massachusetts corporation
By: ________________________________
Authorized Officer
Printed Name: _______________________
Title: ______________________________
200 Lake Street -- Suite 102
Peabody, Massachusetts 01960
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PHC, Inc.
Form of Transfer
(To be executed by the Holder to transfer the Warrant)
For value received the undersigned registered holder of the attached Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:
Name of
Assignee: ____________________________________________
Address: ____________________________________________
____________________________________________
Assignee's Taxpayer ID No.: _____________________________
Number of shares
subject to transferred Warrant: ____________________________
The undersigned registered holder further irrevocably appoints as its
attorney-in-fact (with full power of substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.
Date: ________________________________
________________________________
Signature
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<PAGE>
PHC, Inc.
Exercise Form
(To be executed by the Holder to purchase
Common Stock pursuant to the Warrant)
The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise purchase rights represented by such Warrant for, and to purchase,
______ shares of Common Stock of PHC, Inc., a Massachusetts corporation,
pursuant to the Warrant Certificate and encloses payment of $ _______________
therefor (in cash, by wire, or by certified or bank cashier's check); (2)
requests that a certificate for the shares be issued in the name of the
undersigned; and (3) if such number of shares is not all of the shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.
Date: __________________________ ____________________________________
Signature
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<PAGE>
Incorporated by Reference into the Resolutions Establishing Right and
Preferences for Series a Convertible Preferred Stock.
PROMISSORY NOTE (the "Note")
Date: __________________, ________________________
Maker: PHC, Inc.
Maker's Mailing Address: 200 Lake Street -- Suite 102
Peabody, Massachusetts 01960
Payee:
Place for Payment:
Principal Amount: $_________________________________
Annual Interest Rate on Unpaid Principal From Date: Eight percent (8%).
Annual Past Due Interest Rate on Unpaid Principal from Maturity to Payment:
Fifteen percent (15%).
Terms of Payment: Principal and interest shall be due and payable in six (6)
equal consecutive monthly payments of $ ________________ (based on a six (6)
month amortization) with the first payment being due and payable on the first
day of _____________________.
The Maker promises to pay to the order of Payee at the place for payment and
according to the terms of payment the outstanding principal and accrued interest
at the rates stated above. All unpaid amounts owing on this Note shall be due by
the final scheduled payment date of ________________________.
Additional Provisions:
If Maker defaults in the payment of this Note, or in any instrument securing or
collateral to it, then Payee may declare the unpaid principal balance of this
Note and all accrued interest immediately due and payable. Maker and each
surety, endorser, and guarantor or other party liable for the payment of any
sums of money payable on this Note severally waive all demands for payment,
presentations for payment, notices of dishonor, notices of intention to
accelerate maturity, notices of acceleration of maturity, protests, and notices
of protest, to the extent permitted by law.
If this Note or any instrument securing or collateral to it is given to an
attorney for collection or enforcement. or if suit is brought for collection or
enforcement or if it is collected or enforced through probate, bankruptcy, or
other judicial proceedings then Maker shall pay Payee all costs of collection
and enforcement, including reasonable attorneys fees and court costs, in
addition to other amounts due.
PHC. INC., PROMISSORY NOTE
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<PAGE>
Interest that may be contracted for, taken, reserved, charged or received
under law; any interest in excess of that maximum amount shall be credited on
the principal of the debt or, if that has been paid, refunded. On any
acceleration or required or permitted prepayment, any such excess shall be
canceled automatically as of the acceleration or prepayment or, if already paid,
credited on the principal of the debt or, if the principal of the debt has been
paid, refunded. This provision overrides other provisions in this and all other
instruments concerning the debt.
When the context requires, singular nouns and pronouns include the plural.
This Note is to be governed and construed in accordance with the laws of
the State of Texas.
MAKER, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF
WHICH ARE HEREBY ACKNOWLEDGED, (I) HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE UNITED STATES DISTRICT COURT AND OTHER COURTS OF THE UNITED
STATES SITTING IN TEXAS FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (ii) HEREBY WAIVES, AND AGREES
NOT TO ASSERT IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER. MAKER CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO MAKER AT ITS MAIN
BUSINESS OFFICE AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND
SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH
SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW.
Executed as of date first above written.
PHC Inc., a Massachusetts corporation
By: _______________________________________
Name of
Authorized Officer: __________________________
Title: ______________________________________
PHC. INC., PROMISSORY NOTE
Page 2
<PAGE>
EXHIBIT B to the Subscription Agreement
Section 2.2(a): PHC, Inc. Subsidiaries:
PHC of Utah, Inc. Pioneer Counseling of Virginia, Inc.
D/B/A Highland Ridge Hospital (80% Owned)
4578 Highland Drive D/B/A Pioneer Counseling of Virginia
Salt Lake City, UT 94117 D/B/A Counseling Associates of Virginia
400 East Burwell street
Salem, VA 24153
PHC of Virginia, Inc. PHC of Kansas, Inc.
D/B/A Mount Regis Center D/B/A Total Concept EAP
D/B/A Changes 7451 Szwitzer, Suite 101
405 Kimball Avenue Shawnee Mission, KS 66203
Salem, VA 24153
Quality Care Centers of Mass, Inc. PHC of California, Inc.
D/B/A Franvale Nursing & Rehab Center D/B/A Marin Grove
20 Pond Street 42 Grove Street
Braintree, MA 02194 San Rafael, CA 94901
PHC of Nevada, Inc. Professional Health Associates
D/B/A Harmony Healthcare 94-19 59 Avenue
2340 Paseo del Prado, Bldg.D Elmhum NY 11373
Las Vegas, NV 89102
Northpoint - Pioneer, Inc. STL, Inc.
D/B/A Pioneer Counseling Center 200 Lake Street
31700 W. 13 Mile; Suite 201 Suite 102
Farmington Hills, MI 48334 Peabody, MA 0 1960
BSC-NY, Inc. Harmony Behavioral Health
D/B/A Behavioral Stress Center 2340 Paseo del Prado, Bldg.D
94-19 59 Avenue Las Vegas, NV 89102
Elmhurst, NY 11373
PHC of Michigan, Inc. PHC of Rhode island, Inc.
D/B/A Harbor Oaks Hospital D/B/A Good Hope Center
35031 23 Mile Road P.O. Box 1491
New Baltimore, MI 48047 Coventry, RI 02816-0029
<PAGE>
EXHIBIT B (cont'd.)
Section 2.2(f):
The Company failed to file two years' of audited financial statements for
Behavioral Stress Centers, Inc. and Clinical Diagnostics and Clinical
Associates, as described in the December 18, 1996 letter from Choate, Hall &
Stewart to Mr. Robert Bayless of the Securities and Exchange Commission.
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY OTHER SECURITIES
LAWS (THE "ACTS"). NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK
PURCHASABLE HEREUNDER MAY BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN REGISTRATION STATEMENT FOR THIS WARRANT OR COMMON STOCK
PURCHASABLE HEREUNDER, AS APPLICABLE, UNDER THE ACTS, OR (B) AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.
PHC, INC.
WARRANT
Issue Date: March 16, 1998
1. Basic Term. This Warrant (as it may be amended from time to time, the
"Warrant") certifies that, for value received, the holder specified below or its
assigns "Holder"), is the owner of warrants of PHC, Inc., a Massachusetts
corporation (the "Corporation"), and is entitled, subject to the terms and
conditions of this Warrant, including adjustments as provided herein, to
purchase Twenty Six Thousand Three Hundred Fifteen (26,315) shares of Class A
Common Stock (the "Common Stock") of the Corporation from the Corporation at the
price per share shown below (the "Exercise Price").
Holder: ProFutures Special Equities Fund, L.P.
Exercise Price per share: Two Dollars and Five-Sixteenths Cents ($2 5/16)
per share
Except as specifically provided otherwise, all references in this Warrant to the
Exercise Price and the number of shares of Common Stock purchasable hereunder
shall be to the Exercise Price and number of shares after any adjustments are
made thereto pursuant to this Warrant.
2. Corporations Representations/Covenants. The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at delivery be fully paid and nonasseble and free from taxes, liens,
encumbrances and charges with respect to their purchase. The Corporation shall
take any necessary actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current Exercise Price per
share of Common Stock issuable pursuant to this Warrant. The Corporation shall
at all times reserve and hold available sufficient shares of Common Stock to
satisfy all conversion and purchase rights of outstanding convertible
securities, options and warrants of the Corporation, including this Warrant
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<PAGE>
3. Method of Exercise: Fractional Shares. This Warrant is exercisable at
the option of the Holder in whole at any time or in part from time to time by
surrendering this Warrant, on any business day during the period (the "Exercise
Period") beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston, Massachusetts time) three (3) years after the Late date.
To exercise this Warrant, the Holder shall surrender this Warrant at the office
of the Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that attached hereto) and together with payment for the Common Stock
purchased under this Warrant the principal office of the Corporation is located
at the address specified on the signature page of this Warrant; provided,
however, that the Corporation may change its principal office upon notice to the
Holder. At the option of the Holder payment shall be made either in cash (by
wire) or by certified or bank cashier's check payable to the order of the
Corporation or the Holder may elect to move shares of Common Stock calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice, issue and deliver to or upon the order of such Holder a certificate or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates shall not bear any restrictive
legend; provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective registration statement under the Act, (B) the holder provides the
Corporation with an opinion of counsel reasonably acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder provides the Corporation with reasonable assurance that such
shares can be sold free of any limitations imposed by Rule 144, promulgated
under the Act. The Corporation shall cause such issuance and delivery to be
effected within three (3) business days and shall transmit the certificates by
messenger or overnight delivery service to reach the address designated by such
holder within three (3) business days after the receipt of such notice. This
Warrant is not exercisable with respect to a fraction of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares covered by this Warrant, the Corporation shall
either at its option (a) pay for the fractional share cash equal to the same
fraction at the fair market price for such share; or (b) issue scrip for the
fraction in the registered or bearer form which shall entitle the Holder to
receive a certificate for a full share of Common Stock on surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's obligations
hereunder, and not as a penalty, the Corporation shall pay to such holder
liquidated damages of $500 per day until the certificates are delivered as
instructed. Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately available funds to such account as shall be designated
in writing by the Holder at the end of each month in which such amounts have
accrued. Holder shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of hereof and to enforce specifically the
transfer and provisions hereof, this being in addition to any other remedy to
which Holder may be entitled by law or equity.
(a) The Holder may, upon any full or partial exercise of this Warrant, pay
the Exercise Price applicable to such exercise by delivering this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being exercised which have a fair market value
on the date of exercise equal to the fair market value of the Warrant as
established in paragraph 4(b).
(b) The fair market value of this Warrant shall mean the fair market value
of the Common Stock purchasable under this Warrant minus the Exercise Price of
this Warrant.
(c) The fair market value of the Common Stock is, if the Common Stock is
traded on a national securities exchange or in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), the average of the daily market prices of such stock on the
ten (10) trading days immediately preceding the date as of which such value is
to be determined. The market price for each such trading shall be average of the
closing prices on such day of the Common Stock on all domestic exchanges on
which the Common Stock is then listed, or if there have not been sales on any
such exchange on such day, the average of the highest bid and lowest asked
prices on all such exchanges at he end of such day, or, if the Common Stock is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization.
- 2 -
<PAGE>
If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic over-the-counter market, the fair market
value shall be the higher of (i) the book value thereof, as determined by any
firm of independent public accountants of recognized standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending within sixty days preceding the date as of
which the determination is to be made; or (ii) the fair market value thereof,
which shall be reasonably determined by the Corporation and the Holder as of a
date which is within fifteen days of the date as of which the determination is
to be made.
5. Protection Against Dilution. The number of shares of Common Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:
(a) takes a record of the holders of its outstanding shares of Common Stock
for the purposes of entitling them to receive a dividend payable in, or other
distribution of, Common Stock,
(b) subdivides its outstanding shares of Common Stock into a larger number
of shares of Common Stock; or
(c) combines its outstanding shares of Common Stock into a smaller number
of shares of Common Stock;
then, and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event by a fraction (A) the numerator of which is the total number of
outstanding shares of Common Stock immediately prior to such event and (B) the
denominator of which is the total number of outstanding shares of Common Stock
immediately after such event. Upon each adjustment in the Exercise Price under
this Warrant such number of shares of Common Stock purchasable under this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction, the numerator of which is the Exercise Price immediately prior to
such adjustment and the denominator of which is the Exercise Price in effect
upon such adjustment.
6. Adjustment for Reorganization, Consolidation, Merger, Etc.
(a) During the Exercise Period, the Corporation shall, prior to
consummation of a consolidation with or merger into another corporation, or
conveyance of all or substantially all of its assets to any other corporation or
corporations, whether affiliated or unaffiliated (any such corporation being
included within the meaning of the term "successor corporation"), or agreement
to so consolidate, merge or convey assets, require the successor corporation to
assume, by written instrument delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock, securities or property as the
Holder shall be entitled to purchase or receive in accordance with the
provisions of paragraph 6(b) hereof.
(b) In the case of any capital reorganization or reclassification of the
Common Stock of the Corporation (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
during the Exercise Period or in case, during the Exercise Period, the
Corporation (or any such other corporation) shall consolidate with or merge into
another corporation or convey all or substantially all its assets to another
corporation, the Holder, upon exercise, at any time after the consummation of
such reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the Common Stock of the Corporation (or such other
corporation), the proportionate share of all stock, securities or other property
issued, paid or delivered for or on all of the Common Stock of the Corporation
(or such other corporation) as is allocable to the shares of Common Stock then
called for by this Warrant as if the Holder had exercised the Warrant
immediately prior thereto, all subject to further adjustment as provided in
paragraph 4 of this Warrant.
- 3 -
<PAGE>
7. Notice of Adjustment. On the happening of an event requiring an
adjustment of the Exercise Price or the shares purchasable under this Warrant,
the Corporation shall immediately give written notice to the Holder stating the
adjusted Exercise Price and the adjusted number and kind of securities or other
property purchasable under this Warrant resulting from the event and setting
forth in reasonable detail the method of calculation and the facts upon which
the calculation is based.
8. Dissolution, Liquidation. In case the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation (other than in
connection with a reorganization, consolidation, merger, or other transaction
covered by paragraph 5 above) is at any time proposed, the Corporation shall
give at least thirty days prior written notice to the Holder. Such notice shall
contain: (a) the date on which the transaction is to take place; (b) the record
date (which shall be at least thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction; (c) a brief description of the transaction, (d) a
brief description of the distributions to be made to holders of Common Stock as
a result of the transaction; and (d) an estimate of the fair value of the
distributions. On the date of the transaction, if it actually occurs, this
Warrant and all rights under this Warrant shall terminate.
9. Rights of Holder. The Corporation shall deliver to the Holder all
notices and other information provided to its holders of shares of Common Stock
or other securities which may be issuable hereunder concurrently with the
delivery of such information to the holders. This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions, any
other rights as a shareholder of the Corporation. No dividends are payable or
will accrue on this Warrant or the Shares purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised. Upon the surrender of
this Warrant and payment of the Exercise Price as provided above, the person or
entity entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the record holder of such shares
as of the close of business on the date of the surrender of this Warrant for
exercise as provided above. Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.
10. Exchange for Other Denominations. This Warrant is exchangeable, on its
surrender by the Holder to the Corporation, for a new Warrant of like tenor and
date representing in the aggregate the right to purchase the balance of the
number of shares Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.
11. Substitution. Upon receipt by the Corporation of evidence satisfactory
(in the exercise of reasonable discretion) to it of the ownership of and the
loss, theft or destruction or mutilation of the Warrant, and (in the case or
loss, theft or destruction) of indemnity satisfactory (in the exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and cancellation thereof, the Corporation will issue and deliver, in lieu
thereof, a new Warrant of like tenor.
- 4 -
<PAGE>
12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock issuable on exercise of this Warrant have been registered under the
Securities Act or any other securities laws (the "Acts"). Neither this Warrant
nor the shares of Common Stock purchasable hereunder may be sold, transferred,
pledged or hypothecated in the absence of (a) an effective registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts, or (b) an opinion of counsel reasonably satisfactory to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an "accredited investor", as described in Section 17 hereof, and such
transfer or assignment is made expressly subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's counsel as Holder's counsel reasonably request for the purpose of
rendering such opinion. Each certificate evidencing shares of Common Stock
purchased hereunder will bear a legend describing the restrictions on transfer
contained in this paragraph unless, in the opinion of counsel reasonably
acceptable to the Corporation, the shares need no longer to be subject to the
transfer restrictions.
13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant,. properly endorsed.
14. Recognition of Holder. Prior to due presentment for registration of
transfer of this Warrant, the Corporation shall treat the Holder as the person
exclusively entitled to receive notices and otherwise to exercise rights under
this Warrant. All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the Holder at the address of the Holder appearing in the records of the
Corporation.
15. Payment of Taxes. The Corporation shall pay all taxes and other
governmental charges, other than applicable income taxes and transfer taxes, if
any, which shall be payable by Holder, that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.
16. Headings. The headings in this Warrant are for purposes of convenience
in reference only, shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or construction of any of the provisions of this
Warrant.
17. Accredited Investor Status. The Holder represents and warrants to the
Corporation that Holder is an "accredited investor" as that term is defined in
Rule 501 of Regulation D, promulgated under the Securities Act of 1933, as
amended.
18. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the present state of
incorporation of the Company without regard to such state's principles of
conflict of laws.
- 5 -
<PAGE>
19. Miscellaneous. This Warrant may not be changed, waived, discharged or
terminated except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.
PHC, INC., a Massachusetts corporation
By: /s/ Bruce A Shear
Authorized Officer
Printed Name: Bruce A. Shear
Title: President
200 Lake Street -- Suite 102
Peabody, Massachusetts 01960
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<PAGE>
PHC, Inc.
Form of Transfer
(To be executed by the Holder to transfer the Warrant)
For value received the undersigned registered holder of the attached Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:
Name of
Assignee: ____________________________________________
Address: ____________________________________________
____________________________________________
Assignee's Taxpayer ID No.: _____________________________
Number of shares
subject to transferred Warrant: ____________________________
The undersigned registered holder further irrevocably appoints as its
attorney-in-fact (with full power of substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.
Date: ______________________ _____________________________________
Signature
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<PAGE>
PHC, Inc.
Exercise Form
(To be executed by the Holder to purchase
Common Stock pursuant to the Warrant)
The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise purchase rights represented by such Warrant for, and to purchase,
______ shares of Common Stock of PHC, Inc., a Massachusetts corporation,
pursuant to the Warrant Certificate and encloses payment of $ _______________
therefor (in cash, by wire, or by certified or bank cashier's check); (2)
requests that a certificate for the shares be issued in the name of the
undersigned; and (3) if such number of shares is not all of the shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.
Date: __________________________ __________________________________
Signature
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<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY OTHER SECURITIES
LAWS (THE "ACTS"). NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK
PURCHASABLE HEREUNDER MAY BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN REGISTRATION STATEMENT FOR THIS WARRANT OR COMMON STOCK
PURCHASABLE HEREUNDER, AS APPLICABLE, UNDER THE ACTS, OR (B) AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.
PHC, INC.
WARRANT
Issue Date: March 16, 1998
1. Basic Term. This Warrant (as it may be amended from time to time, the
"Warrant") certifies that, for value received, the holder specified below or its
assigns ("Holder"), is the owner of warrants of PHC, Inc., a Massachusetts
corporation (the "Corporation"), and is entitled, subject to the terms and
conditions of this Warrant, including adjustments as provided herein, to
purchase Seven Thousand Eight Hundred Ninety (7,890) shares of Class A Common
Stock (the "Common Stock") of the Corporation from the Corporation at the price
per share shown below (the "Exercise Price").
Holder: Gary D. Halbert
Exercise Price per share: Two Dollars and Five-Sixteenths Cents ($2 5/16)
per share
Except as specifically provided otherwise, all references in this Warrant to the
Exercise Price and the number of shares of Common Stock purchasable hereunder
shall be to the Exercise Price and number of shares after any adjustments are
made thereto pursuant to this Warrant.
2. Corporation's Representations/Covenants. The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at delivery be fully paid and nonasseble and free from taxes, liens,
encumbrances and charges with respect to their purchase. The Corporation shall
take any necessary actions to assure that the par value per share of the Common
Stock s at all times equal to or less than the then current Exercise Price per
share of Common Stock issuable pursuant to this Warrant. The Corporation shall
at all times reserve and hold available sufficient shares of Common Stock to
satisfy all conversion and purchase rights of outstanding convertible
securities, options and warrants of the Corporation, including this Warrant
- 1 -
<PAGE>
3. Method of Exercise: Fractional Shares. This Warrant is exercisable at
the option of the Holder in whole at any time or in part from time to time by
surrendering this Warrant, on any business day during the period (the "Exercise
Period") beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston, Massachusetts time) three (3) years after the Late date.
To exercise this Warrant, the Holder shall surrender this Warrant at the office
of the Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that attached hereto) and together with payment for the Common Stock
purchased under this Warrant the principal office of the Corporation is located
at the address specified on the signature page of this Warrant; provided,
however, that the Corporation may change its principal office upon notice to the
Holder. At the option of the Holder payment shall be made either in cash (by
wire) or by certified or bank cashier's check payable to the order of the
Corporation or the Holder may elect to move shares of Common Stock calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice, issue and deliver to or upon the order of such Holder a certificate or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates shall not bear any restrictive
legend; provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective registration statement under the Act, (B) the holder provides the
Corporation with an opinion of counsel reasonably acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder provides the Corporation with reasonable assurance that such
shares can be sold free of any limitations imposed by Rule 144, promulgated
under the Act. The Corporation shall cause such issuance and delivery to be
effected within three (3) business days and shall transmit the certificates by
messenger or overnight delivery service to reach the address designated by such
holder within three (3) business days after the receipt of such notice. This
Warrant is not exercisable with respect to a fraction of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares covered by this Warrant, the Corporation shall
either at its option (a) pay for the fractional share cash equal to the same
fraction at the fair market price for such share; or (b) issue scrip for the
fraction in the registered or bearer form which shall entitle the Holder to
receive a certificate for a full share of Common Stock on surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's obligations
hereunder, and not as a penalty, the Corporation shall pay to such holder
liquidated damages of $500 per day until the certificates are delivered as
instructed. Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately available funds to such account as shall be designated
in writing by the Holder at the end of each month in which such amounts have
accrued. Holder shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of hereof and to enforce specifically the
transfer and provisions hereof, this being in addition to any other remedy to
which Holder may be entitled by law or equity.
(a) The Holder may, upon any full or partial exercise of this Warrant, pay
the Exercise Price applicable to such exercise by delivering this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being exercised which have a fair market value
on the date of exercise equal to the fair market value of the Warrant as
established in paragraph 4(b).
(b) The fair market value of this Warrant shall mean the fair market value
of the Common Stock purchasable under this Warrant minus the Exercise Price of
this Warrant.
(c) The fair market value of the Common Stock is, if the Common Stock is
traded on a national securities exchange or in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDA", the average of the daily market prices of such stock on the ten
(10) trading days immediately preceeding the date as of which such value is to
be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic exchanges on
which the Common Stock is then listed, or if there have not been sales on any
such exchange on such day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if the Common Stock is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization.
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<PAGE>
If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic over-the-counter market, the fair market
value shall be the higher of (i) the book value thereof, as determined by any
firm of independent public accountants of recognized standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending within sixty days preceding the date as of
which the determination is to be made; or (ii) the fair market value thereof,
which shall be reasonably determined by the Corporation and the Holder as of a
date which is within fifteen days of the date as of which the determination is
to be made.
5. Protection Against Dilution. The number of shares of Common Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:
(a) takes a record of the holders of its outstanding shares of Common Stock
for the purposes of entitling them to receive a dividend payable in, or other
distribution of, Common Stock,
(b) subdivides its outstanding shares of Common Stock into a larger number
of shares of Common Stock; or
(c) combines its outstanding shares of Common Stock into a smaller number
of shares of Common Stock;
then, and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event by a fraction (A) the numerator of which is the total number of
outstanding shares of Common Stock immediately prior to such event and (B) the
denominator of which is the total number of outstanding shares of Common Stock
immediately after such event. Upon each adjustment in the Exercise Price under
this Warrant such number of shares of Common Stock purchasable under this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction, the numerator of which is the Exercise Price immediately prior to
such adjustment and the denominator of which is the Exercise Price in effect
upon such adjustment.
6. Adjustment for Reorganization, Consolidation, Merger, Etc.
(a) During the Exercise Period, the Corporation shall, prior to
consummation of a consolidation with or merger into another corporation, or
conveyance of all or substantially all of its assets to any other corporation or
corporations, whether affiliated or unaffiliated (any such corporation being
included within the meaning of the term "successor corporation"), or agreement
to so consolidate, merge or convey assets, require the successor corporation to
assume, by written instrument delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock, securities or property as the
Holder shall be entitled to purchase or receive in accordance with the
provisions of paragraph 6(b) hereof.
(b) In the case of any capital reorganization or reclassification of the
Common Stock of the Corporation (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
during the Exercise Period or in case, during the Exercise Period, the
Corporation (or any such other corporation) shall consolidate with or merge into
another corporation or convey all or substantially all its assets to another
corporation, the Holder, upon exercise, at any time after the consummation of
such reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the Common Stock of the Corporation (or such other
corporation), the proportionate share of all stock, securities or other property
issued, paid or delivered for or on all of the Common Stock of the Corporation
(or such other corporation) as is allocable to the shares of Common Stock then
called for by this Warrant as if the Holder had exercised the Warrant
immediately prior thereto, all subject to further adjustment as provided in
paragraph 4 of this Warrant.
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<PAGE>
7. Notice of Adjustment. On the happening of an event requiring an
adjustment of the Exercise Price or the shares purchasable under this Warrant,
the Corporation shall immediately give written notice to the Holder stating the
adjusted Exercise Price and the adjusted number and kind of securities or other
property purchasable under this Warrant resulting from the event and setting
forth in reasonable detail the method of calculation and the facts upon which
the calculation is based.
8. Dissolution, Liquidation. In case the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation (other than in
connection with a reorganization, consolidation, merger, or other transaction
covered by paragraph 5 above) is at any time proposed, the Corporation shall
give at least thirty days prior written notice to the Holder. Such notice shall
contain: (a) the date on which the transaction is to take place; (b) the record
date (which shall be at least thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction; (c) a brief description of the transaction, (d) a
brief description of the distributions to be made to holders of Common Stock as
a result of the transaction; and (d) an estimate of the fair value of the
distributions. On the date of the transaction, if it actually occurs, this
Warrant and all rights under this Warrant shall terminate.
9. Rights of Holder. The Corporation shall deliver to the Holder all
notices and other information provided to its holders of shares of Common Stock
or other securities which may be issuable hereunder concurrently with the
delivery of such information to the holders. This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions, any
other rights as a shareholder of the Corporation. No dividends are payable or
will accrue on this Warrant or the Shares purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised. Upon the surrender of
this Warrant and payment of the Exercise Price as provided above, the person or
entity entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the record holder of such shares
as of the close of business on the date of the surrender of this Warrant for
exercise as provided above. Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.
10. Exchange for Other Denominations. This Warrant is exchangeable, on its
surrender by the Holder to the Corporation, for a new Warrant of like tenor and
date representing in the aggregate the right to purchase the balance of the
number of shares Purchasable under this Warrant in denominations and subject to
restriction s on transfer contained herein, in the names designated by the
Holder at the time of surrender.
11. Substitution. Upon receipt by the Corporation of evidence satisfactory
(in the exercise of reasonable discretion) to it of the ownership of and the
loss, theft or destruction or mutilation of the Warrant, and (in the case or
loss, theft or destruction) of indemnity satisfactory (in the exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and cancellation thereof, the Corporation will issue and deliver, in lieu
thereof, a new Warrant of like tenor.
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<PAGE>
12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock issuable on exercise of this Warrant have been registered under the
Securities Act or any other securities laws (the "Acts"). Neither this Warrant
nor the shares of Common Stock purchasable hereunder may be sold, transferred,
pledged or hypothecated in the absence of (a) an effective registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts, or (b) an opinion of counsel reasonably satisfactory to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an "accredited investor", as described in Section 17 hereof, and such
transfer or assignment is made expressly subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's counsel as Holder's counsel reasonably request for the purpose of
rendering such opinion. Each certificate evidencing shares of Common Stock
purchased hereunder will bear a legend describing the restrictions on transfer
contained in this paragraph unless, in the opinion of counsel reasonably
acceptable to the Corporation, the shares need no longer to be subject to the
transfer restrictions.
13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.
14. Recognition of Holder. Prior to due presentment for registration of
transfer of this Warrant, the Corporation shall treat the Holder as the person
exclusively entitled to receive notices and otherwise to exercise rights under
this Warrant. All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the Holder at the address of the Holder appearing in the records of the
Corporation.
15. Payment of Taxes. The Corporation shall pay all taxes and other
governmental charges, other than applicable income taxes and transfer taxes, if
any, which shall be payable by Holder, that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.
16. Headings. The headings in this Warrant are for purposes of convenience
in reference only, shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or construction of any of the provisions of this
Warrant.
17. Accredited Investor Status. The Holder represents and warrants to the
Corporation that Holder is an "accredited investor" as that term is defined in
Rule 501 of Regulation D, promulgated under the Securities Act of 1933, as
amended.
18. Governing Law. This Agreement hall be governed by and construed and
enforced in accordance with the internal laws of the present state of
incorporation of the Company without regard to such state's principles of
conflict of laws.
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<PAGE>
19. Miscellaneous. This Warrant may not be changed, waived, discharged or
terminated except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.
PHC, INC., a Massachusetts corporation
By: /s/ Bruce A Shear
Authorized Officer
Printed Name: Bruce A. Shear
Title: President
200 Lake Street -- Suite 102
Peabody, Massachusetts 01960
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<PAGE>
PHC, Inc.
Form of Transfer
(To be executed by the Holder to transfer the Warrant)
For value received the undersigned registered holder of the attached Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:
Name of
Assignee: ____________________________________________
Address: ____________________________________________
____________________________________________
Assignee's Taxpayer ID No.: _____________________________
Number of shares
subject to transferred Warrant: ____________________________
The undersigned registered holder further irrevocably appoints as its
attorney-in-fact (with full power of substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.
Date: ________________________ ________________________________
Signature
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<PAGE>
PHC, Inc.
Exercise Form
(To be executed by the Holder to purchase
Common Stock pursuant to the Warrant)
The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise purchase rights represented by such Warrant for, and to purchase,
______ shares of Common Stock of PHC, Inc., a Massachusetts corporation,
pursuant to the Warrant Certificate and encloses payment of $ _______________
therefor (in cash, by wire, or by certified or bank cashier's check); (2)
requests that a certificate for the shares be issued in the name of the
undersigned; and (3) if such number of shares is not all of the shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.
Date: __________________________________
__________________________________
Signature
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<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY OTHER SECURITIES
LAWS (THE "ACTS"). NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK
PURCHASABLE HEREUNDER MAY BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN REGISTRATION STATEMENT FOR THIS WARRANT OR COMMON STOCK
PURCHASABLE HEREUNDER, AS APPLICABLE, UNDER THE ACTS, OR (B) AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.
PHC, INC.
WARRANT
Issue Date: March 16, 1998
1. Basic Term. This Warrant (as it may be amended from time to time, the
"Warrant") certifies that, for value received, the holder specified below or its
assigns ("Holder"), is the owner of warrants of PHC, Inc., a Massachusetts
corporation (the "Corporation"), and is entitled, subject to the terms and
conditions of this Warrant, including adjustments as provided herein, to
purchase Five Thousand Two Hundred Sixty (5,260) shares of Class A Common Stock
(the "Common Stock") of the Corporation from the Corporation at the price per
share shown below (the "Exercise Price").
Holder: John F. Mauldin
Exercise Price per share: Two Dollars and Five-Sixteenths Cents ($2 5/16)
per share
Except as specifically provided otherwise, all references in this Warrant to the
Exercise Price and the number of shares of Common Stock purchasable hereunder
shall be to the Exercise Price and number of shares after any adjustments are
made thereto pursuant to this Warrant.
2. Corporation's Representations/Covenants. The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at delivery be fully paid and nonasseble and free from taxes, liens,
encumbrances and charges with respect to their purchase. he Corporation shall
take any necessary actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current Exercise Price per
share of Common Stock issuable pursuant to this Warrant. The Corporation shall
at all times reserve and hold available sufficient shares of Common Stock to
satisfy all conversion and purchase rights of outstanding convertible
securities, options and warrants of the Corporation, including this Warrant
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<PAGE>
3. Method of Exercise: Fractional Shares. This Warrant is exercisable at
the option of the Holder in whole at any time or in part from time to time by
surrendering this Warrant, on any business day during the period (the "Exercise
Period") beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston, Massachusetts time) three (3) years after the Late date.
To exercise this Warrant, the Holder shall surrender this Warrant at the office
of the Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that attached hereto) and together with payment for the Common Stock
purchased under this Warrant the principal office of the Corporation is located
at the address specified on the signature page of this Warrant; provided,
however, that the Corporation may change its principal office upon notice to the
Holder. At the option of the Holder payment shall be made either in cash (by
wire) or by certified or bank cashier's check payable to the order of the
Corporation or the Holder may elect to move shares of Common Stock calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice, issue and deliver to or upon the order of such Holder a certificate or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates shall not bear any restrictive
legend; provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective registration statement under the Act, (B) the holder provides the
Corporation with an opinion of counsel reasonably acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder provides the Corporation with reasonable assurance that such
shares can be sold free of any limitations imposed by Rule 144, promulgated
under the Act. The Corporation shall cause such issuance and delivery to be
effected within three (3) business days and shall transmit the certificates by
messenger or overnight delivery service to reach the address designated by such
holder within three (3) business days after the receipt of such notice. This
Warrant is not exercisable with respect to a fraction of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares covered by this Warrant, the Corporation shall
either at its option (a) pay for the fractional share cash equal to the same
fraction at the fair market price for such share; or (b) issue scrip for the
fraction in the registered or bearer form which shall entitle the Holder to
receive a certificate for a full share of Common Stock on surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's obligations
hereunder, and not as a penalty, the Corporation shall pay to such holder
liquidated damages of $500 per day until the certificates are delivered as
instructed. Such damages shall be paid to the Holder by cashiers check or wire
transfer in immediately available funds to such account as shall be designated
in writing by the Holder at the end of each month in which such amounts have
accrued. Holder shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of hereof and to enforce specifically the
transfer and provisions hereof, this being in addition to any other remedy to
which Holder may be entitled by law or equity.
(a) The Holder may, upon any full or partial exercise of this Warrant, pay
the Exercise Price applicable to such exercise by delivering this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being exercised which have a fair market value
on the date of exercise equal to the fair market value of the Warrant as
established in paragraph 4(b).
(b) The fair market value of this Warrant shall mean the fair market value
of the Common Stock purchasable under this Warrant minus the Exercise Price of
this Warrant.
(c) The fair market value of the Common Stock is, if the Common Stock is
traded on a national securities exchange or in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), the average of the daily market prices of such stock on the
ten (10) trading days immediately preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic exchanges on
which the Common Stock is then listed, or if there have not been sales on any
such exchange on such day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if the Common Stock is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization.
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<PAGE>
If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic over-the-counter market, the fair market
value shall be the higher of (i) the book value thereof, as determined by any
firm of independent public accountants of recognized standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending within sixty days preceding the date as of
which the determination is to be made; or (ii) the fair market value thereof,
which shall be reasonably determined by the Corporation and the Holder as of a
date which is within fifteen days of the date as of which the determination is
to be made.
5. Protection Against Dilution. The number of shares of Common Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:
(a) takes a record of the holders of its outstanding shares of Common Stock
for the purposes of entitling them to receive a dividend payable in, or other
distribution of, Common Stock,
(b) subdivides its outstanding shares of Common Stock into a larger number
of shares of Common Stock; or
(c) combines its outstanding shares of Common Stock into a smaller number
of shares of Common Stock;
then, and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event by a fraction (A) the numerator of which is the total number of
outstanding shares of Common Stock immediately prior to such event and (B) the
denominator of which is the total number of outstanding shares of Common Stock
immediately after such event. Upon each adjustment in the Exercise Price under
this Warrant such number of shares of Common Stock purchasable under this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction, the numerator of which is the Exercise Price immediately prior to
such adjustment and the denominator of which is the Exercise Price in effect
upon such adjustment.
6. Adjustment for Reorganization, Consolidation, Merger, Etc.
(a) During the Exercise Period, the Corporation shall, prior to
consummation of a consolidation with or merger into another corporation, or
conveyance of all or substantially all of its assets to any other corporation or
corporations, whether affiliated or unaffiliated (any such corporation being
included within the meaning of the term "successor corporation"), or agreement
to so consolidate, merge or convey assets, require the successor corporation to
assume, by written instrument delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock, securities or property as the
Holder shall be entitled to purchase or receive in accordance with the
provisions of paragraph 6(b) hereof.
(b) In the case of any capital reorganization or reclassification of the
Common Stock of the Corporation (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
during the Exercise Period or in case, during the Exercise Period, the
Corporation (or any such other corporation) shall consolidate with or merge into
another corporation or convey all or substantially all its assets to another
corporation, the Holder, upon exercise, at any time after the consummation of
such reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the Common Stock of the Corporation (or such other
corporation), the proportionate share of all stock, securities or other property
issued, paid or delivered for or on all of the Common Stock of the Corporation
(or such other corporation) as is allocable to the shares of Common Stock then
called for by this Warrant as if the Holder had exercised the Warrant
immediately prior thereto, all subject to further adjustment as provided in
paragraph 4 of this Warrant.
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<PAGE>
7. Notice of Adjustment. On the happening of an event requiring an
adjustment of the Exercise Price or the shares purchasable under this Warrant,
the Corporation shall immediately give written notice to the Holder stating the
adjusted Exercise Price and the adjusted number and kind of securities or other
property purchasable under this Warrant resulting from the event and setting
forth in reasonable detail the method of calculation and the facts upon which
the calculation is based.
8. Dissolution, Liquidation. In case the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation (other than in
connection with a reorganization, consolidation, merger, or other transaction
covered by paragraph 5 above) is at any time proposed, the Corporation shall
give at least thirty days prior written notice to the Holder. Such notice shall
contain: (a) the date on which the transaction is to take place; (b) the record
date (which shall be at least thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction; (c) a brief description of the transaction, (d) a
brief description of the distributions to be made to holders of Common Stock as
a result of the transaction; and (d) an estimate of the fair value of the
distributions. On the date of the transaction, if it actually occurs, this
Warrant and all rights under this Warrant shall terminate.
9. Rights of Holder. The Corporation shall deliver to the Holder all
notices and other information provided to its holders of shares of Common Stock
or other securities which may be issuable hereunder concurrently with the
delivery of such information to the holders. This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions, any
other rights as a shareholder of the Corporation. No dividends are payable or
will accrue on this Warrant or the Shares purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised. Upon the surrender of
this Warrant and payment of the Exercise Price as provided above, the person or
entity entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the record holder of such shares
as of the close of business on the date of the surrender of this Warrant for
exercise as provided above. Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.
10. Exchange for Other Denominations. This Warrant is exchangeable, on its
surrender by the Holder to the Corporation, for a new Warrant of like tenor and
date representing in the aggregate the right to purchase the balance of the
number of shares Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.
11. Substitution. Upon receipt by the Corporation of evidence satisfactory
(in the exercise of reasonable discretion) to it of the ownership of and the
loss, theft or destruction or mutilation of the Warrant, and (in the case or
loss, theft or destruction) of indemnity satisfactory (in the exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and cancellation thereof, the Corporation will issue and deliver, in lieu
thereof, a new Warrant of like tenor.
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<PAGE>
12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock issuable on exercise of this Warrant have been registered under the
Securities Act or any other securities laws (the "Acts"). Neither this Warrant
nor the shares of Common Stock purchasable hereunder may be sold, transferred,
pledged or hypothecated in the absence of (a) an effective registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts, or (b) an opinion of counsel reasonably satisfactory to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an "accredited investor", as described in Section 17 hereof, and such
transfer or assignment is made expressly subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's counsel as Holder's counsel reasonably request for the purpose of
rendering such opinion. Each certificate evidencing shares of Common Stock
purchased hereunder will bear a legend describing the restrictions on transfer
contained in this paragraph unless, in the opinion of counsel reasonably
acceptable to the Corporation, the shares need no longer to be subject to the
transfer restrictions.
13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.
14. Recognition of Holder. Prior to due presentment for registration of
transfer of this Warrant, the Corporation shall treat the Holder as the person
exclusively entitled to receive notices and otherwise to exercise rights under
this Warrant. All notices required or permitted t be given to the Holder shall
be in writing and shall be given by first class mail, postage repaid, addressed
to the Holder at the address of the Holder appearing in the records of the
Corporation.
15. Payment of Taxes. The Corporation shall pay all taxes and other
governmental charges, other than applicable income taxes and transfer taxes, if
any, which shall be payable by Holder, that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.
16. Headings The headings in this Warrant are for purposes of convenience
in reference only, shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or construction of any of the provisions of this
Warrant.
17. Accredited Investor Status. The Holder represents and warrants to the
Corporation that Holder is an "accredited investor" as that term is defined in
Rule 501 of Regulation D, promulgated under the Securities Act of 1933, as
amended.
18. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the present state of
incorporation of the Company without regard to such state's principles of
conflict of laws.
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<PAGE>
19. Miscellaneous. This Warrant may not be changed, waived, discharged or
terminated except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.
PHC, INC., a Massachusetts corporation
By: /s/ Bruce A Shear
Authorized Officer
Printed Name: Bruce A. Shear
Title: President
200 Lake Street -- Suite 102
Peabody, Massachusetts 01960
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<PAGE>
PHC, Inc.
Form of Transfer
(To be executed by the Holder to transfer the Warrant)
For value received the undersigned registered holder of the attached Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:
Name of
Assignee: ____________________________________________
Address: ____________________________________________
____________________________________________
Assignee's Taxpayer ID No.: _____________________________
Number of shares
subject to transferred Warrant: ____________________________
The undersigned registered holder further irrevocably appoints as its
attorney-in-fact (with full power of substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.
Date: _________________________ _____________________________________
Signature
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<PAGE>
PHC, Inc.
Exercise Form
(To be executed by the Holder to purchase
Common Stock pursuant to the Warrant)
The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise purchase rights represented by such Warrant for, and to purchase,
______ shares of Common Stock of PHC, Inc., a Massachusetts corporation,
pursuant to the Warrant Certificate and encloses payment of $ _______________
therefor (in cash, by wire, or by certified or bank cashier's check); (2)
requests that a certificate for the shares be issued in the name of the
undersigned; and (3) if such number of shares is not all of the shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.
Date: _________________________ ____________________________________
Signature
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<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY OTHER SECURITIES
LAWS (THE "ACTS"). NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK
PURCHASABLE HEREUNDER MAY BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN REGISTRATION STATEMENT FOR THIS WARRANT OR COMMON STOCK
PURCHASABLE HEREUNDER, AS APPLICABLE, UNDER THE ACTS, OR (B) AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.
PHC, INC.
WARRANT
Issue Date: March 16, 1998
1. Basic Term. This Warrant (as it may be amended from time to time, the
"Warrant") certifies that, for value received, the holder specified below or its
assigns ("Holder"), is the owner of warrants of PHC, Inc., a Massachusetts
corporation (the "Corporation"), and is entitled, subject to the terms and
conditions of this Warrant, including adjustments as provided herein, to
purchase Ten Thousand Five Hundred Twenty Five (10,525) shares of Class A Common
Stock (the "Common Stock") of the Corporation from the Corporation at the price
per share shown below (the "Exercise Price").
Holder: Augustine Fund, L.P.
Exercise Price per share: Two Dollars and Five-Sixteenths Cents ($2 5/16)
per share
Except as specifically provided otherwise, all references in this Warrant to the
Exercise Price and the number of shares of Common Stock purchasable hereunder
shall be to the Exercise Price and number of shares after any adjustments are
made thereto pursuant to this Warrant.
2. Corporation's Representations/Covenants. The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at delivery be fully paid and nonasseble and free from taxes, liens,
encumbrances and charges with respect to their purchase. The Corporation shall
take any necessary actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current Exercise Price per
share of Common Stock issuable pursuant to this Warrant. The Corporation shall
at all times reserve and hold available sufficient shares of Common Stock to
satisfy all conversion and purchase rights of outstanding convertible
securities, options and warrants of the Corporation, including this Warrant
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3. Method of Exercise: Fractional Shares. This Warrant is exercisable at
the option of the Holder in whole at any time or in part from time to time by
surrendering this Warrant, on any business day during the period (the "Exercise
Period") beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston, Massachusetts time) three (3) years after the Late date.
To exercise this Warrant, the Holder shall surrender this Warrant at the office
of the Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that attached hereto) and together with payment for the Common Stock
purchased under this Warrant the principal office of the Corporation is located
at the address specified on the signature page of this Warrant; provided,
however, that the Corporation may change its principal office upon notice to the
Holder. At the option of the Holder payment shall be made either in cash (by
wire) or by certified or bank cashier's check payable to the order of the
Corporation or the Holder may elect to move shares of Common Stock calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice, issue and deliver to or upon the order of such Holder a certificate or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates shall not bear any restrictive
legend; provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective registration statement under the Act, (B) the holder provides the
Corporation with an opinion of counsel reasonably acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder provides the Corporation with reasonable assurance that such
shares can be sold free of any limitations imposed by Rule 144, promulgated
under the Act. The Corporation shall cause such issuance and delivery to be
effected within three (3) business days and shall transmit the certificates by
messenger or overnight delivery service to reach the address designated by such
holder within three (3) business days after the receipt of such notice. This
Warrant is not exercisable with respect to a fraction of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares covered by this Warrant, the Corporation shall
either at its option (a) pay for the fractional share cash equal to the same
fraction at the fair market price for such share; or (b) issue scrip for the
fraction in the registered or bearer form which shall entitle the Holder to
receive a certificate for a full share of Common Stock on surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's obligations
hereunder, and not as a penalty, the Corporation shall pay to such holder
liquidated damages of $500 per day until the certificates are delivered as
instructed. Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately available funds to such account as shall be designated
in writing by the Holder at the end of each month in which such amounts have
accrued. Holder shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of hereof and to enforce specifically the
transfer and provisions hereof, this being in addition to any other remedy to
which Holder may be entitled by law or equity.
(a) The Holder may, upon any full or partial exercise of this Warrant, pay
the Exercise Price applicable to such exercise by delivering this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being exercised which have a fair market value
on the date of exercise equal to the fair market value of the Warrant as
established in paragraph 4(b).
(b) The fair market value of this Warrant shall mean the fair market value
of the Common Stock purchasable under this Warrant minus the Exercise Price of
this Warrant.
(c) The fair market value of the Common Stock is, if the Common Stock is
traded on a national securities exchange or in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDA"), the average of the daily market prices of such stock on the
ten (10) trading days immediately preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic exchanges on
which the Common Stock is then listed, or if there have not been sales on any
such exchange on such day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if the Common Stock is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization.
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If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic over-the-counter market, the fair market
value shall be the higher of (i) the book value thereof, as determined by any
firm of independent public accountants of recognized standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending within sixty days preceding the date as of
which the determination is to be made; or (ii) the fair market value thereof,
which shall be reasonably determined by the Corporation and the Holder as of a
date which is within fifteen days of the date as of which the determination is
to be made.
5. Protection Against Dilution. The number of shares of Common Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:
(a) takes a record of the holders of its outstanding shares of Common Stock
for the purposes of entitling them to receive a dividend payable in, or other
distribution of, Common Stock,
(b) subdivides its outstanding shares of Common Stock into a larger number
of shares of Common Stock; or
(c) combines its outstanding shares of Common Stock into a smaller number
of shares of Common Stock;
then, and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event by a fraction (A) the numerator of which is the total number of
outstanding shares of Common Stock immediately prior to such event and (B) the
denominator of which is the total number of outstanding shares of Common Stock
immediately after such event. Upon each adjustment in the Exercise Price under
this Warrant such number of shares of Common Stock purchasable under this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction, the numerator of which is the Exercise Price immediately prior to
such adjustment and the denominator of which is the Exercise Price in effect
upon such adjustment.
6. Adjustment for Reorganization, Consolidation, Merger, Etc.
(a) During the Exercise Period, the Corporation shall, prior to
consummation of a consolidation with or merger into another corporation, or
conveyance of all or substantially all of its assets to any other corporation or
corporations, whether affiliated or unaffiliated (any such corporation being
included within the meaning of the term "successor corporation"), or agreement
to so consolidate, merge or convey assets, require the successor corporation to
assume, by written instrument delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock, securities or property as the
Holder shall be entitled to purchase or receive in accordance with the
provisions of paragraph 6(b) hereof.
(b) In the case of any capital reorganization or reclassification of the
Common Stock of the Corporation (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
during the Exercise Period or in case, during the Exercise Period, the
Corporation (or any such other corporation) shall consolidate with or merge into
another corporation or convey all or substantially all its assets to another
corporation, the Holder, upon exercise, at any time after the consummation of
such reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the Common Stock of the Corporation (or such other
corporation), the proportionate share of all stock, securities or other property
issued, paid or delivered for or on all of the Common Stock of the Corporation
(or such other corporation) as is allocable to the shares of Common Stock then
called for by this Warrant as if the Holder had exercised the Warrant
immediately prior thereto, all subject to further adjustment as provided in
paragraph 4 of this Warrant.
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7. Notice of Adjustment. On the happening of an event requiring an
adjustment of the Exercise Price or the shares purchasable under this Warrant,
the Corporation shall immediately give written notice to the Holder stating the
adjusted Exercise Price and the adjusted number and kind of securities or other
property purchasable under this Warrant resulting from the event and setting
forth in reasonable detail the method of calculation and the facts upon which
the calculation is based.
8. Dissolution, Liquidation. In case the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation (other than in
connection with a reorganization, consolidation, merger, or other transaction
covered by paragraph 5 above) is at any time proposed, the Corporation shall
give at least thirty days prior written notice to the Holder. Such notice shall
contain: (a) the date on which the transaction is to take place; (b) the record
date (which shall be at least thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction; (c) a brief description of the transaction, (d) a
brief description of the distributions to be made to holders of Common Stock as
a result of the transaction; and (d) an estimate of the fair value of the
distributions. On the date of the transaction, if it actually occurs, this
Warrant and all rights under this Warrant shall terminate.
9. Rights of Holder. The Corporation shall deliver to the Holder all
notices and other information provided to its holders of shares of Common Stock
or other securities which may be issuable hereunder concurrently with the
delivery of such information to the holders. This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions, any
other rights as a shareholder of the Corporation. No dividends are payable or
will accrue on this Warrant or the Shares purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised. Upon the surrender of
this Warrant and payment of the Exercise Price as provided above, the person or
entity entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the record holder of such shares
as of the close of business on the date of the surrender of this Warrant for
exercise as provided above. Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.
10. Exchange for Other Denominations. This Warrant is exchangeable, on its
surrender by the Holder to the Corporation, for a new Warrant of like tenor and
date representing in the aggregate the right to purchase the balance of the
number of shares Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.
11. Substitution. Upon receipt by the Corporation of evidence satisfactory
(in the exercise of reasonable discretion) to it of the ownership of and the
loss, theft or destruction or mutilation of the Warrant, and (in the case or
loss, theft or destruction) of indemnity satisfactory (in the exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and cancellation thereof, the Corporation will issue and deliver, in lieu
thereof, a new Warrant of like tenor.
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12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock issuable on exercise of this Warrant have been registered under the
Securities Act or any other securities laws (the "Acts"). Neither this Warrant
nor the shares of Common Stock purchasable hereunder may be sold, transferred,
pledged or hypothecated in the absence of (a) an effective registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts, or (b) an opinion of counsel reasonably satisfactory to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an "accredited investor", as described in Section 17 hereof, and such
transfer or assignment is made expressly subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's counsel as Holder's counsel reasonably request for the purpose of
rendering such opinion. Each certificate evidencing shares of Common Stock
purchased hereunder will bear a legend describing the restrictions on transfer
contained in this paragraph unless, in the opinion of counsel reasonably
acceptable to the Corporation, the shares need no longer to be subject to the
transfer restrictions.
13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.
14. Recognition of Holder. Prior to due presentment for registration of
transfer of this Warrant, the Corporation shall treat the Holder as the person
exclusively entitled to receive notices and otherwise to exercise rights under
this Warrant. All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the Holder at the address of the Holder appearing in the records of the
Corporation.
15. Payment of Taxes. The Corporation shall pay all taxes and other
governmental charges, other than applicable income taxes and transfer taxes, if
any, which shall be payable by Holder, that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.
16. Headings. The headings in this Warrant are for purposes of convenience
in reference only, shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or construction of any of the provisions of this
Warrant.
17. Accredited Investor Status. The Holder represents and warrants to the
Corporation that Holder is an "accredited investor" as that term is defined in
Rule 501 of Regulation D, promulgated under the Securities Act of
1933, as amended.
18. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the present state of
incorporation of the Company without regard to such state's principles of
conflict of laws.
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19. Miscellaneous. This Warrant may not be changed, waived, discharged or
terminated except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.
PHC, INC., a Massachusetts corporation
By: /s/ Bruce A Shear
Authorized Officer
Printed Name: Bruce A. Shear
Title: President
200 Lake Street -- Suite 102
Peabody, Massachusetts 01960
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PHC, Inc.
Form of Transfer
(To be executed by the Holder to transfer the Warrant)
For value received the undersigned registered holder of the attached Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:
Name of
Assignee: ____________________________________________
Address: ____________________________________________
____________________________________________
Assignee's Taxpayer ID No.: _____________________________
Number of shares
subject to transferred Warrant: ____________________________
The undersigned registered holder further irrevocably appoints as its
attorney-in-fact (with full power of substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.
Date: ______________________ ________________________________
Signature
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PHC, Inc.
Exercise Form
(To be executed by the Holder to purchase
Common Stock pursuant to the Warrant)
The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise purchase rights represented by such Warrant for, and to purchase,
______ shares of Common Stock of PHC, Inc., a Massachusetts corporation,
pursuant to the Warrant Certificate and encloses payment of $ _______________
therefor (in cash, by wire, or by certified or bank cashier's check); (2)
requests that a certificate for the shares be issued in the name of the
undersigned; and (3) if such number of shares is not all of the shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.
Date: _________________________ _________________________________
Signature
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Exhibit 10.133
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is made and entered into as of the 2nd day of
February, 1998, by and between Lexington Healthcare Group, Inc., a Delaware
corporation having its principal place of business at 35 Park Place, New
Britain, Connecticut 06052 (together with its successors and assigns hereinafter
collectively referred to as the "Buyer"), and Quality Care Centers of
Massachusetts, a Massachusetts corporation having its principal place of
business at 200 Lake Street, Suite 102, Peabody, Massachusetts 01960 (together
with its successors and assigns hereinafter collectively referred to as the
"Seller").
W I T N E S S E T H:
WHEREAS, the Seller owns and leases certain assets in connection with, and
operates the 128-bed licensed skilled nursing care facility known as, Franvale
Nursing and Rehabilitation Center at 20 Pond Street, Braintree, Massachusetts
02184 (the "Facility"); and
WHEREAS, the Buyer desires to acquire from the Seller, and the Seller
desires to sell to the Buyer, certain of the assets of the Seller used in
connection with the operation of the Facility, all upon and subject to the terms
and conditions contained herein; and
WHEREAS, the Buyer and the Seller have entered into a letter of intent,
dated January 16, 1998 (the "Letter of Intent"), setting forth certain
understandings regarding the proposed purchase of the assets to be purchased
pursuant hereto.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants, conditions, representations and undertakings hereinafter contained,
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
Definitions
"Acquired Assets" shall have the meaning ascribed thereto in Section 2.1
hereof.
"Actual Amount" shall have the meaning ascribed thereto in Section 2.4
hereof.
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"Approvals" shall mean the notices, approvals, consents, licenses, orders,
authorizations, registrations, declarations and filings described in Section 5.5
hereof.
"Assumed Liabilities" shall have the meaning ascribed thereto in Section
2.6 hereof.
"Balance Sheet Analysis" shall have the meaning ascribed thereto in Section
3.15 hereof.
"Business Day" shall mean any day other than Saturday, Sunday or any other
day which is a legal holiday in Boston, Massachusetts.
"Buyer" shall have the meaning ascribed thereto in the preamble hereto.
"Closing" shall mean the consummation of the transactions described herein.
"Closing Date" shall have the meaning ascribed thereto in Section 9.1
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, including all regulations promulgated pursuant thereto.
"Creditor Approvals" shall mean the written consent by the U.S. Department
of Housing and Urban Development, Federal Housing Administration ("HUD"), to the
sale of the Facility Real Estate and the assumption of all of the Indebtedness,
obligations and liabilities of the Seller secured and evidenced by the HUD
Mortgage.
"Deposit" shall have the meaning ascribed thereto in Section 2.3 hereof.
"ERISA" shall mean the Employee Retirement Security Act of 1976, as
amended, including the regulations promulgated pursuant thereto.
"Escrow Agent" shall mean the law firm of Choate, Hall & Stewart, Boston,
Massachusetts 02109.
"Excluded Assets" shall have the meaning ascribed thereto in Section 2.2
hereof.
"Facility" shall have the meaning ascribed thereto in the recitals hereto.
"Facility Improvements" shall have the meaning ascribed thereto in Section
2.1(i) hereof.
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"Facility Land" shall have the meaning ascribed thereto in Section 2.1(i)
hereof.
"Facility Real Estate" shall mean, collectively, the Facility, the Facility
Improvements and the Facility Land.
"Financial Statements" shall have the meaning ascribed thereto in Section
3.15 hereof.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"HUD Mortgage" shall mean the Mortgage dated as of September 8, 1994 from
the Seller to Charles River Mortgage Company, Inc., insured by HUD pursuant to
Section 232 of the National Housing Act and the regulations thereunder and
relating to the Facility Real Estate.
"Indebtedness" shall mean, as applied to any Person, (i) all items (except
items of capital stock or capital or paid-in surplus or retained earnings) which
in accordance with GAAP would be included in determining total liabilities as
shown on the liability side of the balance sheet of such Person as of the date
of which Indebtedness is to be determined, including any capital lease; (ii) all
indebtedness secured by any mortgage, pledge, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby shall have
been assumed, or such Person is liable therefor; and (iii) all indebtedness of
others which such Person has directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business),
discounted or sold with recourse or agreed (contingently or otherwise) to
purchase or repurchase or otherwise acquire, or in respect of which such Person
has agreed to supply or advance funds (whether by way of loan, stock purchase,
capital contributions or otherwise) or otherwise to become directly or
indirectly liable.
"Inspection Period" shall mean the thirty (30) day period commencing upon
the date hereof.
"Lien" shall mean (a) any mortgage, pledge, lien, charge, security interest
or other similar encumbrance of any kind upon any property or assets of any
character, or upon the income or profits therefrom; (b) any acquisition of or
agreement to have an option to acquire any property or assets upon conditional
sale or other title retention agreement, device or arrangement including a
capitalized lease); or (c) any sale, assignment, pledge or other transfer for
security of any accounts, general intangibles or chattel paper, with or without
recourse.
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"Notices" shall have the meaning ascribed thereto in Section 5.5.
"Permitted Encumbrances" shall mean (a) the encumbrances with respect to
the Facility Real Estate as more fully described in Section 3.12(a) hereof, and
(b) the Liens with respect to the Personal Property as more fully described in
Section 3.3(a) hereof.
"Person" shall mean a corporation, association, trust, partnership, joint
venture, organization, proprietorship, natural person, government or political
subdivision thereof or governmental agency.
"Personal Property" shall mean the Acquired Assets other than the Facility
Real Estate.
"Plans" shall have the meaning ascribed thereto in Section 3.19.
"PNA" shall have the meaning ascribed thereto in Section 3.22 hereof.
"Post-Closing Adjustment Amount" shall have the meaning ascribed thereto in
Section 2.4 hereof.
"Projected Amount" shall have the meaning ascribed thereto in Section 2.4
hereof.
"Purchase Price" shall have the meaning ascribed thereto in Section 2.4
hereof.
"Recoupment Claims" shall mean any recoupments or overpayments sought or
claimed by any third party payor to, or governmental authority having
jurisdiction over, the Facility for amounts arising from or related to payments
to or amounts claimed by the Facility in connection with services rendered prior
to the Closing Date.
"Seller" shall have the meaning ascribed thereto in the preamble hereto.
"Unassumed Liabilities" shall have the meaning ascribed thereto in Section
2.6 hereof.
ARTICLE II
General Provisions of Purchase and Sale
Section 2.1 - Purchase and Sale of Acquired Assets. Upon the basis of and
in reliance on the representations and warranties contained in, and subject to
the terms and conditions of, this Agreement, the Buyer agrees to purchase and
acquire from the Seller, and the Seller agrees to sell, convey, transfer, assign
and deliver to the Buyer, on the Closing Date, the Acquired Assets (as defined
below), free and clear of any Lien (other than Permitted Encumbrances), except
as disclosed herein, against receipt on the Closing Date of the Purchase Price
specified in Section 2.4 hereof and assumption by the Buyer of the liabilities
specified in Section 2.6(a) hereof. The term "Acquired Assets" shall mean all of
those assets owned by the Seller or in which the Seller has any rights or
interests comprising and used by the Seller in connection with or related to the
ownership, management or operation of the Facility as of the Closing Date, and
any and all of the Seller's right, title and interest therein and thereto (but
excluding the Excluded Assets, as hereinafter defined), including, without
limitation:
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(i) the premises located in the Town of Braintree, Norfolk County,
Commonwealth of Massachusetts, as more particularly described on
Exhibit A attached hereto and made a part hereof (the "Facility
Land"), and all of the buildings, structures, improvements and
tenements erected on the Facility Land (the "Facility Improvements"),
and all rights of way, use privileges, franchises, servitudes,
easements and other appurtenances, if any, relating to the Facility
Improvements or the Facility Land, and all fixtures, including,
without limitation, any and all boilers, pumps, tanks, lighting
equipment and wiring, electric panel switchboards, heating, plumbing
and ventilating apparatus, sprinklers, elevators, escalators,
refrigeration, air conditioning and air cooling equipment, other
building service equipment and other articles which are used or
procured for use in connection with the operation and maintenance of
the Facility Improvements, insofar as the same are, or can by
agreement of the parties be made, a part of the Facility Land or the
Facility Improvements;
(ii) the machinery, equipment, parts, furniture, furnishings, office
and computer equipment and other fixed assets listed on Schedule
2.1(ii) hereto owned by the Seller prior to the Closing Date and
used or to be used by the Seller in connection with the ownership
or operation of the Facility;
(iii) the leases, contracts, contract rights, agreements and
commitments, if any, listed on Schedule 2.1(iii) hereto which are
related to the ownership or operation of the Facility in which
the Seller now or hereafter has any present or future right or
interest prior to the Closing Date and which are assumed by the
Buyer pursuant to Section 2.6(a) hereof;
(iv) all accounts receivable and other amounts owed (excluding
accounts receivable and other amounts owed by any affiliate of
the Seller to the Seller) relating to services or goods provided
by the Seller in connection with the operation of the Facility
and all account, account receivable and other books and records
of the Seller which evidence, describe or otherwise relate to
such accounts receivable and other amounts of the Seller
described above;
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(v) the name "Franvale Nursing and Rehabilitation Center" and all
derivatives thereof and all goodwill associated with the nursing
home business operated by the Seller at the Facility;
(vi) all transferable licenses, permits and other rights and interests
(including, without limitation, any transferable licenses,
permits, registrations or authorizations from or with Federal and
state regulatory authorities and/or Medicare and/or Medicaid)
relating to the ownership, management or operation of the
Facility which the Seller is now or hereafter in possession of,
or has rights to or in, prior to the Closing Date;
(vii) all books and records, customer and supplier lists, provider
agreements, patient lists, approvals, permits, contracts, plans,
surveys, policy manuals, accounts and other records (except the
Seller's general ledger, income and other tax returns, corporate
minute books and stock books and any other record or document
which contains confidential or proprietary information) used in
connection with the ownership, management or operation of the
Facility;
(viii) any and all of the Seller's trademarks and trademark
applications, service marks and service mark applications, trade
and product names, copyrights and copyright applications
(including the associated goodwill and the right to sue for and
recover such damages and such other relief as might be granted by
a court of competent jurisdiction for past infringement thereof)
with respect to the business and/or operations of the Seller at
the Facility; and
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(ix) any and all advances or pre-payments made by patients of the
Facility for services not rendered prior to the Closing Date.
Section 2.2 - Excluded Assets. Notwithstanding anything to the contrary
herein provided, the Acquired Assets shall not include the cash, cash
equivalents or investments of the Seller, the accounts receivable and other
amounts owed by any affiliate of the Seller to the Seller or any other assets of
the Seller identified on Schedule 2.2 hereto (the "Excluded Assets"), all of
which Excluded Assets shall be retained by the Seller and shall not be sold,
assigned, transferred, conveyed or delivered to the Buyer.
Section 2.3 - Deposit. Upon the execution of this Agreement, the Buyer
shall deliver to the Escrow Agent the sum of Fifty Thousand Dollars ($50,000),
as a deposit (the "Deposit"), by wire transfer or by delivery of a bank check,
certified check, or other mutually acceptable means. The Deposit shall be held
by the Escrow Agent in a segregated interest-bearing account subject to the
terms of an Escrow Agreement substantially in the form of Exhibit B hereto (the
"Escrow Agreement"). The Deposit shall be refundable except as otherwise
provided herein.
Section 2.4 - Payment of Purchase Price; Adjustment. In full consideration
of the Acquired Assets and subject to the terms and conditions of this
Agreement, the Buyer hereby agrees to pay to the Seller the purchase price of
One Dollar ($1.00) (the "Purchase Price") payable in cash at the Closing. In
addition, the Purchase Price shall be subject to adjustment (the "Post-Closing
Adjustment Amount") as described below. In the event that the actual Net
Receivables (defined as the net accounts receivable of the Seller minus the
gross accounts payable of the Seller determined in the manner reflected in the
Balance Sheet Analysis) as of the Closing Date as calculated six months after
the Closing Date by the parties from the financial records of the Buyer and in
the manner reflected in the Balance Sheet Analysis (the "Actual Amount") exceeds
the projected Net Receivables as of the Closing Date calculated in the manner
reflected in the Balance Sheet Analysis (the "Projected Amount") by an amount
which exceeds the Projected Amount by more than 10% (the "Threshold"), the Buyer
shall pay to the Seller one dollar for each dollar that such Actual Amount
exceeds the Projected Amount in excess of the Threshold. In the event that the
Projected Amount exceeds the Actual Amount by an amount which exceeds the Actual
Amount by more than the Threshold, the Seller shall pay to the Buyer one dollar
for each dollar that the Projected Amount exceeds the Actual Amount in excess of
the Threshold.
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Section 2.5 - Instruments of Transfer and Conveyance.
(a) The sale, conveyance, transfer, assignment and delivery of the Acquired
Assets, as herein provided, shall be effected by delivery by the Seller at the
Closing of such quitclaim deeds, bills of sale, endorsements, assignments,
certificates, drafts, checks or other instruments of transfer and conveyance as
the Buyer reasonably deems necessary to vest in the Buyer good and clear, record
and marketable title to the Acquired Assets subject only to the Permitted
Encumbrances. The instruments of assignment and conveyance described in this
Section 2.5(a) shall include, inter alia, a Quitclaim Deed, substantially in the
form of Exhibit C hereto, and a Bill of Sale, Assignment and Assumption
Agreement, substantially in the form of Exhibit D hereto.
(b) If all or any portion of the Facility Real Estate is registered land,
the deed from the Seller shall be in form sufficient to entitle the Buyer to a
certificate of title of said premises, and the Seller shall deliver with the
deed all instruments, including, without limitation, the Seller's Owner's
Duplicate Certificate of Title (or if the same cannot be located an approved
Petition for New Duplicate Certificate), necessary to enable the Buyer to obtain
such certificate of title.
(c) Subject to Section 2.5(a) hereof, the Seller agrees that it will from
time to time after the Closing Date, upon the request of the Buyer, promptly do,
execute, acknowledge and deliver and will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, certificates,
assignments, transfers, conveyances, powers of attorney, assurances and other
documents as may be reasonably necessary or advisable in the opinion of the
Buyer's counsel to assure or confirm the Buyer's free and clear title to and
interest in any of the Acquired Assets.
Section 2.6 - Assumption of Liabilities.
(a) On the terms and subject to the conditions set forth herein, and
subject to Section 2.6(b) hereof, on and after the Closing Date, the Buyer will
assume and satisfy or perform when due all Indebtedness, obligations or
liabilities of the Seller existing on the Closing Date and arising in connection
with the ownership, management or operation of the Facility which are reflected
in the Financial Statements or which constitute routine operating expenses
similar to those reflected in the Financial Statements which arise in the
ordinary course of business between the date of the Financial Statements and the
Closing Date, including, without limitation, all such Indebtedness, obligations
or liabilities of the Seller arising under those leases, contracts, agreements
and commitments, if any, listed on Schedule 2.1(iii) hereto (the "Assumed
Liabilities").
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(b) The Buyer will not assume or perform any Indebtedness, liabilities or
obligations not expressly provided for in this Agreement, including, without
limitation, any accounts payable or other amounts owed by the Seller to any
affiliate of the Seller (the "Unassumed Liabilities").
Section 2.7 - Assignment of Rights of the Buyer; Nominees.
(a) It is understood and agreed by the Seller that the Buyer may assign
this Agreement, in whole or in part, to an existing affiliate or an affiliate to
be formed by the Buyer, provided that such affiliate shall assume all of the
Buyer's rights and obligations hereunder. Notwithstanding the foregoing, the
Buyer shall remain primarily obligated under this Agreement.
(b) The Buyer, and any such affiliate, shall have the right to designate
nominees to hold title to all or any portion of the Acquired Assets, provided
that such nominees are themselves affiliates of the Buyer, and that the Buyer
provides the Seller with notice of such designation at least three (3) days
prior to the Closing Date. Notwithstanding the foregoing, the Buyer shall remain
primarily obligated under this Agreement.
Section 2.8 - Alternate Agreements for Certain-Contracts and Leases. If (i)
any contract or lease to be assigned to the Buyer hereunder cannot be so
assigned without the consent of a third party and such consent has not been
obtained as of the Regulatory Approval Date, and (ii) the Buyer so elects, then
the Seller and the Buyer shall enter into the reasonable arrangements as the
Buyer may specify, without expense or liability to such Seller (except for the
Seller's own attorneys, fees incurred in connection therewith), in order to
obtain for the Buyer, as near as may be, the benefits of such contract or lease.
Section 2.9 - Seller's Ability to Clear Title. If on the Closing Date for
any reason, (i) title to the Acquired Assets shall not conform to the provisions
of this Agreement, or (ii) any of the conditions precedent specified herein have
not been satisfied, the Closing Date shall be extended for thirty (30) days,
during which time Seller shall use commercially reasonable efforts to correct
and perfect said title, make the Acquired Assets conform to the provisions
hereof, or satisfy such condition precedent, as the case may be, provided,
however, that the Seller shall not be required to expend more than $25,000 to
fulfill its obligations under this Section 2.9. If, at the expiration of such
extended time, the Seller shall have failed to remove such defect, or to make
the Acquired Assets conform, or to satisfy such condition precedent, as the case
may be, the Buyer shall be entitled to its remedies set forth herein.
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ARTICLE III
Warranties, Representations and Covenants of the Seller
To induce the Buyer to execute this Agreement, the Seller makes each of the
representations, warranties, covenants and indemnities set forth in this
Agreement with respect to itself, the Facility and the Facility Real Estate, as
applicable, including those set forth in this Article, each of which shall
survive the execution and delivery hereof, for a period of twelve (12) months
from the Closing Date, all of which are material and have been relied upon by
the Buyer and each of which shall be true and correct in all material respects
as of the date hereof and on the Closing Date.
Section 3.1 - Corporate Organization and Authority.
(a) The Seller has all corporate power and authority and has been duly
authorized to execute, deliver and perform this Agreement and all agreements and
instruments delivered in connection herewith, and to consummate the transactions
contemplated hereby and thereby, and this Agreement and all instruments and
agreements delivered in connection herewith are the valid and binding
obligations of the Seller, enforceable against it in accordance with their
respective terms.
(b) The Seller is a corporation duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts and has all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its businesses as now being conducted and as now proposed to be
conducted.
Section 3.2 - No Conflicts. Except as otherwise set forth on Schedule 3.2
hereto or otherwise disclosed herein, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated by this
Agreement will: (i) conflict with, or result in, a breach or violation of the
charter or by-laws of the Seller; (ii) to the best of the Seller's knowledge,
violate or conflict in any material respect with any statute, law, rule or
regulation; (iii) violate or conflict in any material respect with any order,
writ, injunction or decree of any court or governmental authority applicable to
the Seller; or (iv) require the consent, license, permission, filing, action or
approval by or registration with or notice to any governmental authority or
third party or violate or conflict in any material respect with or constitute a
default under (or give rise to any right of termination, cancellation,
revocation or acceleration under the terms, conditions, or provisions of) any
material contract, note, bond, mortgage, agreement, understanding, license,
arrangement or restriction of any kind to which the Seller is a party or by
which the Seller or any assets or properties thereof may be bound
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Section 3.3 - Ownership of Assets.
(a) The Seller has, and will transfer to the Buyer, good and clear record
and marketable title to the Acquired Assets which constitute real property and
good and clear title to the Acquired Assets which constitute personal property,
except as set forth on Schedule 3.3(a), and, in the case of leased or licensed
property, has valid leases or licenses under which it enjoys peaceful and
undisturbed possession of all of the Acquired Assets which it is transferring
(whether real or personal and whether tangible or intangible), including,
without limitation, all such properties, rights and assets reflected on Schedule
2.1(ii) hereto, free and clear of any Liens or restrictions on transfer, except
for the Permitted Encumbrances. Except for those Excluded Assets described on
Schedule 2.2, such Acquired Assets include all properties, rights and assets
used in or necessary for the conduct of the nursing home business operated at
the Facility.
(b) The Acquired Assets will be in the same condition at the Closing as
they were in at the time of the inspection thereof by the Buyer in accordance
with Section 5.3 hereof, reasonable wear and tear and physical damage caused by
the Buyer's or its representatives', agents' or employees', negligence, gross
negligence or willful misconduct excepted.
Section 3.4 - Operating Licenses, Permits, Certifications and
Authorizations; Compliance of the Facility.
(a) The Seller possesses all governmental licenses, permits, certifications
and other authorizations as are used in or necessary for the conduct of the
Facility (including, without limitation, certifications under the Medicare and
Medicaid programs), all of such licenses, permits, certifications and
authorizations are in full force and effect, and the Seller is not in default
or, to the best of the Seller's knowledge, subject to any inquiry in any
material respect under any of such licenses, permits, certifications or other
authorizations, except as provided on Schedule 3.4(a). A true, correct and
complete list of all such governmental licenses, permits, certifications and
other authorizations, as well as all current and recent (within the past two (2)
years) inspection reports and surveys related to the Facility, is set forth on
Schedule 3.4(a) hereto and a true, correct and complete copy of each such
license, permit, certification, authorization, report and survey has been
delivered to the Buyer. There are no applications pending with the Massachusetts
Department of Public Health, Determination of Need Office with respect to the
Facility.
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(b) Except as disclosed on Schedule 3.4(b) hereto, to the best of the
Seller's knowledge, the Seller is currently operating the Facility in accordance
with, and the Facility is in material compliance with, all applicable government
statutes, laws, regulations, judgments, orders, decrees, permits, directives,
requirements and ordinances. Except as disclosed on Schedule 3.4(b) hereto, no
notice has been issued by any governmental authority having jurisdiction stating
that there is any existing violation of any Federal, state or local statute,
law, ordinance, directive, judgment, decree, permit, rule, order, regulation or
requirement which applies to the Facility, or to the maintenance, operation or
use of the Facility, which violation has not been irrevocably waived, remedied
or dismissed.
(c) Except as disclosed on Schedule 3.4 hereto, there are no (i)
determinations of need, (ii) contracts or agreements with any governmental
agency or private entity, or (iii) licenses, permits or other governmental
approvals which require that a specific percentage of beds or slots in the
Facility be reserved for Medicaid or Medicare eligible patients or that the
Facility provide a specific amount of welfare, free or charity care or
discounted or government assisted patient care, other than the general
requirement that access to the Facility by such Medicaid and Medicare recipients
may not be limited in a discriminatory manner.
Section 3.5 - Contracts with Third Parties.
(a) Except as set forth on Schedule 3.5 hereto, there are no leases,
contracts, agreements or commitments between the Seller or the Facility, on the
one hand, and any third party, on the other hand, with respect to the ownership,
management, operation or administration of the Facility.
(b) The Seller has delivered to the Buyer true and complete copies of the
leases, contracts, agreements or commitments listed on Schedule 3.5 hereto. All
of such leases, contracts, agreements or commitments listed on Schedule 2.1(iii)
hereto are valid, binding and in full force and effect. Except as set forth in
this Agreement, no Person has any agreement, option, understanding or commitment
for the purchase or transfer from the Seller of any of the Acquired Assets.
Section 3.6 - Zoning. To the best of the Seller's knowledge, the Facility
is not in material violation of any applicable state, county and local zoning,
land use or building laws, regulations or ordinances, and is in possession of
all applicable consents and approvals, so that the current use of the Facility
is proper and lawful (which consents and approvals will not be impaired ,
limited, restricted or otherwise modified by the transfer of the Acquired Assets
to the Buyer).
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Section 3.7 - Condemnation. There is no pending or, to the best of the
Seller's knowledge, threatened condemnation or similar proceeding with respect
to or affecting the Facility Real Estate, or any portion of the Facility Real
Estate, and no written notice thereof has been received by the Seller.
Section 3.8 - Utilities. The Facility Real Estate is adequately serviced by
public water, public sanitary sewer, electric service, storm sewer and telephone
service and the physical means of such service is, to the best of the Seller's
knowledge, in good working order and the Seller enjoys the lawful use of the
same. There are no septic systems servicing the Facility Real Estate.
Section 3.9 - Insurance. The Seller has insurance contracts in full force
and effect through the Closing Date, written by financially sound and reputable
insurers licensed to write insurance in the jurisdiction of incorporation of the
Seller, which insurance contracts provide for coverages which are usual and
customary for the Facility as to amount and scope, including, without
limitation, fire and extended coverage and comprehensive general liability
coverage for the Seller and its employees, agents, officers, directors and those
other individuals normally covered by such insurance, and are such as do not
result in the Seller being a self-insurer in any respect, individually or in the
aggregate, material to the business, operations, assets, prospects or condition,
financial or otherwise of the Seller. The amount, scope, identity of insurer,
premiums payable in respect of and other material aspects of each insurance
contract for the Seller is set forth on Schedule 3.9 hereto and true, correct
and complete copies of each such contract have been delivered to the Buyer.
Section 3.10 - Assessments. There is no pending or, to the best of the
Seller's knowledge, proposed assessments against the Facility Real Estate
relating to utilities, sewers, or other improvements on or to be placed on or
otherwise servicing the Facility Real Estate or any part thereof, including,
without limitation, any long-term sewer assessment, and the Seller has no
knowledge of any such improvements with respect to which assessments have not
been made.
Section 3.11 - Litigation. Except as set forth on Schedule 3.11 hereto,
there is no claim, action, suit, litigation, proceeding or investigation of any
kind, whether judicial, administrative or otherwise, pending or, to the best of
the Seller's knowledge, threatened against or relating to the Acquired Assets,
and there are no unsatisfied or outstanding judgments, orders, decrees or
stipulations affecting any of the foregoing or to which any of the foregoing is
or may become a party or by which any of the foregoing may be bound.
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Section 3.12 - Real Property, etc.
(a) The Seller is the legal fee simple titleholder for all of the Facility
Real Estate and has good and clear, record and marketable and insurable (at
normal rates) title to the Facility Real Estate free and clear of all mortgages
and security interests, leases, licenses, claims, options, options to purchase,
liens, covenants, conditions, restrictions, rights-of way, easements, judgments,
encumbrances and other matters affecting title to the Facility Real Estate
except those matters shown on Schedule 3.12(a) hereto.
(b) To the best of the Seller's knowledge, all surveys prepared or title
insurance policies issued with respect to all or any part of the Facility Real
Estate have been delivered to the Buyer. There is no pending litigation or
dispute or, to the best of the Seller's knowledge, basis for dispute concerning
the location of the lines and corners of the boundaries of the lots constituting
the Facility Real Estate.
(c) On the Closing Date, there will be no leases, subleases, tenancies,
licenses, occupancy agreements or other agreements pursuant to which any party
holds rights to use or occupy all or any portion of the Facility Real Estate and
the Seller shall deliver possession of the Facility Real Estate free of all
tenants and other occupants on the Closing Date.
Section 3.13 - Filings, etc. Except for approvals and filings required as
set forth in Schedule 3.13 hereto or as otherwise set forth in this Agreement,
no approval, consent, authorization, or other order of, and no declaration,
filing, registration, qualification or recording with, any governmental
authority is required to be made by or on behalf of the Seller in connection
with the execution, delivery or performance of this Agreement or the
consummation of any of the transactions contemplated hereby or thereby.
Section 3.14 - Environment.
(a) To the best of the Seller's knowledge, there are no Hazardous
Substances present at, nor is there or has there been any Hazardous Substance
dumped, spilled or disposed of at, on, under or upon the Facility Real Estate,
except for medical supplies, medical waste and cleaning supplies used and stored
in accordance with all applicable laws.
(b) The Seller has complied in all material respects with all Environmental
Laws, and neither the Seller nor any agent, employee, affiliate or other Person
acting on behalf of Seller has received notice from any governmental authority
of a violation or an alleged violation of compliance, or of a noncompliance or
an alleged noncompliance, of the Facility Real Estate, with any of the
Environmental Laws.
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(c) As used herein, the term "Hazardous Substances" shall mean "oil,"
"hazardous material," "hazardous waste," "hazardous substance" or any other
material which may be dangerous to health or the environment, either separately
or in combination with any other substance, when improperly "generated,"
"stored," "utilized," "heated," "disposed," "released," "transported" or
otherwise "managed," as the foregoing terms (in quotations) are defined by any
federal, state and/or local statute, ordinance, by-law, code, rule and/or
regulation applicable to (x) environmental conditions on, under or about the
Facility Real Estate; or (y) any disposal, release, transportation or storage of
Hazardous Substances by the Seller (collectively referred to herein as the
"Environmental Laws"), including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
9601 et seq. and the Resource Conversation and Recovery Act, as amended, 42
U.S.C. 6901, et seq, the Federal Resource Conservation and Recovery Act, the
Federal Water Pollution Control Act, and the Federal Clean Air Act, and state
equivalents (including, without limitation, Chapters 21C and 21E of the
Massachusetts General Laws), and regulations promulgated thereunder.
(d) Except as set forth on Schedule 3.14 hereto, there are no underground
oil or other fuel storage tanks under the Facility Real Estate.
Section 3.l5 - Financial Statements. The Seller has furnished to the Buyer
the audited financial statements of the Seller for the years ended June 30,
1997, 1996, and 199S and interim financial statements of the Seller for the
period ended December 31, 1997 (collectively, the "Financial Statements"). The
Financial Statements are complete and accurate in all material respects and
present fairly the assets, liabilities, operations and financial condition of
the Seller and the results of its business operations at the Facility and have
been prepared in conformity with GAAP. The Financial Statements for the period
ended December 31, 1997 shall be accompanied by an analysis prepared by Feeley &
Driscoll, P.C. of the accounts receivable and the accounts payable of the Seller
as of such date in a form satisfactory to the Buyer (the "Balance Sheet
Analysis").
Section 3.16 - Tax Returns and Payments; Federal Taxpayer Identification
Number. Seller has prepared in good faith and filed when due (including pursuant
to all applicable extensions) all tax returns required by law to be filed and
has paid when due all taxes, assessments and other governmental charges levied
upon any of their properties, assets or income, other than those not yet
delinquent. Seller has not executed any waiver that would have the effect of
extending any applicable statute of limitations in respect of any of its tax
liabilities. To the best of Seller's knowledge, the charges, accruals and
reserves on the books of Seller in respect of taxes for all fiscal periods are
adequate and there is no unpaid assessment or any basis for the assessment of
any material amount of additional taxes for any fiscal period. Neither the
Internal Revenue Service nor any other taxing authority is now asserting or, to
the best of Seller's knowledge, threatening to assert against Seller any
deficiency or claim for additional taxes or interest thereon or penalties in
connection therewith. Seller's federal taxpayer identification number is
04-3014675.
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Section 3.17 - Labor Relations. The Seller is not a party to any union or
collective bargaining agreement nor has the Seller made any commitment or
promise to any of its employees with the intention of incurring such obligation.
Except as disclosed on Schedule 3.17 hereto, neither the Seller nor the Facility
has been the object of any union organizing activity, and there have been no
attempts, during the Seller's ownership or operation of the Facility, to
organize the employees of the Facility either by organized unions or the
employees themselves. No election or proceedings relating to the labor relations
of the Facility is pending or threatened, nor is any material labor dispute or
disturbance pending or threatened, and, to the best of the Seller's knowledge,
the Seller has not committed any unfair labor practice. To the best of the
Seller's knowledge, the Facility is in substantial compliance with all laws or
regulations relating to the employment of labor (including, but not limited to,
all provisions relating to equal opportunity, occupational safety and health,
wages, hours, collective bargaining and the payment of social security and
similar taxes) and, to the best of the Seller's knowledge, is not liable for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing. There are no proceedings now pending or, to the best of the Seller's
knowledge, threatened with respect to the operation of the Facility before the
National Labor Relations Board, Massachusetts Commission Against Discrimination,
Massachusetts Department of Labor, U.S. Department of Labor or any other Federal
or state agencies having jurisdiction over employee rights with respect to
hiring, tenure and conditions of employment. The Seller has not received written
notice that there are violations of the Occupational Safety Hazard Act (OSHA) at
the Facility.
Section 3.18 - Employees. Set forth on Schedule 3.18 hereto is a list of
all of the Seller's current employees, their rates of compensation, and the job
performed or position held by each such employee. No later than the end of the
Inspection Period, the Buyer shall notify the Seller as to which employees of
the Seller, if any, the Buyer intends not to employ at the Facility on and after
the Closing Date. No later than fifteen (15) days prior to the Closing Date, the
Buyer shall notify the Seller as to which employees of the Seller, if any, the
Buyer shall not employ at the Facility on and after the Closing Date.
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Section 3.19 - Employee Benefit Plans; ERISA.
(a) Schedule 3.19 hereto sets forth an accurate and complete list of all
bonus, deferred compensation, hospitalization or other medical, stock purchase,
pension, life or other insurance, profit sharing, sick leave, vacation,
retirement or stock option, post retirement health or life benefit and any other
employee benefit plan, arrangement or practice, whether formal or informal,
which the Seller sponsors, maintains, participates in or contributes to (or is
obligated to contribute to) (hereinafter individually referred to as a "Plan"
and collectively referred to as the "Plans"). Except as set forth on Schedule
3.19 hereto, the Seller does not have any such Plan and has made no commitment
or representation to employees which was intended to establish any additional
Plan or which was intended to modify or change any existing Plan. Neither the
Seller nor any other organization which is a member of a controlled-group of
organizations (within the meaning of Sections 414(b), (c), (m) or (o) of the
Code) of which the Seller is a member currently sponsors, maintains,
participates in or contributes to (or is obligated to contribute to) or has ever
sponsored, maintained, participated in or contributed to (or was obligated to
contribute to) any "employee pension benefit plan' as defined in ERISA Section
3(2) or any multiemployer plan" as defined in ERISA Section 3(37). To the best
of the Seller's knowledge, the execution and delivery of this Agreement by the
Seller and consummation of the transactions contemplated hereunder will not
result in any obligation or liability of the Buyer to the Seller or any
controlled-group organization described above, to any employee of the Seller or
such other organizations or to the Pension Benefit Guaranty Corporation.
Section 3.20 - Rate Limitations and Rates. The Facility currently charges
those rates and charges set forth on Schedule 3.20 hereto. The Seller has no
reason to believe that such rates and charges were fraudulently calculated or
implemented causing them to be illegal, invalid or unenforceable. Reimbursement
by third party payors is currently at the rates set forth for each payor on
Schedule 3.20 hereto.
Section 3.21 - Audits. Except as disclosed on Schedule 3.21 hereto, (i) the
Seller has not been informed of any Recoupment Claims as a result of Medicaid,
Medicare, and private insurance cost report audits within the 36 months
preceding the date of this Agreement, (ii) there is no basis for any Recoupment
Claims based on the fraudulent preparation or submission of cost reports by the
Seller or its agents or representatives, and (iii) to the best of the Seller's
knowledge, no third party payor (including but not limited to Medicaid or
Medicare) has or will have at any time in the future any Recoupment Claims.
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Section 3.22 - Personal Needs Allowance. To the best of the Seller's
knowledge, the Seller is currently in compliance with all provisions of 130 CMR
456.801-456.804 and any predecessor provisions relating to maintaining and
accounting of the personal needs allowance ("PNA") for patients who are
recipients of Medical Assistance as defined in Chapter 118E of the Massachusetts
General Laws. At Closing, the Seller shall comply with the requirements of 130
CMR 456.804(C)(17) and shall make available to the Buyer records of PNA
accounts.
Section 3.23 - Patient Payments. Within seven (7) days after the Closing
Date, the Seller shall provide a true and complete accounting as of the Closing
Date of all advances or pre-payments made by patients for services not rendered
prior to the Closing Date.
Section 3.24 - Cost Reports and Reimbursement Documentation. The Seller has
filed when due or after permitted extensions all cost reports required to be
filed by third party payors and governmental agencies in compliance with
applicable contractual provisions and/or rules and regulations. The Seller shall
timely file a true and complete copy of each required short period cost report
with third party payors and applicable governmental authorities after the
Closing for the period ending on the Closing Date. The Seller has completed and
filed when due all Management Minutes Questionnaires in accordance with 130 CMR
456.202.
ARTICLE IV
Warranties and Representations of the Buyer
Warranties and Representations of the Buyer To induce the Seller to execute
this Agreement, the Buyer makes each of the representations, warranties,
covenants and indemnities set forth in this Agreement, including those set forth
in this Article, each of which shall survive the execution and delivery hereof
and the Closing Date for a period of twelve (12) months from the Closing Date,
all of which are material and have been relied upon by the Seller and each of
which shall be true and correct in all material respects as of the date hereof
and on the Closing Date.
Section 4.1 - Corporate Organization and Authority.
(a) The Buyer has all corporate power and authority and has been duly
authorized to execute, deliver and perform this Agreement and all agreements and
instruments delivered in connection herewith, and to consummate the transactions
contemplated hereby and thereby, and this Agreement and all instruments and
agreements delivered in connection herewith are the valid and binding
obligations of the Buyer, enforceable against it in accordance with their
respective terms.
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(b) The Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Buyer has all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its businesses as now being conducted and as now proposed to be
conducted.
Section 4.2 - No Conflicts. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated by this
Agreement by the Buyer will:
(i) to the best of the Buyer's knowledge, violate or conflict in any
material respect with any statute, law, rule or regulation; (ii) violate or
conflict in any material respect with any order, writ, injunction or decree of
any court or governmental authority applicable to the Buyer; or (iii) violate or
conflict in any material respect with or constitute a default under (or give
rise to any right of termination, cancellation or acceleration under the terms,
conditions or provisions of) any material contract, note, bond, mortgage,
agreement, understanding, arrangement or restriction of any kind to which the
Buyer is a party or by which the Buyer is bound, for which a consent or approval
has not been obtained or a waiver received.
Section 4.3 - Approvals. Assuming it receives the necessary cooperation and
assistance from the Seller, the Buyer knows of no reason relating to the Buyer's
financial condition or business operations why it would not obtain the Approvals
and the Creditor Approvals necessary to consummate the transactions contemplated
hereby.
ARTICLE V
Conduct and Covenants of the Parties Prior to Closing
Section 5.1 - Covenants of the Seller Regarding Conduct of Business Prior
to Closing. In addition to the other affirmative covenants set forth in this
Agreement to induce the Buyer to execute this Agreement, the Seller covenants
that, from the date hereof through the Closing Date, except as permitted
otherwise by this Agreement or by prior written consent of the Buyer (such
consent not to be unreasonably withheld), the Seller shall use its best efforts
to:
(i) conduct the Facility in the ordinary course and in the same manner as
that in which it has heretofore been conducted, materially in accordance with
all applicable laws, rules, regulations, and ordinances of all Federal, state,
and local governments and governmental authorities.
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(ii) deliver to the Buyer, to the extent prepared in the ordinary course,
patient census reports, projected consolidated revenue and pretax profit
reports, payroll and related cost reports, payroll costs vs. program revenues
reports, and financial budgets and reports concerning the Facility, and all
other internal financial, operations and management reports for all members or
any member of the management group of the Facility (except that nothing
contained herein shall create an obligation to deliver any proprietary materials
or information of the Seller), within a reasonable time after delivery to such
management member or members;
(iii) if the Facility is surveyed by the Massachusetts Department of Public
Health and a plan of correction is implemented as a result of such survey, to
forward a copy of the survey report and plan of correction to the Buyer
immediately and to take any and all actions required for compliance with such
plan of correction and to bear all costs incurred in connection with such
compliance; and
(iv) keep in full force and effect insurance comparable in amount and scope
of coverage to that now maintained by the Seller for the benefit of the
Facility.
Section 5.2 - Access and Inspection Guidelines.
(a) For purposes of all inspections conducted by the Buyer, the Buyer shall
enter the Facility at its sole risk and only during normal business hours after
the prior approval of the Seller (such approval not to be unreasonably withheld
or delayed) and in a manner that will not unreasonably interfere with the
Seller's business. The Buyer shall conduct such inspections at its sole cost and
expense and shall indemnify the Seller for any claims, liabilities or damages
arising from any physical damage caused by the Buyer's or its representatives',
agents' or employees', negligence, gross negligence or willful misconduct during
such inspections. Further, the Buyer shall make available to the Seller copies
of any reports or information received pursuant to all inspections. The Buyer
shall restore the Facility and the Acquired Assets to their former condition
following any inspection. Notwithstanding the provisions of Section 8.3, the
Buyer's obligations to restore the Facility and the Acquired Assets following
any inspection and to indemnify the Seller for any physical damage caused by
such inspections permitted hereunder, shall survive the termination of this
Agreement and the Closing.
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(b) From the date hereof until the Closing Date, the Seller shall provide
and shall cause its professional consultants to provide to the Buyer and its
professional consultants reasonable access to the Facility and to the Seller's
books and records relating to its ownership, management and operation of the
Facility, during normal business hours on Business Days, and to furnish such
additional information and documents in its or their possession relating to the
Seller or the Facility as the Buyer may reasonably request.
(c) Nothing herein to the contrary shall require the Seller to disclose or
provide access to patient medical records or other confidential records and
similar information except in accordance with applicable laws, and, in such
case, the Seller shall use its best efforts to summarize such patient medical
records and other confidential records and similar information to provide the
Buyer with financial and other information contained therein without breaching
any confidentiality requirement of applicable law.
Section 5.3 - Inspections. During the Inspection Period, the Buyer shall
have the right, at its expense, to order written engineers' reports and
assessments on the Facility, including the results of surveying, inspecting,
performing core boring for subsoil and water purposes, inspecting for
hazardous/toxic waste, and any other purpose required by the Buyer to enable the
Buyer to evaluate the likelihood of hazardous/toxic substances and wastes at,
on, about or under the Facility. The Seller shall cooperate fully with the
engineers and other professionals conducting such tests and studies. During the
Inspection Period, the Buyer shall also have the right to conduct other legal
and factual due diligence with respect to the Seller and the Facility. Such due
diligence shall be completed by the Buyer within the Inspection Period. The
Buyer shall advise the Seller in writing of any objections based on its review
on or prior to the last day of the Inspection Period. If the Buyer fails to
advise the Seller of such objections within said period of time, the Buyer may
not thereafter object to the consummation of the transactions contemplated
herein except as provided in Article VI. If the Buyer so advises the Seller by
the last day of the Inspection Period, thereupon the Buyer may terminate this
Agreement by written notice to the Seller and this Agreement shall be null and
void without further recourse to the parties and the Deposit and all interest
earned thereon shall be immediately returned to the Buyer. Notwithstanding any
provision hereof to the contrary, no investigation or findings of the Buyer
shall diminish or affect the representations and warranties of the Seller in
this Agreement or relieve the Seller of any of its obligations hereunder.
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Section 5.4 - Publicity. All press releases, filings and other publicity
concerning the transactions contemplated hereby will be jointly coordinated and
will be subject to review and approval by both the Seller and the Buyer, such
approval not to be unreasonably withheld or delayed. Notwithstanding any
provision hereof to the contrary, no public announcement of the transactions
contemplated by this Agreement shall be made except in connection with or
pursuant to the Approvals contemplated by Section S.5 hereof or as required by
the rules and regulations of the Securities and Exchange Commission applicable
to the parties. If either party requests the other party's approval of any such
press release, filing or other publicity, such other party shall have no more
than 48 hours (excluding Saturdays, Sundays and holidays) from the receipt
thereof to review the same. If such other party shall fail to object thereto
within such 48 hour period, such party shall be deemed to have approved the
same. Except as otherwise required by the rules and regulations of the
Securities and Exchange Commission applicable to the parties, both the Seller
and the Buyer hereby covenant and agree to keep the terms and conditions of this
Agreement confidential, and the Buyer agrees that all non-public documents
delivered to it by the Seller pursuant to the Letter of Intent or this Agreement
shall not be disseminated by the Buyer except to its attorneys, accountants,
officers, employees and agents on a need-to-know basis and shall be returned to
the Seller in the event that the transactions contemplated hereby are not
consummated.
Section 5.5 - Diligent Application for All Approvals.
(a) Commencing with the execution and delivery of this Agreement, the Buyer
shall (i) commence the preparation of, make diligent and expeditious application
for, follow up on, and actively and diligently pursue all notices, approvals,
consents, licenses, orders, authorizations, registrations, declarations and
filings necessary to consummate the transactions contemplated hereby (including,
without limitation, (A) a Notice of Intent to Acquire an Existing Health Care
Facility with the Massachusetts Department of Public Health, Determination of
Need Program for the purposes of notification pursuant to 105 CMR 100.250; and
(B) a Notice of Intent Form with the Massachusetts Department of Public Health,
Division of Health Care Quality for the purpose of establishing a determination
of suitability and responsibility pursuant to and in compliance with
Massachusetts General Laws, Chapter 111, Sections 71-73 inclusive, as amended;
105 CMR 153.022; and 42 U.S.C. Sec. 1320a-3 (together, the "Notices") and (ii)
solicit, obtain from and deliver to all Federal, state or local governmental or
regulatory agencies and accrediting and certifying organizations with
jurisdiction over the Facility such notices, approvals, consents, licenses,
orders, authorizations, registrations, declarations and filings. The Seller
agrees to provide to the Buyer and to allow the Buyer to provide to the
above-referenced agencies any documentation requested by the above referenced
agencies in conjunction with the filing of such Notices. The Seller's permission
is expressly conditioned upon the Seller's satisfactory review of any and all
such documentation prior to submission thereof to the above-referenced agencies.
Said review shall be completed within 48 hours (excluding Saturdays, Sundays and
holidays) of receipt by the Seller of such documentation and the Seller's
permission thereto shall not be unreasonably withheld or delayed. If the Seller
shall fail to object within such 48 hour period, it shall be deemed to have
accepted such documents and to have agreed to the submission thereof. Should
this Agreement terminate, the Buyer shall immediately notify said Determination
of Need Program and said Division of Health Care Quality to the effect that said
Notices are withdrawn and of no further force or effect.
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(b) Upon the request of the Buyer, the Seller shall provide to the Buyer
and to the governmental and regulatory agencies with jurisdiction thereof such
reasonably requested information, reports, documentation, signatures and
testimony before any governmental or administrative tribunal and shall furnish
such reasonably requested assistance which may be required in connection with
obtaining any of such approvals, consents, authorizations and licenses and
giving such notices. The Seller shall not do anything, or unreasonably refuse to
do anything, which would in any way interfere with the process of obtaining all
necessary approvals, consents, authorizations and licenses and giving such
notices.
(c) The Buyer acknowledges that the Seller's license to operate the
Facility is non-transferable; that the Buyer may not have received a permanent
license to operate the Facility on or before the Closing; that the Buyer's
application for permanent licensure serves as a temporary license pursuant to
Mass. Gen. Laws c. 111, Section 71; and that the Buyer's failure to possess a
permanent license on or before the Closing shall not excuse the Buyer from
consummating the transactions contemplated by this Agreement. Absent a change in
Massachusetts law relating to the licensing of nursing homes, the Buyer agrees
to bear the sole risk and responsibility for obtaining a permanent license to
operate the Facility after the Closing.
(d) The Buyer shall not utilize the Seller's Medicaid provider number for
any purpose, and shall be responsible for obtaining its own Medicaid provider
number from the Massachusetts Division of Medical Assistance.
(e) The parties acknowledge that the Massachusetts Department of Public
Health currently is not timely renewing nursing home licenses and certificates
of inspection. If as of the Closing a license, certificate or approval affecting
the Facility bears an expiration date prior to the Closing, that fact shall not
excuse the Buyer from consummating the transactions contemplated by this
Agreement if the Seller has secured written documentation from the Department
that it will treat the expired license, certificate or approval as continuing in
effect. The Seller agrees to exercise a good faith effort to obtain such written
documentation if it becomes necessary, and the Buyer shall assist as necessary
in such undertaking.
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Section 5.6 - Transfer Fees. The Seller shall be responsible for all
payments of any kind whatsoever required to be made to any governmental
authorities in connection with the transfers contemplated by this Agreement,
including, without limitation, stamp taxes, document taxes, sales or use taxes,
transfer fees or any other payments customarily made by a seller in transactions
of this nature.
Section 5.7 - Risk of Loss; Condemnation. The risk of loss, destruction,
condemnation, taking, eminent domain, of or damage to any component of the
Facility Real Estate by any cause prior to the Closing Date is assumed by the
Seller. The Seller shall immediately notify the Buyer if, prior to, or at the
Closing, there shall have been any loss, destruction or damage to, or any
commenced or threatened proceedings to condemn or institute eminent domain
taking of, all or a portion of the Facility Real Estate. If any casualty loss,
destruction or damage should occur to the Facility Real Estate, the Seller shall
use reasonable efforts to restore or repair the Facility Real Estate to its
current condition, subject to availability of insurance proceeds.
ARTICLE VI
Buyer's Conditions Precedent to Closing
The Closing and the Buyer's obligations hereunder and with respect thereto
are expressly contingent and conditional upon the fulfillment, compliance,
satisfaction and performance of each of the following conditions prior thereto;
any one or more of which may be waived or deferred in whole or in part, but only
in writing, by the Buyer at its option and sole discretion.
Section 6.1 - Accuracy of Warranties; Compliance with Covenants. All
representations and warranties by the Seller contained in and made pursuant to
this Agreement shall be accurate and complete in all material respects at and as
of the Closing Date, and the Seller shall have complied with all of its
covenants set forth herein.
Section 6.2 - Closing Certificate. The Seller shall deliver to the Buyer a
duly executed confirmatory closing certificate executed by the Seller which
represents and warrants that all conditions set forth in this Article have been
fulfilled, satisfied or waived by the Buyer in writing.
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Section 6.3 - Casualty or Eminent Domain Taking. There shall be no casualty
loss, destruction or damage to the Facility Real Estate nor any condemnation or
any eminent domain taking, pending or threatened, as to any part of the Facility
Real Estate, which has not been restored, repaired or replaced as nearly as
practicable to its condition prior to such loss, destruction or damage without
any material diminution in value, space, acreage, diminution of legal patient
capacity, usefulness, utility, effectiveness, or appearance.
Section 6.4 - Absence of Injunctions. There shall be no injunction, writ,
temporary restraining order or any order of any nature issued or pending by any
court or governmental agency directing that the transactions contemplated by
this Agreement not be consummated.
Section 6.5 - Opinion of the Seller's Counsel. The Buyer shall have
received an opinion of counsel to the Seller, in form and substance reasonably
satisfactory to the Buyer, with respect to: (a) the valid existence and good
standing of the Seller; (b) the due authorization, execution, delivery and
binding effect and enforceability of this Agreement and each other agreement and
instrument being executed in connection with this transaction; and (c) such
other matters as the Buyer may reasonably request.
Section 6.6 - Approvals. All Approvals required by Section 5.5 hereof, the
Creditor Approvals and all other consents or approvals of third parties required
to consummate the transactions contemplated hereby shall have been obtained
without any conditions or terms that either (i) require the Buyer to expend more
than $25,000 or (ii) impose on the Buyer any unduly burdensome obligations or
requirements. In the event that any such conditions or terms are proposed, the
parties shall undertake in good faith to negotiate a satisfactory allocation of
the burdens of any such conditions or terms, provided that the Buyer may
exercise its rights to refuse to consummate the transactions contemplated hereby
or to terminate this Agreement pursuant to Section 8.2 hereof on the date which
is thirty (30) days after the commencement of such negotiations if no agreement
has been reached as to such an allocation by that date.
Section 6.7 - Conveyances. The Seller shall have executed and delivered to
the Buyer quitclaim deeds, bills of sale and effective absolute assignments
sufficient to vest in the Buyer good and marketable title to the Acquired
Assets, subject only to Permitted Encumbrances, including, without limitation,
the Quit-Claim Deed and the Bill of Sale, Assignment and Assumption Agreement
referred to in Section 2.5 hereof.
Section 6.8 - Other Conditions. On the Closing Date, the Buyer shall have
received, among other things, a title insurance policy with respect to the
Facility Real Estate in form and substance satisfactory to the Buyer (Seller to
cooperate and assist Buyer in obtaining a satisfactory policy) and all
agreements pertaining to the Facility Real Estate not being assumed by Buyer
shall have been terminated.
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Section 6.9 - Condition of Acquired Assets. The Acquired Assets shall be in
the same condition they were in at the time of the Inspection, reasonable wear
and tear and physical damage caused by the Buyer's or its representatives',
agents' or employees, negligence, gross negligence or willful misconduct
excepted.
Section 6.10 - Material Adverse Change. As of the Closing Date, there shall
not have been any material adverse change in the business of the Seller operated
at the Facility. For purposes of this Section 6.10, the term "material adverse
change" shall mean either (i) a significant decrease in the daily census of the
Facility from the daily census of the Facility on the date of this Agreement or
(ii) the taking by any governmental agency having jurisdiction over the Facility
of any action against the Facility which imposes any unduly burdensome
restriction on the ability of the Facility to carry on its normal activities. In
the event that any such decrease or restriction shall have occurred, the parties
shall undertake in good faith to negotiate a satisfactory amendment of this
Agreement, provided that the Buyer may exercise its rights to refuse to
consummate the transactions contemplated hereby or to terminate this Agreement
pursuant to Section 8.2 hereof on the date which is thirty (30) days after the
commencement of such negotiations if no agreement has been reached as to such an
allocation by that date.
ARTICLE VII
Seller's Conditions Precedent to Closing
The Closing and the Seller's obligations hereunder and with respect thereto
are expressly contingent and conditional upon the fulfillment, compliance,
satisfaction and performance of each of the following conditions prior thereto;
any one or more of which may be waived or deferred in whole or in part, but only
in writing, by the Seller at its option and sole discretion.
Section 7.1 - Accuracy of Warranties; Compliance with Covenants. All
representations and warranties by the Buyer contained in and made pursuant to
this Agreement shall be accurate and complete in all material respects at and as
of the Closing Date, and the Buyer shall have complied with all of its
affirmative and negative covenants set forth herein.
Section 7.2 - Closing Certificate. The Buyer shall deliver to the Seller a
duly executed confirmatory closing certificate executed by the Buyer which
represents and warrants that all conditions set forth in this Article have been
fulfilled, satisfied or waived by the Seller in writing.
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Section 7.3 - Absence of Injunction. There shall be no injunction, writ,
temporary restraining order or, any order of any nature issued or pending by any
court or governmental agency directing that the transactions contemplated by
this Agreement not be consummated.
Section 7.4 - Opinion of the Buyer's Counsel. The Seller shall have
received an opinion of counsel to the Buyer, in form and substance reasonably
satisfactory to the Seller, with respect to: (a) the valid existence and good
standing of the Buyer; (b) the due authorization, execution, delivery and
binding effect and enforceability of this Agreement and each other agreement and
instrument being executed in connection with this transaction; and (c) such
other matters as the Seller may reasonably request.
Section 7.5 - Approvals. All Approvals required by Section 5.5 hereof, the
Creditor Approvals and all other consents or approvals of third parties required
to consummate the transactions contemplated hereby shall have been obtained.
ARTICLE VIII
Rights of Termination and Remedies for Default
Section 8.1 - Default by the Seller. In the event that all of the
conditions precedent set forth in Article VI of this Agreement have been
satisfied or waived by the Buyer on or prior to the Closing Date and the Buyer
is ready, willing and able to proceed with the Closing, but the Seller is
unable, unwilling or refuses to consummate the Closing in accordance with the
terms and conditions of this Agreement, or in the event that the Seller is
otherwise in breach of this Agreement, then the Buyer may proceed to protect and
enforce its rights by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or otherwise, or in and of the exercise of any power granted hereby or by
law, provided, however, that Buyer shall be entitled to recover monetary damages
from the Seller on account of such default only in an amount representing the
actual expenses incurred by the Buyer pursuant to this Agreement, including,
without limitation, the return of the Deposit together with the interest earned
thereon, together with reasonable attorneys, fees and expenses incurred by the
Buyer to enforce this Agreement. The Seller recognizes that in such event, any
remedy at law may prove to be inadequate relief to the Buyer and therefore the
Buyer may obtain any such equitable relief, including, without limitation,
temporary and permanent injunctive relief in any such case without the necessity
of posting a bond or proving actual damages. No course of dealing and no delay
on the part of the Buyer in exercising any right shall operate as a waiver
thereof or otherwise prejudice the Buyer's rights. No right conferred hereby or
by any other document, agreement or instrument between the Seller and the Buyer
shall be exclusive of any other right referred to herein or therein or now or
thereafter available at law, in equity, by statute or otherwise.
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Section 8.2 - Buyer's Right to Terminate. If any one or more conditions set
forth in Article VI has not been fulfilled or satisfied through no fault of the
Buyer or waived in writing by the buyer on or prior to the Closing Date, then
the Buyer, at its option, may terminate this Agreement, effective upon the
receipt by the Seller of written notice of such termination. In the event of any
such termination of this Agreement, all of the Seller's and the Buyer's
obligations hereunder shall terminate without further loss, cost, damage, claim,
right or remedy in favor of any party, and none of the parties hereto shall have
any further liability or responsibility to any other party without the need to
exchange releases to confirm same, except that the Escrow Agent shall
immediately return to the Buyer the Deposit together with the interest earned
thereon.
Section 8.3 - Default by the Buyer. In the event that the Seller is ready,
willing and able to proceed with the Closing and the Buyer fails to complete the
transactions contemplated in this Agreement, which failure is due exclusively to
the unwillingness, inability or refusal of the Buyer to fulfill its obligations
at such Closing, other than pursuant to the Buyer's right to terminate under any
provision of Sections 5.3 or 8.2 hereof, then the Seller may terminate this
Agreement and retain the Deposit and all interest earned thereon as liquidated
damages for all losses, damages, and expenses suffered by the Seller, and this
shall be the Seller's sole and exclusive remedy at law or in equity. The Seller
and the Buyer agree that the damages that the Seller shall sustain as a result
thereof will be difficult to ascertain and that such liquidated damages
constitute liquidated damages which would bear a reasonable relationship to
actual loss and would not be a penalty or forfeiture. In such event, this
Agreement shall terminate without further loss, cost, damage, claim, right or
remedy in favor of any party, and none of the parties hereto shall have any
further liability or responsibility to any other party without the need to
exchange releases to confirm same.
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ARTICLE IX
Closing
Section 9.1 - Closing Date. The Closing under this Agreement shall take
place at the offices of Choate, Hall & Stewart, Exchange Place, 53 State Street,
36th Floor, Boston, MA 02109 at 10:00 a.m., on the last day of the month during
which there shall have occurred the satisfaction, receipt or waiver by the
parties of the conditions listed in Article VI (with respect to the Buyer) or
Article VII (with respect to the Seller) (such date being referred to herein as
the "Closing Date"), provided, however, that if the Closing Date has not
occurred by June 30, 1998, or if the Approvals, the Creditor Approvals or any
other approvals necessary to consummate the transactions contemplated hereby
have not been obtained by such date, either party, at its option, may terminate
this Agreement by written notice to the other party at any time thereafter, and
thereupon, this Agreement shall be null and void without further recourse to the
parties, and the Deposit and all interest thereon shall be returned to the
Buyer.
Section 9.2 - Deliveries of the Seller on the Closing Date. On the Closing
Date, the Seller shall deliver to the Buyer the following:
(i) good and clear, record and marketable title to, free from all Liens,
and full undisturbed possession, use and enjoyment of, the Acquired Assets,
subject to Permitted Encumbrances;
(ii) discharges, termination statements and the like with respect to the
Acquired Assets as the Buyer may reasonably request;
(iii) the Quitclaim Deed and the Bill of Sale, Assignment and Assumption
Agreement and other documents referred to in Section 2.5 hereof;
(iv) all books, records, contracts and materials included in the Acquired
Assets which documents shall be delivered to the Buyer or located at the
Facility;
(v) the opinion of counsel to the Seller referred to in Section 6.5 hereof;
(vi) certified resolutions of the Directors (and stockholders, if required)
of the Seller authorizing the transactions contemplated hereby, certified by an
appropriate officer of the Seller;
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(vii) the closing certificate referred to in Section 6.2 hereof executed by
the Seller;
(viii) any other document reasonably requested by the Buyer to confirm or
verify the accuracy of the warranties by the Seller herein and the compliance by
the Seller with its covenants herein; and
(ix) any other documents required under the Code, or as may be reasonably
required by the Buyer or the Buyer's title insurer.
Section 9.3 - Deliveries of the Buyer. On the Closing Date, the Buyer shall
deliver to the Seller the following:
(i) the Purchase Price;
(ii) the Bill of Sale, Assignment and Assumption Agreement and other
documents referred to in Section 2.5 hereof;
(iii) the opinion of counsel to the Buyer referred to in Section 7.4
hereof;
(iv) certified resolutions of the Directors (and stockholders, if required)
of the Seller authorizing the transactions contemplated hereby, certified by an
appropriate officer of the Buyer;
(v) the closing certificate referred to in Section 7.2 hereof; and
(vi) any other document reasonably requested by the Seller to confirm or
verify the accuracy of the warranties by the Buyer herein and the compliance by
the Buyer with its covenants herein.
ARTICLE X
Indemnification
Section 10.1 - Seller's Obligations to Indemnify the Buyer. The Seller
shall indemnify and hold the Buyer harmless from:
(i) any and all actual damage, loss, cost or expense of the Seller arising
out of or related to the business conducted at the Facility on or prior to the
Closing Date not expressly assumed by the Buyer under this Agreement, including,
without limitation, the Unassumed Liabilities and any liabilities of the Buyer
arising on account of its acting as manager of the Facility, provided that such
liabilities did not arise as a result of any negligence or willful misconduct of
the Buyer or its employees or agents;
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(ii) any and all actual damage, loss, cost or expense arising out of the
breach of any warranty, misrepresentation, or non-fulfillment of any agreement
on the part of the Seller under this Agreement; and
(iii) with respect to all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses connected with the foregoing,
including, without limitation, reasonable attorneys' fees and expenses.
The indemnification obligations of the Seller under this Section 10.1 shall
apply only to those indemnification claims of which the Seller is given written
notice on or prior to the date which is twelve (12) months (or, in the case of
such claims under clause (i) above, three (3) years) from the Closing Date.
Section Procedures for Indemnification by the Seller. In the event that any
claim, obligation, or liability for which the Seller is or may be liable
pursuant to the provisions of Section 10.1 is asserted against the Buyer, the
Buyer shall notify the Seller in writing of the fact, and the Seller shall be
permitted, at the Seller's expense, to participate personally and by
representatives in any negotiations or actions with regard thereto, and to
contest the same. The Buyer shall make available to the Seller for use in
connection with any such negotiation, action or contest, all pertinent books,
records, documents and information.
Section 10.3 - Buyer's Obligations to Indemnify the Seller.
The Buyer shall indemnify and hold the Seller harmless from:
(i) any and all actual damage, loss, cost or expense arising out of or
related to the business conducted at the Facility after the Closing Date;
(ii) any and all actual damage, loss, cost or expense relating to the
Assumed Liabilities;
(iii) any actual damage, loss, cost or expense arising out of the breach of
any warranty, misrepresentation, or nonfulfillment of any agreement on the part
of the Buyer under this Agreement; and
(iv) with respect to all actions, suits, proceedings, demands, assessments,
judgments, costs and expenses connected with the foregoing, including, without
limitation, reasonable attorneys' fees and expenses.
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The indemnification obligations of the Buyer under this Section 10.3 shall apply
only to those indemnification claims of which the Buyer is given written notice
on or prior to the date which is twelve (12) months from the Closing Date.
Section 10.4 - Procedures for Indemnification by the Buyer. In the event
that any claim, obligation, or liability for which the Buyer is or may be liable
pursuant to the provisions of Section 10.3 hereof is asserted against the
Seller, the Seller shall notify the Buyer in writing of that fact, and the Buyer
shall be permitted, at its expense, to participate personally and by
representatives in any negotiations or actions with regard thereto, and to
contest the same. The Seller shall make available to the Buyer for use in
connection with any such negotiation, action or contest, all pertinent books,
records, documents and information.
ARTICLE XI
Miscellaneous
Section 11.1 - No Broker. The Seller represents to the Buyer, and the Buyer
represents to the Seller, that no agent, finder or broker was the producing and
effective cause of this Agreement or the transactions contemplated herein, and
that no commissions or finder's fees are due to any third parties. The parties
agree to indemnify and hold each other harmless with respect to any and all
expenses, obligations, and liabilities resulting from the claims or causes of
action relating to any claims made by any Person retained or used by the
indemnifying party for any agent's, broker's or finder's fees or commissions
relating to the transactions contemplated herein.
Section 11.2 - Entire Agreement. This Agreement, together with the
Schedules and Exhibits attached hereto and all certificates and documents
delivered in connection herewith or referenced hereby, contain the entire
understanding of the parties with respect to the subject matters hereof and
supersedes all prior and other contemporaneous oral or written understandings
and agreements between the parties hereto.
Section 11.3 - Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. The rights of the parties to this Agreement
may not be assigned to any third party except to the extent specifically
permitted by one or more Sections hereof. The terms and provisions of Article
VIII and Section 5.4 of this Agreement shall survive the termination of this
Agreement for the reason.
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Section 11.4 - Notices. Any notice, demand, offer or other writing required
or permitted pursuant to this Agreement shall be in writing, furnished in
duplicate and shall be transmitted by hand delivery or a nationally recognized
overnight courier service, postage prepaid, as follows:
(a) If to the Seller:
Quality Care Centers of Massachusetts, Inc.
200 Lake Street, Suite 102
Peabody, Massachusetts 01960
Attention: Bruce A. Shear, President
With a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Willie J. Washington, Esq.
(b) If to the Buyer:
Lexington Healthcare Group, Inc.
35 Park Place
New Britain, Connecticut 06052
Attention: Harry Dermer, President
With a copy to:
Rogin, Nassau, Caplin, Lassman & Hirtle, LLC
CityPlace I, 22nd Floor
185 Asylum Street
Hartford, CT 06103-3460
Attention: Edwin A. Lassman, Esq.
Any party shall have the right to change the place to which such notice shall be
given by similar notice sent in like manner to all other parties hereto. Any
such notice, if sent by private express overnight courier service, shall be
deemed delivered on the earlier of the date of actual delivery or the next
business day following deposit, postage prepaid, with such private express
overnight courier service.
Section 11.5 - Captions. The captions of this Agreement are for convenience
and reference only, and in no way define, describe, extend or limit the scope or
intent of this Agreement or the intent of any provisions hereof.
Section 11.6 - Joint-Effort. The preparation of this Agreement has been the
joint effort of the parties, and the resulting document shall not be construed
more severely against one of the parties than the other.
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<PAGE>
Section 11.7 - Counterparts. This Agreement may be executed in counterparts
and each executed copy shall be deemed an original which shall be binding upon
all parties hereto.
Section 11.8 Partial Invalidity. The invalidity of one or more of the
phrases, sentences, clauses, sections or articles contained in this Agreement
shall not affect the remaining portions so long as the material purposes of this
Agreement can be determined and effectuated.
Section 11.9 - No Offer. Neither the negotiations to date nor the
preparation of this Agreement shall be deemed an offer by any party to the
other. No such contract shall be deemed binding on any party until such party
has executed and delivered a written agreement.
Section 11.10 - Amendments. This Agreement may not be amended in any
respect whatsoever except by a further agreement, in writing, fully executed by
each of the parties.
Section 11.11 - Schedules and Exhibits. All Schedules and Exhibits referred
to in this Agreement shall be incorporated into this Agreement by such reference
and shall be deemed a part of this Agreement as if fully set forth in this
Agreement. The parties hereby agree that all or certain of the Schedules to this
Agreement may not be delivered (or may be incomplete) at the time of the
execution and delivery of this Agreement. The Seller hereby agrees to deliver to
the Buyer any Schedules not so delivered (or which are incomplete) not later
than fifteen (15) days after the date of this Agreement. It shall be deemed a
condition precedent to the obligations of the Buyer that each Schedule provided
for herein shall meet with the approval of the Buyer. If the Buyer, in its sole
discretion, determines that it should not consummate the transactions
contemplated by this Agreement because of any material information contained in
a Schedule provided for herein or because of the parties' inability to agree
upon the terms of a Schedule provided for herein, then the Buyer may terminate
this Agreement by giving written notice to the Seller of the Buyer's intent to
terminate, whereupon this Agreement shall be null and void without further
recourse to the parties and the Deposit and all interest earned thereon shall be
immediately returned to the Buyer; provided, however, that such notice of
termination must be given with fifteen (15) days after the later of the date
hereof and the date of the Buyer's receipt of the objectionable Schedule.
Section 11.12 - Waivers. No terms and provisions hereof, including, without
limitation, the terms and provisions contained in this sentence, shall be
waived, modified or altered so as to impose any additional obligations or
liability or grant any additional right or remedy, and no custom, payment, act,
knowledge, extension of time, favor or indulgence, gratuitous or otherwise, or
words or silence at any time, shall impose any additional obligation or
liability or grant any additional right or remedy or be deemed a waiver of
release of any additional obligation, liability, right or remedy.
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<PAGE>
Section 11.13 Further Assurances. The Seller and the Buyer each agree that
they will at any time before and after the Closing execute and deliver all
additional documents, and do any other acts or things that may be reasonably
requested by the Seller and the Buyer, as the case may be, in order to further
perfect the rights and interests contemplated hereunder. Each of the Seller and
the Buyer shall from time to time execute and deliver prior to, at and after the
Closing such further instruments and documents and take such other action as may
reasonably be required in order to carry out and effectuate this Agreement and
the transactions contemplated hereby.
Section 11.14 - Governing Law. This Agreement including the validity
thereof and the rights and obligations of the parties hereunder shall be
governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts.
Section 11.15 - Rules of Construction; Interpretation. References in this
Agreement to "herein," "hereof," "hereto" and "hereunder" shall be deemed to
refer to this Agreement and shall not be limited to the particular text or
Section in which such words appear. The use of any gender shall include all
genders, and the singular number shall include the plural and vice versa as the
context may require. In the event of any inconsistency between the terms and
provisions of this Agreement and the terms and provisions of any other documents
executed in connection herewith, the terms and provisions hereof shall in each
instance prevail.
Section 11.16 - Letter of Intent
This Agreement supersedes the Letter of Intent in its entirety.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals
as of the date first above appearing.
LEXINGTON HEALTHCARE GROUP, INC.
___________________________________ By: __________________________________
Witness
Title: _______________________________
QUALITY CARE CENTERS OF
MASSACHUSETTS, INC.
___________________________________ By: __________________________________
Witness
Title: _______________________________
- 36 -
<PAGE>
JOINDER
By its execution of this Joinder, the undersigned hereby agrees to pay and
perform and to cause the Seller to pay and perform all Indebtedness, obligations
or liabilities of the Seller arising under or relating to this Agreement,
including, without limitation, the Unassumed Liabilities and any Post-Closing
Adjustment Amount.
PHC, INC.
___________________________________ By: __________________________________
Witness
Title: _______________________________
DSI.387415.3
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<PAGE>
List of Schedules and Exhibits
Schedule 2.1(ii) Fixed Assets Acquired
Schedule 2.1(iii) Assumed Contracts
Schedule 2.2 - Excluded Assets
Schedule 2.6 - Assumed Liabilities
Schedule 3.2 - Conflicts and Consents
Schedule 3.3(a) - Liens on Personal Property
Schedule 3.4(a) - Licenses and Permits
Schedule 3.4(b) - Compliance
Schedule 3.5 - Contractual Obligations of Seller
Schedule 3.9 - Insurance Policies
Schedule 3.11 - Litigation
Schedule 3.12(a) Permitted Encumbrances
Schedule 3.13 - Filings
Schedule 3.14 - Underground Fuel Storage
Schedule 3.17 - Labor Issues
Schedule 3.18 - Employees
Schedule 3.19 - Employee Benefit Plans
Schedule 3.20 - Rates
Schedule 3.21 - Recoupment Claims
Exhibit A - Legal Description of Facility Real Estate
Exhibit B - Form of Escrow Agreement
Exhibit C - Form of Quitclaim Deed
Exhibit D - Form of Bill of Sale, Assignment and Assumption Agreement
- 38 -
<PAGE>
Schedule 2.1(ii)
Fixed Assets Acquired
- 39 -
<PAGE>
Schedule 2.1(iii)
Assumed Contracts
- 40 -
<PAGE>
Schedule 2.2
Excluded Assets
- 41 -
<PAGE>
Schedule 2.6
Assumed Liabilities
- 42 -
<PAGE>
Schedule 3.2
Conflicts and Consents
- 43 -
<PAGE>
Schedule 3.3(a)
Liens on Personal Property
- 44 -
<PAGE>
Schedule 3.4 (a)
Licenses and Permits
- 45 -
<PAGE>
Schedule 3.4(b)-
Compliance
- 46 -
<PAGE>
Schedule 3.5
Contractual Obligations of Seller
- 47 -
<PAGE>
Schedule 3.9
Insurance Policies
- 48 -
<PAGE>
Schedule 3.11
Litigation
- 49 -
<PAGE>
Schedule 3.12 (a)
Permitted Encumbrances
- 50 -
<PAGE>
Schedule 3.13
Filings
-51-
<PAGE>
Schedule 3.14
Underground Fuel Storage
- 52 -
<PAGE>
Schedule 3.17
Labor Issues
- 53 -
<PAGE>
Section - 3.18
Employees
- 54 -
<PAGE>
Schedule 3.19
Employee Benefit Plans
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<PAGE>
Section 3.20
Rates
- 56 -
<PAGE>
Section 3.21
Recoupment Plans
- 57 -
<PAGE>
Exhibit 10.134
TERMINATION OF SALE AND
PURCHASE AGREEMENT
1. INTRODUCTION AND RECITALS
A. THIS AGREEMENT, made and entered into this 20th day of February, 1998, by
between and among FINOVA CAPITAL CORPORATION as successor in interest to
LINC FINANCIAL SERVICES, INC. ("Administrative Agent"), and successor in
interest by merger with FINOVA MEDICAL RECEIVABLES, INC. formerly known as
LINC FINANCE CORPORATION VIII ("FINOVA"), and PHC OF RHODE ISLAND, INC.
D/B/A GOOD HOPE CENTER ("Good Hope") and PHC OF VIRGINIA, INC. D/B/A MOUNT
REGIS CENTER ("Mount Regis"). All capitalized terms not otherwise defined
herein shall have the same meanings as set forth in the respective Sale
Agreements defined below.
B. FINOVA (or its predecessors in interest) and Good Hope entered into a
certain Sale and Purchase Agreement dated as of January 20, 1995, (the
"Good Hope Agreement") under which Good Hope agreed to sell and Purchaser
agreed to purchase certain healthcare receivables, subject to those terms
and conditions as specified in the Good Hope Agreement and the various
ancillary agreements and documents related thereto, including but not
limited to (i) a Servicing Agreement, (ii) a Lockbox Services Agreement,
and (iii) various exhibits, schedules attached thereto and delivered from
time to time in accordance therewith (collectively referred to as
"Ancillary Agreements").
C. FINOVA (or its predecessors in interest) and Mount Regis entered into a
certain Sale and Purchase Agreement dated as of March 6, 1995, (the "Mount
Regis Agreement") under which Mount Regis agreed to sell and Purchaser
agreed to purchase certain healthcare receivables, subject to those terms
and conditions as specified in the Agreement and the various ancillary
agreements and documents related thereto, including but not limited to (i)
a Servicing Agreement, (ii) a Lockbox Services Agreement, and (iii) various
exhibits, schedules attached thereto and delivered from time to time in
accordance therewith (collectively referred to as "Ancillary Agreements").
The Good Hope Agreement and the Mount Regis Agreement are referred to
herein as (the "Sale Agreements").
D. Good Hope and Mount Regis have notified FINOVA of their desire and
intention to terminate their obligation to sell Receivables to FINOVA under
the Sale Agreements, and have also requested FINOVA to terminate the other
obligations of Good Hope and Mount Regis under the Ancillary Agreements,
respectively, by mutual agreement prior to the expiration of their
originally scheduled term, and to permit Good Hope and Mount Regis to
repurchase all of the Receivables purchased and owned by FINOVA under the
Sale Agreements.
E. FINOVA is willing to grant the Good Hope and Mount Regis request, subject
to the terms and conditions set forth in this Termination Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained in this Agreement, the parties hereby agree as follows:
II. EARLY TERMINATION OF SALE AGREEMENTS
A. Payment of Repurchase Price: As consideration for the early termination of
the Sale Agreements and the Reassignment of the Purchased Receivables as
provided herein, Good Hope and Mount Regis agree to pay to FINOVA the
following sums, collectively referred to as the Repurchase Price:
<PAGE>
1. On or before February 20, 1998, Good Hope and Mount Regis shall pay FINOVA
an amount equal to $192,619.39 and $200,785.06, respectively, representing
a stipulated sum payable to FINOVA in order to induce FINOVA to reassign
all of FINOVA's rights in the Purchased Receivables under the Sale
Agreements, and to cancel the remaining obligations under the Sale
Agreements of Good Hope and Mount Regis;
2. A Termination Fee in the amount of $0, representing a stipulated sum to
reimburse FINOVA for its estimated costs and expenses due under Section
V.I. of this Termination Agreement, and
3. For each day that the payment of the amount specified in paragraph 1 is
delayed beyond February 20, 1998 Good Hope and Mount Regis agree to pay an
additional per diem amount equal to $56.69 and $63.27, respectively.
B. Remittance of Purchase Price. The Repurchase Price shall be paid via wire
transfer in accordance with the following wire transfer instructions:
Bank Name: CITIBANK
City/State: NEW YORK, NEW YORK
Acct. Name: FINOVA CAPITAL CORPORATION
Acct. No.: 40701338
ABA No.: 021000089
Contact: Wire Department
Telephone No.: (302) 323 - 5919
C. Cancellation of Obligations and Delivery of Sale Program Documents. Upon
receipt of the Repurchase Price, FINOVA hereby agrees to cancel Good Hope's
and Mount Regis' remaining obligations to FINOVA under the Sale Agreements
and any Ancillary Agreements, and shall thereupon deem the Sale Agreements
and Ancillary Agreements terminated. FINOVA further agrees that within five
(5) business days after receipt of the Repurchase Price, it shall deliver
UCC termination statements prepared by Good Hope and Mount Regis to
terminate any financing statements filed by FINOVA against Good Hope and
Mount Regis under the Sale Agreements or otherwise relating to the
Purchased Receivables.
D. Disclaimer of Provider Interest. Good Hope and Mount Regis hereby agree
that upon the termination of the Sale Agreements as provided hereunder by
FINOVA, Good Hope and Mount Regis shall disclaim any right to receive any
Provider Interest or any Minimum Purchase Price payable under the Sale
Agreements.
E. Right To Cancel: FINOVA reserves the right to cancel this Agreement and
reinstate the obligations of Good Hope and Mount Regis under the terms of
the Sale Agreements and Ancillary Agreement in the event that Good Hope and
Mount Regis fail to remit payment of the Repurchase Price due to FINOVA
hereunder within five (5) business days after February 20, 1998.
III. REPURCHASE AND REASSIGNMENT OF RECEIVABLES
A. Repurchase and Reassignment. In connection with the termination of the Sale
Agreements, Good Hope and Mount Regis have requested the right to
repurchase, on an AS IS, WHERE IS basis, all of the outstanding receivables
purchased by FINOVA from Good Hope and Mount Regis under the terms of the
Sale
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\[email protected] I - no/99
<PAGE>
Agreements (the "Repurchased Receivables"). Upon receipt by FINOVA of the
Repurchase Price, FINOVA agrees to sell, assign, transfer and deliver to
Good Hope and Mount Regis all of its right, title, and interest in and to
the Repurchased Receivables, AS-IS WHERE-IS, subject to the Reassignment of
Receivables attached hereto as Exhibit A, which FINOVA shall execute and
deliver to Good Hope and Mount Regis as evidence of the assignment and sale
of the Repurchased Receivables.
B. As-Is, Where-is Sale. Good Hope and Mount Regis acknowledge that they have
had an opportunity to inspect and gain full familiarity with the
Repurchased Receivables, and purchase and accept the same, AS IS, WHERE IS,
AND IN THE CONDITION FOUND, ACKNOWLEDGING THAT THE REPURCHASED RECEIVABLES
ARE BEING SOLD WITHOUT ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR
NATURE, EXPRESS OR IMPLIED unless expressly provided herein or in the
Reassignment of Receivables. Good Hope and Mount Regis further agree that
Good Hope and Mount Regis shall be solely responsible for any costs and
expenses incurred in notifying and redirecting the Payors of the
Repurchased Receivables to remit payment thereunder to Good Hope and Mount
Regis.
C. Risk Of Loss. The risk of loss for any damage to or destruction of the
Receivables shall remain with Good Hope and Mount Regis at all times in
accordance with the Sale Agreements.
D. Taxes. Any sales, use, personal property, or such other taxes incurred or
assessed solely in connection with this transaction, shall be borne by Good
Hope and Mount Regis.
E. Title and Indemnification by FINOVA. FINOVA warrants and represents that it
has good title to the Repurchased Receivables it is conveying to Good Hope
and Mount Regis, free and clear of all liens and encumbrances placed
thereon by FINOVA. FINOVA agrees to indemnify Good Hope and Mount Regis
against, and hold Good Hope and Mount Regis harmless from, any and all
claims, actions, proceedings, expenses, damages or liabilities including
attorneys' fees, court costs or taxes, arising from any claim of
conflicting interest to Good Hope's and Mount Regis' title to the
Repurchased Receivables caused by any actions taken by FINOVA during the
term of the applicable Sale Agreements.
F. Indemnification by Good HOPE and Mount Regis. Notwithstanding the
termination of the Sale Agreements, Good Hope and Mount Regis shall
continue to indemnify FINOVA against, and hold FINOVA or any successors,
assigns and transferees of FINOVA harmless from any and all claims,
actions, proceedings, expenses, damages or liabilities including attorneys'
fees, court costs or taxes, arising in connection with each of the
Purchased Receivables and the Transferred Property covered by the Sale
Agreements in accordance with and pursuant to the terms of the Sale
Agreements and subject to any limitations imposed thereunder. Good Hope and
Mount Regis hereby further agree to indemnify and to hold FINOVA harmless
against and from any and all claims, suits, actions, debts, damages, costs,
charges and expenses, including court costs and attorney fees, and all
liabilities, losses and damages of any nature whatsoever, arising out of or
in connection with the repurchase of the Repurchased Receivables hereunder.
G. Remittance Of Funds After Repurchase and Reassignment: Upon payment of the
Repurchase Price by Good Hope and Mount Regis and receipt thereof by
FINOVA, and the satisfaction of any other conditions set forth herein,
FINOVA agrees:
1. to remit to Good Hope and Mount Regis any proceeds or payments from the
Repurchased Receivables or any documents relating thereto which FINOVA
thereafter receives;
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\COMFORTCAMTERMAGT.00 I - nOI98
<PAGE>
2. to direct the Depository Bank under the Lockbox Agreement to cease wire
transferring funds to FINOVA's bank accounts from the Lockbox Accounts
created under any applicable Depository or Lockbox Agreements, and to
forward any proceeds or payments thereafter received relating to the
Repurchased Receivables to Good Hope and Mount Regis via wire transfer:
Bank One Arizona, N.A.
Credit to HCFP Funding, Inc.
Account No.: 05274385
ABA No: 122100024
3. to assign the rights of FINOVA in any Depository or Lockbox Agreements,
WITHOUT RECOURSE, to Good Hope and Mount Regis (or to a third party
nominated by Good Hope and Mount Regis).
IV. MUTUAL RELEASE
Upon the satisfaction of all terms and conditions contained herein, and
except as specifically excluded in this Termination Agreement, each Good Hope
and Mount Regis and FINOVA, and each of their respective predecessors in
interest, officers, directors, employees, shareholders, successors and assigns,
hereby releases and forever discharges the other, from any and all claims,
demands, causes of action, damages, costs, expenses, compensation and all other
damages and liabilities of any kind or nature whatsoever, direct or indirect,
known or unknown, which any party has had, now has, or may have for any reason
whatsoever, against the other for or on account or in consequence of all
transactions and dealings between them arising out of or in connection with the
applicable Sale Agreements or any Ancillary Agreements, or any claims asserted
or assertable in any lawsuit, or any and all claims that could be asserted prior
to this date of any nature whatsoever except for suits based upon any breach of
the terms of this Agreement. Each such releasing party shall refrain from
commencing any action or suit or prosecuting any pending action or suit in law
or in equity against the other releasing party arising out of any subject matter
intended to be released by this mutual release.
V. GENERAL TERMS AND CONDITIONS
A. Entire Agreement. Except as otherwise specified or incorporated herein,
this Termination Agreement supersedes in full all prior and contemporaneous
discussions and agreements (oral or written) between the parties relating
to the subject matter hereof, and constitutes the entire agreement between
the parties with respect thereto. This Termination Agreement may be
modified or supplemented only by a written document signed by an authorized
representative of each party.
B. Waiver. No waiver of any breach or condition, or failure or delay in
exercising any right, power or remedy of any provision of this Termination
Agreement shall constitute a waiver of the same or any other provision
hereof with respect to prior, concurrent or subsequent occurrences and no
waiver shall be effective unless made in writing and signed by an
authorized representative of the party against whom enforcement of such
waiver is sought.
C. Severability. The provisions of this Termination Agreement are severable,
and the unenforceability of any provision of this Agreement shall not
affect the enforceability of this Agreement or any other provision
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\COMFORTCARE\TERMAGT.001 - 2120/98
<PAGE>
hereof. In addition, in the event that any provision of this Agreement (or
portion thereof) is determined by a court to be unenforceable as written, the
parties acknowledge that it is their intention that such provision (or portion
thereof) shall be construed in a manner designed to effectuate the purpose of
such provision to the maximum extent enforceable under applicable law.
D. Notices. All notices required or permitted to be given hereunder shall be
in writing and shall be deemed to have been given and sufficient in all
respects when delivered personally or by any form of mail, postage prepaid,
to the parties at their respective addresses set forth in the Sale
Agreements.
E. Governing Law, Waiver of Jury Trial. This Termination Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Arizona, and each of the parties hereto hereby consents to the exclusive
jurisdiction of and venue in any federal or state court of competent
jurisdiction located in Maricopa County, Arizona. EACH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREES TO WAIVE TRIAL BY JURY.
F. Binding Nature. This Termination Agreement will inure to the benefit of and
be binding on the parties, their successors, permitted assigns and legal
representatives. Neither party may assign its rights or obligations under
this Termination Agreement (in whole or in part) without the written
consent of the other party, which shall not be unreasonably withheld.
G. Remedies Cumulative. Subject to the express limitations set forth elsewhere
in this Termination Agreement, all remedies herein are cumulative, and in
addition to (and not in lieu of) any other remedies available at law or in
equity or under the Sale Agreements.
H. Cooperation. Each party covenants to do such further acts and to execute
and deliver such further documents and instruments after the Effective Date
as may be deemed necessary or desirable by such other party in order to
effectuate and evidence the transactions contemplated hereby, provided that
any cost incurred in connection with such request shall be borne by or
reimbursed by Good Hope and Mount Regis.
I. Reimbursement of Costs and Expenses. Good Hope and Mount Regis agree to
reimburse FINOVA for all of its costs and expenses incurred in connection
with the negotiation and preparation of this Agreement including all
attorney fees and out of pocket costs and expenses. Good Hope and Mount
Regis hereby agree that to enforce its rights and remedies hereunder all
out of pocket costs and expenses of FINOVA including reasonable attorneys'
fees and court costs. Good Hope and Mount Regis agree that all such costs
and expenses may be deducted from any sums now or hereafter payable to Good
Hope and Mount Regis under the Sale Agreements. Due to the possibility that
FINOVA may have received invoices for unpaid items, charges or
miscellaneous expenses after the payment by Good Hope and Mount Regis of
the Repurchase Price, Good Hope and Mount Regis agree to pay, on demand,
the amount of any such paid, items, charges or miscellaneous expense when
FINOVA makes written demand for payment thereof, and Good Hope's and Mount
Regis' obligation under this Section V.I. Shall not be affected by the
Mutual Release or any other provision of this Termination Agreement.
J. Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed an original and all of which together shall
constitute one and the same instrument. FINOVA will accept a telecopied
counterpart of this Agreement executed by Good Hope and Mount Regis
provided that an executed original of this Agreement is delivered to FINOVA
within two (2) business days thereafter. FINOVA shall remit such executed
original to Good Hope and Mount Regis within five (5) business days after
receipt by FINOVA.
Page 5 of 6
\COMFORTCARE\TEP,MAGT.001 - 2120/98
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and do
each hereby warrant and
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and do
each hereby warrant and represent that their representative signatories whose
signatures appear below have been and are vested with appropriate authority to
execute this Agreement.
PHC OF RHODE ISLAND, INC. FINOVA CAPITAL CORPORATION, successor
D/B/A GOOD HOPE CENTER interest by merger with FINOVA MEDICAL
RECEIVABLES, INC.
By: /s/ Bruce A. Shear By: /s/ Tina L. Hughes
Title: President Title: Vice President
Date: 2/20/98 Date: 2/20/98
PHC OF VIRGINIA INC.
D/B/A MOUNT REGIS CENTER
By: /s/ Bruce A. Shear
Title: President
Date: 2/20/98
Page 6 of 6
<PAGE>
REASSIGNMENT OF RECEIVABLES
THIS ASSIGNMENT is made as of the date stated below by FINOVA CAPITAL
CORPORATION, successor in interest by merger with FINOVA MEDICAL RECEIVABLES,
INC., (formerly known as LINC FINANCE CORPORATION VIII). ("FINOVA" or
"Assignor"), to PHC OF RHODE ISLAND, INC. D/B/A GOOD HOPE CENTER and PHC OF
VIRGINIA INC. D/B/A MOUNT REGIS CENTER ("Assignees") in accordance with and
subject to the terms and conditions set forth in that certain Termination of
Sale and Purchase Agreement dated February 20, 1998 (the "Termination
Agreement') among FINOVA and Assignees. All capitalized terms not otherwise
defined herein shall have the same meanings as set forth or referred to in the
Termination Agreement.
FOR GOOD AND VALUABLE CONSIDERATION, and subject to receipt by Assignor of the
Repurchase Price set forth in the Termination Agreement, Assignor hereby sells,
assigns, transfers and delivers to Assignees (and its successors and assigns)
(i) all of Assignor's right, title and interest in and to all of the Purchased
Receivables acquired by Assignor from Assignees under those Sale and Purchase
Agreements dated September 20, 1995 and March 6, 1995 (the "Sale Agreements");
(ii) all of Assignor's title and interest in and to all Transferred Property
relating to such Purchased Receivables; and (iii) all monies, sums and amounts
now due or hereafter becoming due under the Purchased Receivables and the
Transferred Property subject to all of the terms and conditions set forth in the
Termination Agreement.
Assignor represents and warrants that Assignor has made no sale or assignment of
Assignor's interest in such Repurchased Receivables and Transferred Property
except to Assignees hereunder. Assignees reaffirm to Assignor as of the date
hereof that each the representations, warranties, covenants and assignments made
by Assignees to Assignor in the Sale Agreements and the Termination Agreement
are true and correct.
This Assignment and the representations, warranties and covenants herein
contained shall survive the execution and delivery hereof, shall inure to the
benefit of Assignor and its successors, assigns and transferees, and shall be
binding upon Assignees and their successors, assigns and transferees.
IN WITNESS WHEREOF, Assignor has caused this Assignment to be executed by its
duly authorized officers or representatives in Chicago, Illinois as of February
20, 1998.
PHC OF RHODE ISLAND, INC. FINOVA CAPITAL CORPORATION, successor
D/B/A GOOD HOPE CENTER in interest by merger with FINOVA MEDICAL
RECEIVABLES, INC.
By: /s/ Bruce A. Shear By: /s/ Tina L. Hughes
Title: President Title: Vice President
Date: 2/20/98 Date: 2/20/98
PHC OF VIRGINIA INC.
D/B/A MOUNT REGIS CENTER
By: /s/ Bruce A. Shear
Title: President
Date: 2/20/98
<PAGE>
Exhibit 10.135
March 2, 1998
PHC, Inc.
200 Lake Street
Suite 102
Peabody, Massachusetts 01960
Attention: Bruce A. Shear, President
Dear Mr. Shear:
As you are aware, pursuant to Section 1.7(b)(ii) of the Agreement and Plan
of Merger dated as of October 31, 1996 among PHC and the undersigned and others
(the "Merger Agreement"), PHC is obligated to pay a portion of the earn-out
consideration for the year ended October 31, 1997, in cash. This letter confirms
our agreement to receive shares of Common Stock in PHC, Inc. ("PHC") in full
payment of the earn-out consideration required to be paid to us for the year
ended October 31, 1997, without prejudicing any of our other rights or
diminishing any of PHC's other obligations under the Merger Agreement.
The number of shares of PHC Common Stock to be issued to us shall be
determined pursuant to the procedures set forth in Section 1.7(b) of the Merger
Agreement. We understand that Irwin Mansdorf is entitled to an earn-out of
$356,307 for the year ended October 31, 1997, as determined pursuant to the
Merger Agreement, which shall be paid by the issuance of 151,620 shares of PHC
Common Stock, 75,810 shares of which shall be subject to Market Price Protection
as described below (the "Mansdorf Protected Merger Shares"), and that Yakov
Burstein is entitled to an earn-out of $110,981 for the year ended October 31,
1997, as determined pursuant to the Merger Agreement, which shall be paid by the
issuance of 47,225 shares of PHC Common Stock, 23,613 shares of which shall be
subject to Market Price Protection as defined below (the "Burstein Protected
Merger Shares") at $2.35 per share (the "Benchmark Price Per Share").
We are also entitled to receive cash pursuant to Section 2.2.1(c) of the
Agreement for Purchase and Sale of Assets among Clinical Associates, PHC, Perlow
Physicians, P.C., and each of us dated as of October 1, 1996 (the "Purchase
Agreement"). This letter also confirms our agreement that in lieu of receiving
the cash that would otherwise be distributed to us pursuant to the Purchase
Agreement for the year ended October 31, 1997, we agree that such cash payment
will be retained by PHC as the purchase price for shares of PHC Common Stock,
and that this agreement will not prejudice any of our future rights or diminish
any of PHC's future obligations under the Purchase Agreement. We have been
advised that $51,074 is payable to Irwin Mansdorf, and $15,908 to Yakov
Burstein, for the year ended October 31, 1997 pursuant to Section 2.2.l(c) of
the Purchase Agreement and that such cash shall be paid to PHC for the purchase
by Irwin Mansdorf of 21,733 shares of PHC Common Stock (the "Mansdorf Purchased
Shares") and for the purchase by Yakov Burstein of 6,769 shares of PHC Common
Stock (the "Burstein Purchased Shares").
<PAGE>
PHC, Inc.
Page 2
We understand that if Mansdorf sells all of the Mansdorf Protected Merger
Shares and the Mansdorf Purchased Shares issued (collectively, the "Mansdorf
Protected Shares") and the cash proceeds from such sales or such shares in the
aggregate (net of reasonable and customary brokers' fees and commissions, and
underwriting discounts) (the "Mansdorf Realized Price") are less than the
Mansdorf Guaranteed Amount (as defined in this paragraph), within ten (10)
business days following the date on which Mansdorf will have sold the last of
the Mansdorf Protected Shares (the "Mansdorf Makeup Issue Date"), PHC shall
issue to Irwin Mansdorf that number of additional shares of Common Stock (the
"Mansdorf Makeup Shares") to be determined as follows: (i) the difference
between the Mansdorf Guaranteed Amount and the Mansdorf Realized Price, divided
by (ii) the average per share closing price of shares of PHC Common Stock as
traded in the over-the-counter market for the ten business days prior to the
Mansdorf Makeup Issue Date net of the average per share underwriting discount
and broker's fee and commission reflected in the Mansdorf Realized Price.
"Mansdorf Guaranteed Amount" means the Benchmark Price Per Share, multiplied by
the number of Mansdorf Protected Shares issued. The Market Price Protection
described in this paragraph shall not apply if Mansdorf fails to sell all of the
Mansdorf Protected Shares prior to the first anniversary of the initial
effectiveness of any registration statement for such shares and such
registration statement has been continuously effective for such period.
We understand that if Burstein sells all of the Burstein Protected Merger
Shares and the Burstein Purchased Shares issued (collectively, the "Burstein
Protected Shares") and the cash proceeds from such sales or such shares in the
aggregate (net of reasonable and customary brokers' fees and commissions, and
underwriting discounts) (the "Burstein Realized Price") are less than the
Burstein Guaranteed Amount (as defined in this paragraph), within ten (10)
business days following the date on which Burstein will have sold the last of
the Burstein Protected Shares (the "Burstein Makeup Issue Date"), PHC shall
issue to Yakov Burstein that number of additional shares of Common Stock (the
"Burstein Makeup Shares") to be determined as follows: (i) the difference
between the Burstein Guaranteed Amount and the Burstein Realized Price, divided
by (ii) the average per share closing price of shares of PHC Common Stock as
traded in the over-the-counter market for the ten business days prior to the
Burstein Makeup Issue Date net of the average per share underwriting discount
and broker's fee and commission reflected in the Burstein Realized Price.
"Burstein Guaranteed Amount" means the Benchmark Price Per Share, multiplied by
the number of Burstein Protected Shares issued. The Market Price Protection
described in this paragraph shall not apply if Burstein fails to sell all of the
Burstein Protected Shares prior to the first anniversary of the initial
effectiveness of any registration statement for such shares and such
registration statement has been continuously effective for such period.
We understand the PHC is representing and warranting that the shares being
issued to us as herein provided will be validly issued, fully paid and
nonassessable. We acknowledge that the Mansdorf Protected Shares and the
Burstein Protected Shares will be restricted securities and that such shares may
not be publicly offered or sold except pursuant to an effective registration
statement under the Securities Act of 1933 (the "Securities Act"), or until
expiration of one year following the date of issuance and that such shares may
thereafter be sold in compliance with Rule 144 of the General Rules and
Regulations under the Securities Act assuming that such rule is available at
such time for such sale. An appropriate legend will be placed on the
Certificates evidencing such restricted shares
<PAGE>
PHC, Inc.
Page 3
We further acknowledge that we have received copies of PHC's most recent
report on Form 10KSB and Form 10Q filed with the Securities and Exchange
Commission on October 29, 1997 and February 17, 1998, respectively, and that we
understand the risks associated with the investment and that each of us is an
accredited investor within the meaning of Regulation D under the Securities Act.
We understand that the cash that would otherwise have been payable to us
pursuant to the Purchase Agreement will be subject to federal income taxes
during 1998 and that the Mansdorf Protected Merger Shares, the Mansdorf Makeup
Shares (if any), the Burstein Protected Merger Shares and the Burstein Makeup
Shares (if any) to be issued to us might be subject to federal income taxes when
received, although it would appear reasonable to take a contrary return
position. We understand that we must verify the tax consequences of this
transaction with our tax adviser and that any advice you may have given us is
general in nature.
We that understand that within 90 days following the date of this Letter
Agreement (or, in the case of Makeup Shares, the date of issuance thereof, PHC
shall prepare and file with the Securities and Exchange Commission, a
registration statement for offerings to be made on a continuous basis pursuant
to Rule 415 under the Securities Act covering the Mansdorf Protected Shares, the
Mansdorf Makeup Shares (if any are issued), the Burstein Protected Shares and
the Burstein Makeup Shares (if any are issued), and that PHC shall use its best
efforts to keep the registration of each share effective for 12 months following
the date of effective registration of such share under the Securities Act.
We understand that the provisions of the Registration Rights Agreement
dated as of October 31, 1996 by and among PHC and us shall govern any sale by
us, and that we and PHC agree to comply with each of the terms, conditions and
provisions (except Section 2 and Section 3 of such agreement) contained therein
regarding the sale of the Mansdorf Protected Shares, the Mansdorf Makeup Shares,
the Burstein Protected Shares and the Burstein Makeup Shares. PHC hereby
confirms that, as of the date of this Letter Agreement, there is available
adequate current public information with respect to PHC within the meaning of
Rule 144 under the Securities Act.
<PAGE>
PHC, Inc.
Page 4
Finally, we understand that PHC has agreed to pay reasonable attorneys'
fees actually incurred by us in connection with this Letter Agreement and the
transactions described herein, not to exceed the aggregate sum of $2,500.
Very truly yours,
/s/ Irwin Mansdorf__________
Irwin Mansdorf
/s/ Yakov Burnstein___________
Yakov Burstein
AGREED:
PHC, Inc.
By: /s/ Bruce A. Shear
Bruce A. Shear, President
H:\WP\HOME\PH.228(COHENS)
<PAGE>
Exhibit 10.136
HealthCare Financial
March 10, 1998
PHC, Inc.
200 Lake Street
Suite 102
Peabody, Massachusetts 01960
Attention: Bruce A. Shear President
Re: Secured Bridge Loan to be made to PHC, Inc. ("Borrower"), by HCFP
Funding II, Inc.("Lender").
Gentlemen:
This letter sets forth the general terms on which Lender intends to make a
Secured Bridge Loan (the "Loan") to Borrower in the principal amount of Three
Hundred Fifty Thousand and No/100 Dollars ($350,000.00) (the "Principal Sum").
1. Borrower shall pay to Lender interest on the Principal Sum at a
fluctuating rate per annum equal to the Prime Rate plus three and one-half
percent (Prime plus 3.5%) (the "Base Rate"), where the term "Prime Rate means
that rate of interest designated as such by Fleet National Bank of Connecticut,
N.A. Interest shall be payable monthly on the last business of each month,
beginning on March 1, 1998 and continuing through the Maturity Date (as defined
below).
2. Borrower shall pay to Lender a success fee (the "Success Fee") in the
amount of Seventeen Thousand Five Hundred and No/100 Dollars ($17,500.00), which
fee shall be due and payable at the Maturity Date or such earlier date on which
the Principal Sum in paid in full.
3. The Principal Sum, the Success Fee, all accrued but unpaid interest, and
any other fees and costs associated with the Loan shall be due and payable on
July 10, 1998 (the "Maturity Date").
4. Borrower agrees to deliver to Lender a common stock purchase warrant
(the "Warrant") for the purchase of 52,500 shares of Borrower's common stock
(representing a fair market value on the date of this Letter Agreement of
$53,000.00) (the "Common Stock"), along with a registration rights agreement
whereby Borrower agrees to register under the Securities Act of 1933, as
amended, on or before the Maturity Date, the resale by Lender of the Common
Stock.
2 Wisconsin Circle, 4th Floor - Chevy Chase, Maryland 20815 - Phone
301-961-1640 - Fax 301-664-8660
THE LEADER IN HEALTH CARE FINANCE
<PAGE>
Pioneer Health Care, Inc.
March 10, 1998
Page 2
5. As additional collateral for the loan, Borrower agrees to provide to
Lender (i) a second priority deed of trust on the real property known as Mount
Regis Center and located at 465 Kimball Avenue, Salem, Virginia 24153 and (ii) a
pledge of all of the accounts receivable owned by BSC--NY, Inc., an affiliate of
Borrower. In addition, Borrower agrees that the Loan shall be
cross-collateralized and cross-defaulted with the revolving loans made pursuant
to the Loan and Security Agreement made by and among HCFP Funding, Inc., an
affiliate of Borrower ("Funding"), and Borrower, 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 ___, 1998 (the "Loan
Agreement"), the secured loan made by Funding to PHC of Utah, Inc., the secured
loans made by Lender to PHC of Michigan, Inc. (the PHC of Utah, Inc. and PHC of
Michigan, Inc. secured loans are hereafter collectively referred to as the
"Existing Secured Loans", and any other loans made by Lender, Funding or any of
their affiliates to Borrower or any of its affiliates.
6. On or before March 17, 1998, Borrower shall deliver to Lender (i) an
executed Secured Bridge Note containing Lender's customary terms as well as the
terms set forth above, (ii) a Second Deed of Trust, in recordable form, for the
Real Property, along with an ALTA lender's title insurance policy and a
property/casualty insurance policy naming Lender as an additional insured and
loss payee, (iii) an executed Warrant, (iv) an executed Registration Rights
Agreement containing Lender's customary terms and providing for the registration
by the Maturity Date of the resale by Lender of the Common Stock, (v) documents
evidencing the pledge of the accounts receivable of BSC--NY, Inc., (vi) those
UCC-1 financing statements reasonably requested by Lender, in proper form for
filing, (vii) an Agreement providing for the cross-collateralization and
cross-defaults described in paragraph 5 above, and (viii) such other documents
as Lender may reasonable request.
7. If Borrower does not comply in all material respects with the terms of
this Letter Agreement on or before March 17, 1998, the failure to comply shall
constitute an Event of Default under the Loan Agreement and the Existing Secured
Loans.
8. This Letter Agreement shall be governed by and construed in accordance
with the laws of the State of Maryland.
9. This Letter Agreement may be executed in counterparts, and both
counterparts taken together shall be deemed to constitute one and the same
instrument
H:\WP\LEGAL\CLIENT\PHCINC\Ltragrmt.wpd
<PAGE>
Pioneer Health Care, Inc.
March 10, 1998
Page 3
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 II, INC.
By: /s/ Debra M. Van Alstyne
Debra M. Van Alstyne
Vice President
THE UNDERSIGNED AGREES TO THE TERMS SET FORTH ABOVE AS OF THIS 10th DAY OF
MARCH, 1998.
PHC, INC.
(for itself and the affiliates
listed in Section 5 above).
By: /s/ Bruce A. Shear
President
H:\WP\LEGAL\CLIENT\PHCINC\Ltragrmt.wpd
<PAGE>
SECURED BRIDGE NOTE
$350,000.00
March 10, 1998
FOR VALUE RECEIVED, and intending to be legally bound, the undersigned,
PHC, INC., a Massachusetts corporation ("Borrower"), hereby promises to pay, in
lawful money of the United States, to the order of HCFP FUNDING II, INC., a
Delaware corporation, its successors and assigns ("Lender"), the maximum
principal sum of THREE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($350,000.00)
or so much of such sum as shall have been advanced by Lender (the "Principal
Sum") in accordance with the terms of this Secured Bridge Note (the "Note"),
together with interest and other fees as further set forth in this Note, to be
paid in accordance with the terms set forth below.
1. Success Fee. Borrower acknowledges and agrees that the financing
provided by Lender pursuant to this Note is essential to Borrower in financing
its operations. Accordingly, in consideration for the extension of credit by
Lender as evidenced by this Note and as a material inducement to Lender to
provide the financing evidenced by this Note, Borrower shall pay to Lender a
success fee (the "Success Fee") equal to Seventeen Thousand Five Hundred and
No/100 Dollars ($17,500.00), which Success Fee shall be due and payable at the
Maturity Date (as defined below) or such earlier date on which the Principal Sum
is paid in full.
2. Principal and Interest. If not sooner repaid, Borrower promises to pay
to Lender the entire Principal Sum on July 10, 1998 (the "Maturity Date"). In
addition to the repayment of the Principal Sum, Borrower promises to pay to
Lender interest on the Principal Sum on a monthly basis from the date of this
Note until the Maturity Date. Interest shall be at a fluctuating rate per annum
(on the basis of the actual number of days elapsed over a year of 360 days)
equal to the Prime Rate plus three and one-half percent (Prime plus 3.5%) (the
"Base Rate"), provided that after an Event of Default the rate shall be equal to
the Base Rate plus five percent (5%) (the "Default Interest Rate"). For purposes
of the foregoing, the term "Prime Rate" means that rate of interest designated
as such by Fleet National Bank of Connecticut, N.A. (the "Bank"), or any
successor to the Bank, as the same may from time to time fluctuate. If the Bank
ceases to designate such a base lending rate, Lender shall reasonably select an
alternate, nationally recognized commercial bank as the designator of such
interest rate. Accrued interest shall be payable monthly in arrears on the last
Business Day (as defined below) of each month beginning on March 31, 1998 and
continuing through and including the Maturity Date. After maturity, and until
the entire Principal Sum plus any other amount due and unpaid shall be paid in
full, without limiting any of Lender's other rights and remedies, all
outstanding amounts of the Principal Sum shall bear interest, payable on demand,
at the Default Interest Rate, but in no event shall the interest payable exceed
the maximum lawful rate.
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<PAGE>
3. Additional Payments. Borrower further promises to pay to Lender,
immediately upon demand any and all other sums and charges that may at the time
become due and payable under this Note, and all reasonable costs and
disbursements in connection with the preparation of this Note, and in the
collection of any payments due under this Note and in any action, suit or
proceeding to protect, sustain or enforce the rights and remedies of Lender
under this Note (as defined in Section 4 below).
4. Conditions to Borrowing: Prepayment.
a. Subject to the terms and conditions of this Note, Lender shall make
available to Borrower the Principal Sum in immediately available funds not later
than 12:00 Noon (Maryland time) on the Business Day on which the following
conditions precedent are satisfied: (i) Borrower shall have executed and
delivered to Lender, or caused to be executed and delivered to Lender, this
Note, a second priority deed of trust (the "Deed of Trust") on that certain real
property owned by Borrower's affiliate, Pioneer Counseling of Virginia, Inc.
("Pioneer") located at 405 Kimball Avenue, Salem, Virginia 24153 (the "Real
Property"), a Secured Unconditional Guaranty of Payment and Performance (the
"Guaranty") made by BSC-NY, Inc., an affiliate of Borrower, in favor of Lender
of even date with this Note, a Common Stock Purchase Warrant made by Borrower in
favor of HealthCare Financial Partners, Inc., the parent of Lender ("HCFP"), of
even date with this Note (the "Warrant"), a Registration Rights Agreement by and
between Borrower and HCFP of even date with this Note (the "Registration
Agreement"), a Cross-Collateral and Cross-Default Agreement (the
"Cross-Collateral Agreement") by and among Lender, HCFP Funding, Inc., an
affiliate of Lender ("Funding"), and Borrower, PHC of Michigan, Inc., PHC of
Utah, Inc., PHC of Virginia, Inc., PHC of Rhode Island, Inc. and Pioneer
(collectively, "Affiliated Borrowers"), of even date with this Note, this Note
and all financing statements and other documents, certificates and agreements
reasonably deemed necessary or appropriate by Lender to effectuate the
transaction (the Note and all of which financing statements, documents,
certificates and agreements are collectively referred to as the "Loan
Documents"); (ii) all representations and warranties contained in this Note or
otherwise made in writing in connection with this Note or other Loan Documents
by or on behalf of Borrower shall be true and correct in all material respects;
(iii) no Event of Default shall have occurred or be continuing under this Note
or any other Loan Documents; and (iv) Lender shall have received Uniform
Commercial Code ("UCC"), judgment and tax lien searches with the Secretary of
State and local filing offices of each jurisdiction where Borrower maintains a
place of business, which searches yield results consistent with the
representations and warranties contained in this Note.
b. Borrower hereby irrevocably authorizes Lender to disburse the proceeds
of requested advance by wire transfer to such bank account as may be designated
by Borrower from time to time or elsewhere if pursuant to written direction from
Borrower.
c. Lender shall enter all advances of the Principal Sum as debits to a loan
account in the name of Borrower and shall also record as credits in the loan
account all payments made by Borrower and all proceeds of Collateral that are
indefeasibly paid to Lender, and may record in the loan account, in accordance
with customary accounting practice, other debits and credits, including interest
and all charges and expenses properly chargeable to Borrower, with respect to
the extension of credit contemplated by this Note.
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<PAGE>
d. Lender will account to Borrower monthly with a statement of advances,
charges and payments made pursuant to this Note, and the account rendered by
Lender shall be deemed final, binding and conclusive upon Borrower absent
manifest error.
e. Borrower may prepay all or any part of the Principal Sum outstanding,
without penalty, together with all interest accrued on the Principal Sum and all
other sums that are payable pursuant to this Note. In addition, this Note shall
be mandatorily prepayable if any revolving loan made pursuant to a Loan and
Security Agreement by and between funding and Borrower and any of the Affiliated
Borrowers.
5. Payment Office. The Principal Sum, the interest on the Principal Sum,
and any other amounts payable under this Note are payable in lawful money of the
United States of America at the office of Lender, at 2 Wisconsin Circle, Fourth
Floor, Chevy Chase, Maryland 20815, Attention: Ethan D. Leder, President or at
such other place as Lender may specify in writing to Borrower. Any payment by
other than immediately available funds shall be subject to collection. Interest
shall continue to accrue until the funds by which payment is made are available
to Lender for its use. Any payment stated to be due on a day on which banks in
Maryland are required or permitted to be closed for business shall be due and
payable on the next business day (each such day, a "Business Day") and such
extension of time shall be included in the computation of interest in connection
with such payment.
6. No Presentment; Acceleration. On the Maturity Date or upon the
occurrence of an Event of Default (as defined in Section 12 below), the
outstanding Principal Sum, accrued and unpaid interest on the Principal Sum, and
all other sums owed by Borrower to Lender in connection with this Note or the
other Loan Documents shall immediately become due and payable. Borrower hereby
expressly waives any presentment for payment, demand for payment, notice of
nonpayment or dishonor, protest and notice of protest of any kind.
7. Security Agreement.
a. This Note shall constitute a security agreement as that term is used in
the UCC and Borrower hereby grants to Lender, in order to secure Borrower's
obligations under this Note, a security interest in the following (collectively,
the "Collateral"):
(i) All of Borrower's now-owned and hereafter acquired or arising Accounts,
accounts receivable and rights to payment of every kind and description, and any
contract rights, chattel paper, documents and instruments with respect thereto
(for purposes of this Note, "Account" means any right to payment for goods sold
or leased or services rendered, whether or not evidenced by an instrument or
chattel paper, and whether or not earned by performance, including, without
limitation, the right to payment of management fees);
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<PAGE>
(ii) All of Borrower's now owned and hereafter acquired or arising general
intangibles of every kind and description with respect to its Accounts, accounts
receivable and other rights to payment, including, but not limited to, all
existing and future customer lists, choses in action, claims, books, records,
contracts, licenses, formulae, tax and other types of refunds, returned and
unearned insurance premiums, rights and claims under insurance policies, and
computer information, software, records, and data;
(iii) All of Borrower's now or hereafter acquired deposit accounts into
which Accounts are deposited, including the Lockbox Account (for purposes of
this Note, "Lockbox Account" means an account maintained by Debtor at Bank One
Arizona, N.A. (or a successor financial institution), into which all collections
of Accounts are paid directly);
(iv) All of Borrower's monies and other property of every kind and nature
now or at any time or times hereafter in the possession of or under the control
of Lender or a bailee or Affiliate of Lender (for purposes of this Note,
"Affiliate" means with respect to a specified person, any person directly or
indirectly controlling, controlled by, or under common control with the
specified person, including without limitation its stockholders and any
affiliates. A person shall be deemed to control a corporation if the person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and business of the corporation whether through the ownership of
voting securities, by contract, or otherwise);
(v) All of Borrower's now owned or hereafter acquired inventory of every
description which is held by Borrower for sale or lease or is furnished by
Borrower under any contract of service or is held by Borrower as raw materials,
work in process or materials used or consumed in a business, wherever located,
and as the same may now and hereafter from time to time be constituted, together
with all cash and non-cash proceeds and products thereof;
(vi) all of Borrower's now owned or hereafter acquired machinery,
equipment, computer equipment, tools, tooling, furniture, fixtures, goods,
supplies, materials, work in process, whether now owned or hereafter acquired,
together with all additions, parts, fittings, accessories, special tools,
attachments, and accessions now and hereafter affixed thereto and/or used in
connection therewith, all replacements thereof and substitutions therefor, and
all cash and non-cash proceeds and products thereof;
(vii) all of Borrower's general intangibles (including, without limitation,
any proceeds from insurance policies after payment of prior interests), patents,
unpatented inventions, trade secrets, copyrights, contract rights, goodwill,
literary rights, rights to performance, rights under licenses, choses-in-action,
claims, information contained in computer media (such as data bases, source and
object codes, and information therein), things in action, trademarks and
trademarks applied for (together with the goodwill associated therewith) and
derivatives thereof, trade names, including the right to make, use, and vend
goods utilizing any of the foregoing, and permits, licenses, certifications,
authorizations and approvals, and the rights of Borrower thereunder, issued by
any governmental, regulatory, or private authority, agency, or entity whether
now owned or hereafter acquired, together with all cash and non-cash proceeds
and products thereof;
4
<PAGE>
(viii) the real property described on Exhibit A to this Note; and
(ix) The proceeds (including, without limitation, insurance proceeds) of
all of the foregoing.
Borrower shall, at Borrower's expense, perform all acts and execute all
documents requested by Lender at any time to evidence, perfect, maintain and
enforce Lender's security interest and the priority of Lender's security
interest in the Collateral. Upon Lender's request, at any time and from time to
time, Borrower shall, at Borrowers sole cost and expense, execute and deliver to
Lender one or more financing statements (in form and substance satisfactory to
Lender) pursuant to the UCC and, where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more financing statements signed
only by Lender. Notwithstanding anything to the contrary contained in this Note,
Borrower and Lender agree that Lender is, and shall be deemed to be, the
"secured party" as that term is defined in the UCC and elsewhere with respect to
personal property.
b. In addition to all other rights, options, and remedies granted to Lender
under this Note, upon the occurrence of an Event of Default, Lender may exercise
all other rights granted to it under this Note and all rights under the Uniform
Commercial Code in effect in the applicable jurisdiction(s) and under any other
applicable law, and exercise the following rights and remedies (which list is
given by way of example and is not intended to be an exhaustive list of all such
rights and remedies):
(i) The right to take possession of, and notices regarding, and collect
directly the Collateral, with or without judicial process, and to exercise all
rights and remedies available to Lender with respect to the Collateral under the
Uniform Commercial Code in effect in the jurisdiction(s) in which such
Collateral is located;
(ii) The right to (by its own means or with judicial assistance) enter any
of Borrower's premises and take possession of the Collateral, or render it
unusable, or dispose of the Collateral on such premises in compliance with
subsection (c) below, without any liability for rent, storage, utilities, or
other sums, and Borrower shall not resist or interfere with such action;
(iii) The right to require Borrower at Borrowers expense to assemble all or
any part of the Collateral and make it available to Lender at any place
designated by Lender; and
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<PAGE>
(iv) The right to relinquish or abandon any Collateral or any security
interest therein.
c. Borrower agrees that a notice received by it at least five (5) days
before the time of any intended public sale, or the time after which any private
sale or other disposition of the Collateral is to be made, shall be deemed to be
reasonable notice of such sale or other disposition. If permitted by applicable
law, any perishable Collateral that threatens to decline rapidly in value or
that is sold on a recognized market may be sold immediately by Lender without
prior notice to Borrower. At any sale or disposition of Collateral, Lender may
(to the extent permitted by applicable law) purchase all or any part of the
Collateral, free from any right of redemption by Borrower, which right is hereby
waived and released. Borrower covenants and agrees not to interfere with or
impose any obstacle to Lender's exercise of its rights and remedies with respect
to the Collateral following an Event of Default.
d. Lender shall have the right to proceed against all or any portion of the
Collateral to satisfy the liabilities and obligations of Borrower to Lender in
any order. All rights and remedies granted Lender under this Note and under any
agreement referred to in this Note, or otherwise available at law or in equity,
shall be deemed concurrent and cumulative, and not alternative remedies, and
Lender may proceed with any number of remedies at the same time until the
Principal Sum, all interest, costs, expenses and other charges due under, and
all other existing and future liabilities and obligations of Borrower to Lender
under, this Note are satisfied in full. The exercise of any one right or remedy
shall not be deemed a waiver or release of any other right or remedy, and
Lender, upon the occurrence of an Event of Default, may proceed against
Borrower, and/or the Collateral, at any time, under any agreement, with any
available remedy and in any order.
8. Use of Funds. Borrower covenants and agrees that the loan of the
Principal Sum, or any portion of the Principal Sum, shall be used for working
capital or other commercial purposes of Borrower.
9. Representations. Borrower hereby Warrants and represents to Lender that:
a. Borrower is a corporation, duly organized, validly existing, and in good
standing under the laws of the State of Massachusetts, is in good standing as a
foreign corporation in each jurisdiction in which the character of the
properties owned or leased by it or the nature of its business makes such
qualification necessary, has the corporate power and authority to own its assets
and transact the business in which it is engaged, and has obtained all
certificates, licenses and qualifications required under all laws, regulations,
ordinances, or orders of public authorities necessary for the ownership and
operation of all of its properties and transaction of all of its business.
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<PAGE>
b. Borrower has full corporate power and authority to enter into, execute,
and deliver this Note and to perform its obligations under this Note and the
other Loan Documents, all of which have been duly authorized by all necessary
corporate action.
c. This Note constitutes a valid and binding obligation of Borrower,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws generally
affecting creditors' rights or remedies, and judicial doctrines concerning
waivers of rights.
d. Except as may be provided in instruments executed by Borrower in favor
of HCFP Funding, Inc. or HealthCare Financial Partners--Funding II, L.P. (or its
assignee, U.S. Bank National Association, as Trustee) or except as otherwise
provided in Schedule 9(b). The execution, delivery or performance of or under
this Note will not violate or conflict with any law, rule, regulation, order,
judgment, indenture, instrument, or agreement by which Borrower or Borrower's
properties or assets are bound or affect, or conflict or be inconsistent with,
or result in any breach of, any of the terms, covenants or provisions of, or
constitute a default under, or result in the creation or imposition of any lien,
security interest, charge or other encumbrance upon any of the properties or
assets of Borrower, pursuant to the terms of any indenture, mortgage, deed of
trust, agreement or other instrument to which Borrower is a party or by which
Borrower's properties or assets may be bound or to which they may be subject
other than a lien, security interest, charge or other encumbrance in favor of
Lender.
e. There are no actions, suits or other proceedings pending, including,
without limitation, any condemnation proceeding, or to the knowledge of Borrower
threatened, against or adversely affecting Borrower's properties or assets or
the validity or enforceability of this Note or the other Loan Documents.
Borrower is not in default with respect to any order, writ, injunction, decree
or demand of any court or governmental authority. There is no litigation or
proceeding, including, without limitation, any condemnation proceeding, pending
or, to the knowledge of Borrower, threatened against or affecting Borrower's
properties or assets, or any circumstances existing which would in any manner
materially adversely affect Borrower's properties or assets, or the validity or
ability of Borrower to perform any obligations under this Note or the other Loan
Documents.
f. The financial statements of Borrower previously delivered to Lender are
true, correct and complete and fairly present the financial condition of
Borrower as of the date presented. No material adverse change in the financial
condition of Borrower has occurred since the date of such financial statements
of Borrower delivered to Lender.
g. Except as may be provided in instruments executed by Borrower in favor
of HCFP Funding, Inc. or HealthCare Financial Partners--Funding II, L.P. (or its
assignee, U.S. Bank National Association, as Trustee) or except as otherwise
provided in Schedule 10(b). Borrower is the sole owner of all right, title and
interest in and to all of the Collateral, free and clear of any lien, security
interest, charge or encumbrance, other than a lien, security interest, charge or
other encumbrance in favor of Lender, and Borrower has the full right, power,
and authority to convey, transfer, and grant the security title and security
interest in the Collateral granted to the Lender.
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<PAGE>
10. Affirmative Covenants.
Borrower covenants and agrees that until this Note shall be repaid in full:
a. Financial Statements. Borrower will furnish to Lender (i) monthly,
quarterly and annual profit and loss statements, balance sheets, and cash flow
reports; (ii) internally prepared annual financial statements for Borrower
within sixty (60) days after the end of Borrower's fiscal years; and (iii)
promptly upon receipt thereof, copies of any reports submitted to Borrower by
independent accountants in connection with any interim audit of the books of
Borrower and copies of each management control letter provided to Borrower by
independent accountants.
b. Existence, Good Standing, and Compliance with Laws. Borrower will do or
cause to be done all things necessary to obtain and keep in full force and
effect all corporate existence, rights, licenses, privileges, and franchises of
Borrower necessary to the ownership of its property or the conduct of its
business, and comply with all applicable present and future laws, ordinances,
rules, regulations, orders and decrees of any governmental authority having or
claiming jurisdiction over Borrower.
c. Taxes and Charges. Borrower will timely file all tax reports and pay and
discharge all taxes, assessments and governmental charges or levies imposed upon
Borrower, or its income or profits or upon its properties or any part thereof,
before the same shall be in default and prior to the date on which penalties
attach thereto, as well as all lawful claims for labor, material, supplies or
otherwise which, if unpaid, might become a lien or charge upon the properties or
any part thereof of Borrower; provided however, that Borrower shall not be
required to pay and discharge or cause to be paid and discharged any such tax,
assessment, charge, levy or claim so long as the validity or amount thereof
shall be contested in good faith and by appropriate proceedings by Borrower, and
Borrower shall have set aside on their books adequate reserve therefor; and
provided further, that such deferment of payment is permissible only so long as
Borrower's title to, and its right to use, the Collateral is not adversely
affected thereby and Lender's lien and priority on the Collateral are not
adversely affected, altered or impaired thereby.
d. Insurance. Borrower will carry adequate public liability and
professional liability insurance with responsible companies satisfactory to
Lender in such amounts and against such risks as is customarily maintained by
similar businesses and by owners of similar property in the same general area.
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<PAGE>
e. Maintenance of Property. Borrower will maintain, keep and preserve all
of the Note Collateral in good repair, working order and condition and from time
to time make all necessary and proper repairs, renewals, replacements,
betterments and improvements thereto, so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
f. Litigation and Other Proceedings. Borrower shall give prompt notice to
Lender of any litigation, arbitration, or other proceeding before any court or
governmental authority against or affecting Borrower if the amount claimed is
more than $10,000.00.
g. Licensure; Medicare/Medicaid Cost Reports. Borrower will maintain all
certificates of need, provider numbers and licenses necessary to conduct its
business as presently conducted, and take any steps required to comply with any
such new or additional requirements that may be imposed on providers of medical
products and services. If required, all Medicaid/Medicare cost reports will be
properly filed.
h. Visits and Inspections. Borrower agrees to permit representatives of
Lender, from time to time, as often as may be reasonably requested, but only
during normal business hours, to visit and inspect the properties of Borrower,
and to inspect, audit and make extracts from its books and records, and discuss
with its officers, its employees and its independent accountants, Borrower's
business, assets, liabilities, financial condition, business prospects and
results of operations.
i. Further Assurances. Borrower will defend its title to the Collateral
against all persons and will, upon request of the Lender, (i) furnish such
further assurances of title as may be required by the Lender, (ii) deliver and
execute or cause to be delivered and executed, in form and content satisfactory
to the Lender, any financing statements, notices, certificates of title, and
other documents and pay the cost of filing or recording the same in all public
offices deemed necessary by the Lender, as well as any recordation, documentary,
or transfer tax required by law to be paid in connection with such filing or
recording, and (iii) do such other acts as the Lender may reasonably request in
order to perfect, preserve, maintain, or continue the perfection of the Lender's
security interest in the Collateral and/or its priority.
11. Negative Covenants.
Borrower covenants and agrees that until this Note shall be repaid
in full:
a. Borrowing. Borrower will not create, incur, assume or suffer to exist
any liability for borrowed money except: (i) indebtedness to Lender; (ii)
indebtedness of Borrower secured by mortgages, encumbrances or liens expressly
permitted by Lender; (iii) accounts payable to trade creditors and current
operating expenses (other than for borrowed money) which are not aged more than
one hundred twenty (120) days from the billing date or more than thirty (30)
days from the due date, in each case incurred in the ordinary course of business
and paid within such time period, unless the same are being contested in good
faith and by appropriate and lawful proceedings, and Borrower shall have set
aside such reserves, if any, with respect thereto as are required by GAAP and
deemed adequate by Borrower and its independent accountants; and (iv) borrowings
incurred in the ordinary course of its business and not exceeding $50,000.00 in
the aggregate outstanding at any one time. Borrower will not make prepayments on
any existing or future indebtedness for borrowed money in excess of $50,000.00
to any third person or entity (other than Lender, to the extent permitted by
this Note or any subsequent agreement between Borrower and Lender).
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<PAGE>
b. Liens and Encumbrances. Borrower will not create, incur, assume or
suffer to exist any mortgage, pledge, lien or other encumbrance of any kind
(including the charge upon property purchased under a conditional sale or other
title retention agreement) upon, or any security interest in, any of the
Collateral, whether now owned of hereafter acquired.
c. Loans. Borrower will not make loans or advances to any third person or
entity, other than (i) trade credit extended in the ordinary course of its
business, and (ii) advances for business travel and similar temporary advances
in the ordinary course of business to officers, members, directors, and
employees without the prior written consent of Lender, which shall not be
unreasonably withheld.
d. Contingent Liabilities. Borrower will not assume, guarantee, endorse,
contingently agree to purchase or otherwise become liable upon the obligation of
any third person or entity, except by the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business.
e. Joint Ventures. Borrower will not invest directly or indirectly in any
joint venture for any purpose without the prior written notice to, and the
express written consent of, Lender, which consent shall not be unreasonably
withheld.
f. Merger, Acquisition, or Sale of Assets. Borrower will not enter into any
merger or consolidation with or acquire all or substantially all of the assets
of any Person, and will not sell, lease, or otherwise dispose of any of its
assets except in the ordinary course of its business without the prior written
notice to, and the prior express written consent of, Lender, which consent shall
not be unreasonably withheld.
g. Sale and Leaseback. Borrower will not, directly or indirectly, enter
into any arrangement whereby Borrower sells or transfers all or any part of its
assets and thereupon and within one year thereafter rents or leases the assets
so sold or transferred without the prior written notice to, and the prior
express written consent of, Lender, which consent shall not be unreasonably
withheld.
h. Distributions. Unless an Event of Default has occurred and is
continuing, Borrower may make, declare and pay dividends or distributions.
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i. Subsidiaries. Borrower has the subsidiaries set forth on Schedule 11(i)
and will not form any additional subsidiary or make any equity investment in or
any loan in the nature of an equity investment to, any other person in an
aggregate amount over $50,000.00, without the prior written consent of Lender,
which consent shall not be unreasonably withheld.
j. Transactions with Affiliates and Subsidiaries. Borrower will not enter
into any transaction, including without limitation the purchase, sale, or
exchange of property, or the lending or giving of funds to any Affiliate or
subsidiary, except in the ordinary course of business and pursuant to the
reasonable requirements of Borrower's business and upon terms substantially the
same and no less favorable to Borrower as it would obtain in a comparable arm's
length transaction with any Person not an Affiliate or subsidiary, and so long
as the transaction is not otherwise prohibited under this Note. For purposes of
the foregoing, the term "Affiliate" means, with respect to a specified Person,
any Person directly or indirectly controlling, controlled by, or under common
control with the specified Person, including without limitation their
stockholders, members and any Affiliates of the specified Person. A Person shall
be deemed to control a corporation, limited liability company or other entity if
the Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and business of the corporation or other entity,
whether through the ownership of voting securities, by contract, or otherwise.
For purposes of the foregoing definition the term "Person" means an individual,
partnership, corporation, trust, joint venture, joint stock company, limited
liability company, association, unincorporated organization, governmental
authority, or any other entity.
k. Change in Capital Structure. There shall occur no change in Borrower's
capital structure as set forth in Schedule 11(k) without the prior written
consent of Lender, which consent shall not be unreasonably withheld.
1. Contracts and Agreements. Borrower will not become or be a party to any
contract or agreement which would breach this Note, or breach any other
instrument, agreement, or document to which Borrower is a party or by which it
is or may be bound.
m. Truth of Statements and Certificates. Borrower will not furnish to
Lender any certificate or other document that contains any untrue statement of a
material fact or that omits to state a material fact necessary to make it not
misleading in light of the circumstances under which it was furnished.
12. Events of Default. The following events are each an "Event of Default"
under this Note:
a. Borrower fails to make any payment of principal when due or fails to
make any payment of interest, fees or other amounts owed to or for the account
of Lender under this Note and such payment remains unpaid for five (5) Business
Days after the date that such payment is due; or
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<PAGE>
b. Borrower has made any representations or warranties in this Note, the
Loan Documents, any financial statement delivered to Lender or otherwise in
connection with this Note or the related transaction that contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements contained in this Note or in such document or financial statement not
misleading; or
c. Borrower shall fail to perform or observe, or cause to be performed or
observed, any other term, obligation, covenant, condition or agreement contained
in this Note or the other Loan Documents, and any such failure shall have
continued for a period of ten (10) days after written notice of such failure; or
d. Borrower shall (i) apply for, or consent in writing to, the appointment
of a receiver, trustee or liquidator; or (ii) file a voluntary petition seeking
relief under the Bankruptcy Code, or be unable, or admit in writing Borrower's
inability, to pay their debts as they become due; or (iii) make a general
assignment for the benefit of creditors; or (iv) file a petition or an answer
seeking reorganization or an arrangement or a readjustment of debt with
creditors, apply for, take advantage, permit or suffer to exist the commencement
of any insolvency, bankruptcy, suspension of payments, reorganization, debt
arrangement, liquidation, dissolution or similar event, under the law of the
United States or of any state in which Borrower is a resident; or (v) file an
answer admitting the material allegations of a petition filed against Borrower
in any such bankruptcy, reorganization or insolvency case or proceeding or (vi)
take any action authorizing, or in furtherance of, any of the foregoing; or
e. (i) an involuntary case is commenced against Borrower and the petition
is not contested within ten (10) days or is not dismissed within sixty (60) days
after the commencement of the case or (ii) an order, judgment or decree shall be
entered by any court of competent jurisdiction on the application of a creditor
adjudicating Borrower bankrupt or insolvent, or appointing a receiver, trustee
or liquidator of Borrower or of all or substantially all of the assets of
Borrower and the order, judgment or decree shall continue unstayed and in effect
for a period of ninety (90) days or shall not be discharged within thirty (30)
days after the expiration of any stay of such order, judgment, or decree; or
f. Any obligation of Borrower for the payment of borrowed money is not paid
when due or within any applicable grace period, or such obligation becomes or is
declared to be due and payable before the expressed maturity of the obligation,
or there shall have occurred an event that, with the giving of notice or lapse
of time, or both, would cause any such obligation to become, or allow any such
obligation to be declared to be, due and payable; or
g. One or more final judgments against Borrower or attachments against its
property not fully and unconditionally covered by insurance shall be rendered by
a court of record and shall remain unpaid, unstayed on appeal, undischarged,
unbonded and undismissed for a period of twenty (20) days; or
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<PAGE>
h. Borrower ceases any material portion of its business operations as
currently conducted; or
i. There shall occur a material adverse change in the financial condition
or business prospects of Borrower, or Lender in good faith shall deem itself
insecure as a result of acts or events bearing upon the financial condition of
Borrower or the repayment of this Note, which default shall have continued
unremedied for a period of ten (10) days after written notice from Lender, or
j. An Event of Default shall have occurred under the Loan and Security
Agreement dated as of February _____, 1998 by and between Borrower and Funding;
or
k. An Event of Default shall have occurred under the Deed of Trust, the
Guaranty, the Warrant, the Registration Agreement, or the Cross-Default
Agreement.
13. Lender's Rights.
a. Upon the occurrence of an Event of Default, Lender may, in addition to
the remedies set forth in Section 6 above and its rights and remedies set forth
in Section 7 herein, proceed, to the extent permitted by law, to protect and
enforce its rights either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant, condition or agreement
contained in this Note or in aid of the exercise of any power granted in this
Note, or proceed to enforce the payment of this Note or to enforce any other
legal or equitable right of Lender. No right or remedy in this Note or the other
Loan Documents or in other agreement or instrument to the benefit of Lender is
intended to be exclusive of any other right or remedy, and each and every such
right or remedy shall be cumulative and shall be in addition to every other
right and remedy given under this Note or now or hereafter existing at law or in
equity or by statute or otherwise. Without limiting the generality of the
foregoing, if the outstanding Principal Sum, or any of the other obligations of
Borrower to Lender shall not be paid when due, Lender shall not be required to
resort to any particular security, right or remedy or to proceed in any
particular order of priority, and Lender shall have the right at any time and
from time to time, in any commercially reasonable manner and in any order, to
enforce its security interests with respect to the Collateral, liens, rights and
remedies, or any of them, as it deems appropriate in the circumstances, and
apply the proceeds of any Collateral to such obligations of Borrower as it
determines in its sole discretion.
b. If an Event of Default has occurred as provided above and Borrower has
not paid the all amounts outstanding, including all principal, together with
interest accrued on such amounts, upon demand by Lender, then Borrower shall pay
to Lender interest on such outstanding amounts at a rate per annum equal to the
Default Interest Rate from the date such outstanding amounts are due until the
date this Note is paid in full. Borrower promises to pay all costs of
collection, including reasonable attorneys' fees, if this Note is referred to an
attorney for collection after the Event of Default.
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14. No Defenses. Borrower's obligations under this Note shall not be
subject to any set-off, counterclaim or defense to payment that Borrower now has
or may have in the future.
15. No Waiver. No failure or delay on the part of Lender in exercising any
right, power or privilege under this Note or the other Loan Documents nor any
course of dealing between Borrower and Lender, shall operate as a waiver of the
right, power or privilege, nor shall a single or partial exercise of any right,
power or privilege preclude any other or further exercise of, or the exercise of
any other, right, power or privilege.
16. Writing Required. No modification or waiver of any provisions of this
Note or any other Loan Documents, and no consent to any departure by Borrower,
shall in any event be effective, without respect to any course of dealing
between the parties, unless the modification or waiver shall be in a writing
executed by Lender and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand on Borrower in any case shall thereby entitle Borrower to any other or
further notice or demand in the same, similar or other circumstances.
17. Usury Limitation. Notwithstanding anything contained to the contrary in
this Note, Lender shall never be entitled to receive, collect or apply as
interest any amount in excess of the maximum rate of interest permitted to be
charged by applicable law. If Lender receives, collects or applies as interest
any such excess, the amount that would be excessive interest shall be applied to
the reduction of the Principal Sum; and if the Principal Sum is paid in full,
any remaining excess shall be paid to Borrower. In determining whether or not
the interest paid or payable in any specific case exceeds the highest lawful
rate, Lender and Borrower shall to the maximum extent permitted under applicable
law: (i) characterize any non-principal payment as an expense, fee or premium
rather than as interest; and (ii) "spread" the total amount of interest
throughout the entire term of the obligation so that the interest rate is deemed
to have been uniform throughout the entire term.
18. Notices. Any notice or demand given under this Note shall be given by
delivering it, sending by telecopier (with a confirming copy by regular mail),
or by mailing it by certified or registered mail, postage prepaid, return
receipt requested, or sent by prepaid overnight courier service addressed to
Borrower at 200 Lake Street, Suite 102, Peabody, Massachusetts 01960, Attention:
Bruce A. Shear, President, telephone (978) 536-2777, telecopier (978) 536-2677,
with a copy to Willie J. Washington, Esq., Choate, Hall & Stewart, Exchange
Place, 53 State Street, Boston, Massachusetts 02109, telephone (617) 248-5000,
telecopier (617) 248-4000. Any notice to be given to Lender under this Note
shall be given by personally delivering it, sending it by telecopier (with a
confirming copy by regular mail), mailing it by certified or registered mail,
return receipt requested, or sending it by prepaid overnight courier service,
addressed to Lender at: 2 Wisconsin Circle, Fourth Floor, Chevy Chase, Maryland
20815 Attention: Ethan D. Leder, President: Telephone: (301) 961-1640,
Telecopier: (301) 664-9860, or at such other place as Lender may specify in
writing to Borrower. Each party may designate a change of address by notice to
the other given in accordance with this Section 18 at least fifteen (15) days
before such change of address is to become effective. A notice given under this
Note shall be deemed received upon receipt if it is personally delivered or sent
by telecopier, five (5) days after it is deposited in the U.S. mail if it is
sent by regular mail, or on the next Business Day after delivery to the
overnight courier service, if it is sent by overnight courier service.
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19. Section Headings. The headings of the several paragraphs of this Note
are inserted solely for convenience of reference and are not a part of and are
not intended to govern, limit or aid in the construction of any term or
provision.
20. Severability. Any provision contained in this Note that is prohibited
or unenforceable in any respect in any jurisdiction shall, as to such
jurisdiction be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
21. Survival of Terms. All covenants, agreements, representations and
warranties made in this Note or in any financial statements delivered pursuant
to this Note shall survive Borrower's execution and delivery of this Note to
Lender and shall continue in full force and effect so long as this Note or any
other obligation under this Note shall be outstanding and unpaid or any other
obligation of Borrower to Lender or its affiliates under this Note shall remain
unperformed.
22. Governing Law; Consent to Jurisdiction. THIS NOTE IS TO BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT
RESPECT TO ANY OTHERWISE APPLICABLE CONFLICTS-OF-LAWS PRINCIPLES, BOTH AS TO
INTERPRETATION AND PERFORMANCE, AND THE PARTIES EXPRESSLY CONSENT AND AGREE TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF MARYLAND AND THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND AND TO THE LAYING OF
VENUE IN MARYLAND, WAIVING ALL CLAIMS OR DEFENSES BASED ON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE, INCONVENIENT FORUM OR THE LIKE. BORROWER HEREBY
CONSENTS TO SERVICE OF PROCESS BY MAILING A COPY OF THE SUMMONS TO BORROWER, BY
CERTIFIED OR REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER'S ADDRESS SET FORTH
IN SECTION 18 ABOVE. BORROWER FURTHER WAIVES ANY CLAIM FOR CONSEQUENTIAL DAMAGES
IN RESPECT OF ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY LENDER IN GOOD FAITH.
23. Waiver of Trial by Jury. EACH OF BORROWER AND LENDER HEREBY (A)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUES 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 HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY
IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY EACH OF BORROWER AND LENDER,
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. EACH PARTY
IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS NOTE TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES TO THIS NOTE, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF THE FOREGOING WAIVER OF THE RIGHT TO JURY TRIAL.
FURTHER, EACH OF BORROWER AND LENDER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR
AGENT OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL
PROVISION.
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24. Confession of Judgment. BORROWER IRREVOCABLY AUTHORIZES AND EMPOWERS
ANY ATTORNEY OF RECORD, OR THE PROTHONOTARY, CLERK OR SIMILAR OFFICER OF ANY
COURT IN ANY COUNTY OF THE STATE OF MARYLAND OR OF BALTIMORE CITY, MARYLAND, OR
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND, AS ATTORNEY
FOR BORROWER, AS WELL AS FOR ANY PERSONS CLAIMING UNDER, BY OR THROUGH BORROWER,
TO APPEAR FOR BORROWER IN ANY SUCH COURT IN ANY SUCH ACTION BROUGHT AGAINST
BORROWER AT THE SUIT OF LENDER TO CONFESS JUDGMENT AGAINST BORROWER IN FAVOR OF
LENDER IN THE FULL AMOUNT DUE ON THIS NOTE (INCLUDING PRINCIPAL, ACCRUED
INTEREST AND ANY AND ALL CHARGES, FEES AND COSTS) PLUS ATTORNEYS FEES FOR
FIFTEEN PERCENT (15%) OF THE AMOUNT DUE, PLUS COURT COSTS, ALL WITHOUT PRIOR
NOTICE OR OPPORTUNITY OF BORROWER FOR PRIOR HEARING. BORROWER WAIVES THE BENEFIT
OF ANY AND EVERY STATUTE, ORDINANCE, OR RULE OF COURT WHICH MAY BE LAWFULLY
WAIVED CONFERRING UPON BORROWER 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
BORROWER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR BY ANY
IMPERFECT EXERCISE THEREOF, AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT
ENTERED PURSUANT THERETO; SUCH AUTHORITY AND POWER MAY BE EXERCISED ON ONE OR
MORE OCCASIONS FROM TIME TO TIME, IN THE SAME OR DIFFERENT JURISDICTIONS, AS
OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT AND PROPER.
H:\WP\LEGAL\CLIENTS\PHCrNC\Secnote.wpd
16
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IN WITNESS WHEREOF, the undersigned has executed this Secured Term Note as
of the day and year first above written.
BORROWER:
PHC, INC.
a Massachusetts corporation
By: /s/ Bruce A. Shear
Title: President
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17
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After recording, return to:
Samuel M. Spiritos, Esquire
Shulman, Rogers, Gandal, Pordy & Ecker
11921 Rockville Pike
3rd Floor
Rockville, Maryland 20852
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: PIONEER COUNSELING OF VIRGINIA, INC.
BENEFICIARY: HCFP FUNDING II, INC.
TRUSTEE: Thomas L. Hanley and
Barry P. Miller
March _________________, 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 March
_____, 1998 by PIONEER COUNSELING 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 of even date with this Deed of Trust (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");
<PAGE>
(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;
<PAGE>
(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 indenmitor 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.
<PAGE>
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(h) 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; (1) 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.
(Subsection) 11022), (ii) is not the site of any underground storage tanks, for
which notification is required under 42 U.S.C. (Subsection) 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. (Subsection) 9616); (n) neither Grantor nor, to the best of
Grantors 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
<PAGE>
(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;
<PAGE>
(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.
<PAGE>
(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, funds 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.
<PAGE>
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.
<PAGE>
(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. (Subsection) 9601 et. seq. ("CERCLA"); (b)
the Resource Conservation and Recovery Act, as amended, 42 U.S.C. (Subsection)
6901 et. seq., including the statutes regulating underground storage tanks, 42
U.S.C. (Subsection) 6991-6991h; (c) the Clean Air Act, as amended, 42 U.S.C.
(Subsection) 7401 et. seq. and (d) the Federal Water Pollution Control Act, as
amended, 33 U.S.C. (Subsection) 1251 et. seq., including the statute regulating
the National Pollutant Discharge Elimination System ("NPDES"), 33 U.S.C.
(Subsection) 1342. "Hazardous Substances" shall mean and include each and all of
the following:
<PAGE>
(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 197 (42 U.S.C. (Subsection) 6901 et. seq.)
("RCRA"), and the Hazardous Materials Transportation Act, 49 U.S.C.
(Subsection) 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.
(Subsection) 1251 et seq. (33 U.S.C. (Subsection)1321) or listed pursuant
to Section 307 of the Clean Water Act (33 U.S.C. (Subsection) 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. (Subsection) 7401), as
amended.
<PAGE>
(iv) Those substances defined as "hazardous chemicals" by the Occupational
Safety and Health Administration (29 C.F.R. (Subsection) 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.
<PAGE>
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.
<PAGE>
10. Security Agreement: Financial, 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:
Pioneer Consulting 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. The following shall each constitute a "Default" for purposes of this
Deed of Trust:
<PAGE>
(a) Failure to pay the Indebtedness or any part thereof when due and upon
expiration of any applicable grace period;
(b) Default in the performance of observance by Grantor of any other
covenant, condition or term of this Deed of Trust or the Guaranty and the
expiration of any applicable cure period; or
(c) If any warranty of Borrower contained in this Deed of Trust or in the
Guaranty was materially untrue or misleading on the date made in any material
respect;
(d) The occurrence of any Transfer prohibited by this Deed of Trust;
(e) The condemnation, seizure or appropriation of, or the occurrence of an
uninsured casualty with respect to, any material portion of the Real Estate or
Improvements;
(f) The enactment of any law which deducts from the value of the Mortgaged
Property for the purpose of taxation any lien thereon or imposes upon
Beneficiary the payment of the whole or any part of the taxes. assessments,
charges or liens required by the terms of this Deed of Trust to be paid by
Grantor or changes in any way the laws relating to the taxation of mortgages or
debts secured by mortgages or Beneficiary's interest in the Real Estate, the
Improvements or any other of the Mortgaged Property or the manner of collection
of taxes so as to affect this Deed of Trust or any other of the Indebtedness or
the holder thereof or impose a tax, other than a federal or state income tax, on
or payable by Beneficiary by reason of its ownership of the Indebtedness and, in
such event Grantor, within five (5) business days after notice and after demand
by Beneficiary, does not pay such taxes or assessments or reimburse Beneficiary
therefor or, in the opinion of counsel for Beneficiary, it might be unlawful to
require Grantor to make such payment or the making of such payment might result
in the imposition of interest costs beyond the maximum amount permitted by
applicable law;
(g) Any part of the Mortgaged Property or all or any substantial part of
the property or assets of Grantor is placed in the hands of any receiver,
trustee or other officer or representative of any court, or Grantor consents,
agrees or acquiesces to the appointment of any such receiver or trustee;
(h) Grantor does, or permits to be done, anything that in any way
materially impairs the lien of this Deed of Trust or makes any material
alterations to the Mortgaged Property with an aggregate cost of over $50,000.00
without the prior consent of Beneficiary.
(i) Any lienholder or creditor shall initiate an action to foreclose a lien
or security interest on all or any part of the Mortgaged Property, whether such
security interest or lien is superior, equal or junior to the security interest
or lien held by Beneficiary on the Mortgaged Property, and the action shall
remain undismissed for a period of ninety (90) days or Grantor shall fail to
contest the proceeding within twenty (20) days after notice thereof; or
(j) Grantor shall (i) apply for, or consent in writing to, the appointment
of a receiver, trustee or liquidator; or (ii) file a voluntary petition seeking
relief under the Bankruptcy Code, or be unable, or admit in writing its
inability, to pay its debts as they become due; or (iii) make a general
assignment for the benefit of creditors; or (iv) file a petition or an answer
seeking reorganization or an arrangement or a readjustment of debt with
creditors, apply for or take advantage of any insolvency, bankruptcy, suspension
of payments, reorganization, debt arrangement, liquidation, dissolution or
similar event, under the law of the United States or of any state in which
Grantor is a resident; or (v) file an answer admitting the material allegations
of a petition filed against Grantor in any such bankruptcy, reorganization or
insolvency case or proceeding or (vi) take any action authorizing, or in
furtherance of, any of the foregoing; or
<PAGE>
(k) an involuntary case is commenced against Grantor and the petition is
not dismissed within ninety (90) days after the commencement of the case or (ii)
an order, judgment or decree shall be entered by any court of competent
jurisdiction on the application of a creditor adjudicating Grantor bankrupt or
insolvent, or appointing a receiver, trustee or liquidator of Grantor or of
ordering the sale of all or substantially all of the assets of Grantor and such
order, judgment or decree shall continue unstayed and in effect for a period
ninety (90) days or shall not be discharged within thirty (30) days after the
expiration of any stay thereof.
12. Trustee. Beneficiary shall have the irrevocable power, to be exercised
at any time or times hereafter and with or without cause, to substitute a
trustee or trustees in place of Trustee herein named, by an instrument in
writing duly executed and recorded among the land records of the jurisdiction
where the Mortgaged Property is located; and when such instrument is so
recorded, all the estate of Trustee thus superseded shall terminate and all the
right, title and interest of Trustee hereunder shall be vested in the trustee or
trustees named as its successor, and such successor trustee or trustees shall
have the same powers, rights and duties which Trustee so superseded had under
this Deed of Trust. The exercise of this right to appoint a successor trustee,
no matter how often exercised, shall not be deemed an exhaustion of said right.
Irrespective of whether Trustee consists of one or more entities, Beneficiary
may name one or more entities as successor trustee as Beneficiary may determine.
Trustee may resign after giving written notice to Beneficiary at least ten (10)
days in advance. If Trustee consists of more than one person or entity, any one
may act independently as Trustee without joinder of the other. Trustee may act
hereunder and may sell and convey the Mortgaged Property, or any part thereof,
although said Trustee has been, may now be, or is hereafter the attorney or
agent of Beneficiary with respect to the Loan, or with respect to any other
matter of business whatsoever. Trustee shall not be required to take any action
toward the execution and enforcement of this Deed of Trust or to institute,
appear in or defend any action, suit or other proceeding in connection therewith
where, in the opinion of Trustee, such action will be likely to involve Trustee
in expense or liability, unless requested so to do by a written instrument
signed by Beneficiary and, if Trustee so requests, unless Trustee in tendered
security and indemnity satisfactory to Trustee against any and all costs,
expenses and liabilities arising therefrom. Trustee, by acceptance hereof,
hereby covenants faithfully to perform and fulfill the trusts herein created;
provided, however, that Trustee shall be liable hereunder only for gross
negligence, willful misconduct or bad faith. Grantor indemnifies and forever
holds harmless Trustee from any liability, obligation, cost or expense arising
under this Deed of Trust. In any event, Trustee shall be indemnified and forever
held harmless by Beneficiary for any action which Trustee may take pursuant to
and in reliance upon the written instructions of Beneficiary.
13. Expenses. After a Default, all reasonable expenses, costs and other
liabilities, including attorneys' and paralegals' fees, 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.
14. 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).
<PAGE>
(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);
<PAGE>
(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, services 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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
(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 obligations by reason of the
failure of the Beneficiary to comply with ant 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.
(1) 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.
<PAGE>
(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.
15. 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.
16. 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.
<PAGE>
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.
<PAGE>
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 Grantors 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
attorney to Beneficiary.
<PAGE>
(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.
17. 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.
<PAGE>
18. 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.
19. 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.
<PAGE>
23. Assignment. 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.
<PAGE>
26. Successors. 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. 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:
Pioneer Consulting 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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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, 5558.2, 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. 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 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.
H:\WP,LEGAL\CLIENTS\PHCINCI,2dDeedTrust.wpd
<PAGE>
IN WITNESS WHEREOF, Grantor has duly executed and delivered this Deed of Trust
as of the day and year first above written.
ATTEST: PIONEER CONSULTING OF VIRGINIA, INC. a
Virginia corporation
By:
__________________________________________
Name:
Title:
H:\WP\LEGAL\CLIENTS\PHCrNC\2dDeedTrust.wpd
<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 PIONEER
CONSULTING 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 ________ day of March, 1998.
__________________________________________
Notary Public
My Commission Expires: ______________________
H:\WP\LEGAL\CLIENTS\PHCTNC\2dDeedTrust.wpd
<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
H:\WP\LEGAL\CLIENTS\PHCINC\2dDeedTrust.wpd
<PAGE>
Exhibit 99.1
CAUTIONARY STATEMENT FOR PURPOSES
OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE LITIGATION REFORM ACT OF 1995
PHC, Inc. (the "Company") desires to take advantage of the new "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 and
is including this Exhibit 99.1 in its Form 10-KSB in order to do so.
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual consolidated
results for the Company's current quarter and beyond, to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company.
During its last fiscal year and in certain other fiscal years of its
operation, the Company has generated losses and there can be no assurance that
future losses will not occur.
The Company has experienced a significant increase in accounts receivable
in recent years and there can be no assurance that this trend will not continue,
and that if it does, that it will not have a material adverse effect on the
Company's cash flow and financial performance.
The Company historically experiences and expects to continue to experience
a decline in revenue in its fiscal quarters ending December 31 due to a
seasonality decline in revenue from the Company's substance abuse facilities
during such period.
Payment for the company's substance abuse treatment is provided by private
insurance carriers and managed care organizations; payment for long-term and
subacute care is provided by private insurance carriers, managed care
organizations and the Medicare and Medicaid programs; payment for psychiatric
services is provided by private insurance carriers, managed care organizations
and the Medicare and Medicaid programs. In general, revenues derived from the
Medicare and Medicaid programs in connection with the long-term and subacute
care services provided by the Company have been less profitable to the Company
than revenues derived from private insurers and managed care organizations in
connection with the substance abuse treatment provided by the Company and
changes in the sources of the Company's revenues could significantly alter the
Company's profitability. Additionally, the Company experiences greater delays in
the collection of amounts reimbursable by the Medicare and Medicaid programs
than in the collection of amounts reimbursable by private insurers and managed
care organizations. Accordingly, a change in the Company's service mix from
substance abuse to long-term care could have a materially adverse effect on the
Company as would an increase in the percentage of the Company's patients who are
insured by Medicare or Medicaid.
Cost containment pressures from private insurers in the Medicare and
Medicaid programs may begin to restrict the amount that the Company can charge
for its services.
There can be no assurance that the Company's existing facilities will
continue to meet, or that proposed facilities will meet, the requirements for
reimbursement by third party or government payors.
The Company has substantial receivables from Medicare and Medicaid which
constitute a concentration of credit risk should these agencies defer or be
unable to make reimbursement payments as due.
The Company often experiences significant delays in the collection of
amounts reimbursable by third-party payors. Although the Company believes it
maintains an adequate allowance for doubtful accounts, if the amount of
receivables which eventually becomes uncollectible exceeds such allowance, the
Company could be materially adversely affected.
If a growing number of managed care organizations and insurance companies
adopt policies which limit the length of stay for substance abuse treatment, the
Company's business would be materially adversely affected.
There can be no assurance that occupancy rates at the Company's facilities
will continue at present levels. Similarly, there can be no assurance that the
patient census will not decrease in the future.
There can be no assurance that the Company will be successful in
identifying appropriate acquisition opportunities, or if it does, that the
Company will be successful in acquiring such facilities or that such acquired
facilities will be profitable. The failure of the company to implement its
acquisition strategy could have a materially adverse effect an the Company's
financial performance. Moreover, the inherent risks of expansion could also have
a material adverse effect on the Company's business.
Additionally, the company's acquisition program will be directed by the
President and Chief Executive officer of the Company and the Company does not
intend to seek stockholder approval for any such acquisitions unless required by
applicable law or regulations. Accordingly, investors will be substantially
dependent upon the business judgment of management in making such acquisitions.
Furthermore, the company's acquisition strategy is highly dependent on access to
capital, of which there can be no assurance.
The Company and the healthcare industry in general are subject to extensive
federal, state and local regulation with respect to licensure and conduct of
operations. There can be no assurance that the Company will be able to obtain
new licenses to affect its acquisition strategy or maintain its existing
licenses and reimbursement program participation approvals.
It is not possible to accurately predict the content or impact of future
legislation and regulations affecting the healthcare industry. In addition, both
the Medicare and Medicaid programs are subject to statutory and regulatory
changes and there can be no assurances that payments under those programs to the
Company will, in the future, remain at a level comparable to the present level
or be sufficient to cover the cost allocable to such patients.
Bruce A. Shear the President and Chief Executive officer of the Company
together with his affiliates is able to control all matters requiring approval
of the stockholders, including the election of a majority of the directors, as a
result of his ownership of the Company's stock.
There can be no assurance that the Company will be successful in hiring or
retaining the personnel it requires for continued growth, or that the Company
will be able to continue to attract and retain highly qualified personnel,
particularly skilled healthcare personnel. The healthcare business is highly
competitive and subject to excess capacity.
The Company has entered into relationships with large employers, healthcare
institutions, labor unions and other key clients to provide treatment for
chemical dependency and substance abuse as well as other services and the loss
of any of these key clients would require the Company to expend considerable
effort to replace patient referrals and would result in revenue losses to the
Company and attendant loss in income.
Existing environmental contamination at certain of the Company's facilities
and potential future environmental contamination at facilities acquired by the
company could have a materially adverse effect on the Company's operations.
<PAGE>
On October 31, 1994, the Company was served with a summons for a Civil
Action in the Superior Court Department of the Trial Court of the Commonwealth
of Massachusetts by NovaCare, Inc. ("NovaCare"), an entity which contracted with
the Company in 1992 to provide rehabilitation therapy and related administrative
services to the Company's long-term care facility (the "Action"). The complaint
alleged that the Company owed NovaCare contractual damages in the amount of
approximately $587,000, plus interest, attorney fees, costs of collection, and
double or triple damages pursuant to a Massachusetts statute prohibiting unfair
and deceptive trade practices. The Company filed a counterclaim alleging that
NovaCare breached the contract in question and that the Company may be owed
damages in excess of the amount sought by NovaCare.
On February 13, 1996, the company settled the Action by agreeing to pay
NovaCare an amount less than its claim. The Company is not paying NovaCare
accrued interest, attorney's fees, costs of collection, or multiple damages. A
portion of the settlement amount has already been paid. The balance of the
settlement amount is payable over twelve (12) months with interest on the unpaid
balance at 9.5%. In the event that the Company defaults on its obligation to pay
the settlement amount, it has agreed to entry of judgment against it in the
amount of $457, 637.46 (the "Judgment"). The Judgment represents the full unpaid
balance of NovaCare's claim against the Company, including interest, attorney's
fees, and costs of collection. Any amounts paid by the Company to NovaCare after
February 9, 1996 shall be deducted from the Judgment. Until the settlement
amount is paid, NovaCare will continue to hold a mortgage on a day care property
owned by the Company in Saugus, Massachusetts. As of Fiscal Year Ended June 30,
1997, this obligation has been paid in full.
Interruption by fire, earthquakes or other catastrophic events, power
failures, work stoppages, regulatory actions or other causes to any of the
Company's operations could have a materially adverse impact on the Company.
The company has and in the future may enter into transactions in which it
acquires businesses or obtains financing for a consideration that includes the
issuance of stock, warrants, options or convertible debt at a price less than
the value at which the Company's stock may then be trading in the public markets
or which are convertible into or exercisable for Common Stock at a conversion
rate or exercise price less than such value. Such transactions may result in
significant dilution to the existing holders of the Company's stock.
The Company has authorized 1,000,000 shares of Preferred Stock, the terms
of which may be fixed and which may be issued by the Company's Board of
Directors, without stockholder approval. The issuance of the Preferred Stock
could have the effect of making it more difficult for a third party to acquire
the Company and may result in the issuance of stock that dilutes the existing
stockholders and has liquidation, redemption, dividend and other preferences
superior to the Company's outstanding Class A Common Stock.
NOTE:
THIS DOES NOT DISCUSS PREFERRED STOCK, REDEMPTION OF WARRANTS, THE EFFECTS
OF DE-LISTING FROM NASDAQ, PENNY STOCK RULES OR THIN FLOAT. THOSE SUBJECTS ARE,
HOWEVER, INCLUDED IN THE RISK-FACTOR SECTION OF THE 06/97 S-3.
