PHC, INC.
200 Lake Street
Suite 102
Peabody, Massachusetts 01960
November 18, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
PHC, Inc., which will be held on December 23, 1998, at 2:00 PM, at the Corporate
offices of PHC, Inc., 200 Lake Street, Suite 102, Peabody, Massachusetts 01960.
The following Notice of Annual Meeting of Stockholders and Proxy Statement
describes the items to be considered by the stockholders and contains certain
information about PHC, Inc.'s officers and directors.
Please sign and return the enclosed proxy card as soon as possible in the
envelope provided so that your shares can be voted at the meeting in accordance
with your instructions. Even if you plan to attend the meeting, we urge you to
sign and promptly return the enclosed proxy. You can revoke it at any time prior
to the meeting, or vote your shares personally if you attend the meeting. We
look forward to seeing you.
Sincerely,
/s/ Bruce A. Shear
President
<PAGE>
PHC, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 23, 1998
The Annual Meeting of Stockholders of PHC, Inc. (the "Company") will be
held at our Corporate offices at 200 Lake Street, Suite 102, Peabody,
Massachusetts, on December 23, 1998, at 2:00 PM, for the following purposes:
1. To elect five directors (two to be elected by the holders of the
Company's Class A Common Stock and three to be elected by the holders
of the Company's Class B Common Stock) to hold office until the annual
meeting next following their election and until their successors are
duly elected and qualified;
2. To consider and vote upon a proposed amendment to increase the number
of shares of Class A Common Stock available for issuance under the
1993 Employee Stock Purchase and Option Plan from 400,000 shares to
1,000,000 shares;
3. To ratify the selection by the Board of Directors of BDO Seidman, LLP
as the Company's independent auditors; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on November 5, 1998
as the record date for determination of stockholders entitled to notice of, and
to vote at the annual meeting and at any adjournment thereof.
All stockholders are cordially invited to attend the meeting.
By order of the Board of Directors
/s/ Paula C. Wurts, Assistant Clerk
Peabody, Massachusetts
November 18, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
<PAGE>
PHC, INC.
200 Lake Street
Suite 102
Peabody, Massachusetts 01960
(978) 536-2777
PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of PHC, Inc. (the "Company") for use at the
Annual Meeting of Stockholders to be held at the Corporate offices of the
Company at 200 Lake Street, Suite 102, Peabody, Massachusetts on December 23,
1998 at 2:00 PM (Boston time), and at any adjournment of that meeting (the
"Annual Meeting"). Each proxy will be voted in accordance with the instructions
specified, and if no instruction is specified, the proxy will be voted in favor
of the proposals set forth in the Notice of Annual Meeting. Any proxy may be
revoked by a stockholder at any time before it is exercised by filing a later
dated proxy or written notice of revocation with Paula C. Wurts, Assistant Clerk
of the Company, or by voting in person at the Annual Meeting.
The Company's Annual Report on Form 10-KSB for the year ended June 30, 1998
is being mailed to stockholders together with this Proxy Statement. The Company
will furnish any exhibit to the Company's Annual Report on Form 10-KSB upon the
payment of a processing fee of ten cents per page plus mailing costs. The date
of mailing of this Proxy Statement is expected to be on or about November 18,
1998.
The Board of Directors has fixed November 5, 1998 as the record date for
the determination of stockholders entitled to vote at the Annual Meeting (the
"Record Date"). On that date there were outstanding and entitled to vote
5,236,588 shares of Class A Common Stock and 727,328 shares of Class B Common
Stock of the Company (the shares of Class A Common Stock and Class B Common
Stock are referred to collectively herein as the "Shares"). Each share of Class
A Common Stock is entitled to one vote and each share of Class B Common Stock is
entitled to five votes. The holders of the Company's Class A Common Stock are
entitled to elect two members of the Company's Board of Directors (the "Class A
Directors") and holders of the Company's Class B Common Stock are entitled to
elect all the remaining members of the Company's Board of Directors (the "Class
B Directors"). Holders of Class A Common Stock will receive white proxy cards
which will be different from those received by the holders of Class B Common
Stock. The proxy cards received by the holders of Class A Common Stock will
contain a proposal relating to the election of the two members of the Board of
Directors to be elected by the holders of the Class A Common Stock, in addition
to any other proposals to be voted upon during the General Session. Holders of
Class B Common Stock will receive blue proxy cards which will contain a proposal
relating to the election of the three members of the Board of Directors to be
elected by the holders of the Class B Common Stock, in addition to any other
proposals to be voted upon during the General Session.
The Annual Meeting will comprise three related but separate sessions: (i) a
special session of the holders of Class A Common Stock, during which session
only holders of Class A Common Stock are entitled to vote, for the separate
election by such holders of two directors, and no other business may properly
come before the meeting (the "Class A Session"); (ii) a special session of the
holders of Class B Common Stock, during which session only holders of Class B
Common Stock are entitled to vote, for the separate election by such holders of
three directors, and no other business may properly come before the meeting (the
"Class B Session"); and (iii) a general session of the holders of the Class A
Common Stock and the Class B Common Stock for the approval and ratification of
an amendment to the 1993 Employee Stock Purchase and Option Plan to increase the
number of shares of Class A Common Stock available for issuance thereunder from
400,000 shares to 1,000,000 shares, ratification of the selection of independent
auditors and for the conduct of such other business as may properly come before
the Annual Meeting (the "General Session"). The presence in person or by proxy
of holders of shares of Class A Common Stock and Class B Common Stock
outstanding as of the Record Date which, combined, have the right to cast a
majority of the votes which may be cast with respect to matters arising during
the General Session will constitute a quorum for the conduct of business at the
General Session. The presence in person or by proxy of holders of shares of
Class A Common Stock and Class B Common Stock outstanding as of the Record Date
which have the right to cast a majority of the votes which may be cast with
respect to matters arising during the Class A Session and the Class B Session,
respectively, will constitute a quorum for purposes of the Class A Session and
the Class B Session, respectively.
The affirmative vote of the holders of a plurality of the shares of each of
Class A Common Stock and Class B Common Stock represented at the meeting is
required for the election of the Class A Directors and the Class B Directors,
respectively. The affirmative vote of the holders of at least two-thirds of the
outstanding shares of Class A Common Stock entitled to vote thereon and the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Class A Common Stock and Class B Common Stock entitled to vote thereon voting
together as a separate class is required for the approval of the proposal to
amend the Company's Restated Articles of Organization. Approval of each of the
other matters which is before the meeting will require the affirmative vote of
the holders of a majority of the Shares represented at the meeting and voting
thereon. No votes may be taken at the meeting, other than a vote to adjourn,
unless the appropriate quorum (as set forth in the preceding paragraph) has been
constituted. Shares voted to abstain or to withhold as to a particular matter,
or as to which a nominee (such as a broker holding shares in street name for a
beneficial owner) has no voting authority in respect of a particular matter,
shall be deemed represented for quorum purposes. Such shares, however, shall not
be deemed to be voting on such matters, and therefore will not be the equivalent
of negative votes as to such matters. Votes will be tabulated by the Company's
transfer agent subject to the supervision of persons designated by the Board of
Directors as inspectors.
The following table sets forth, to the knowledge of the Company, the only
beneficial owners of more than 5% equity of any class of the Company's
outstanding voting common stock as of November 5, 1998.
Name and Address of Shares of Percent
Title of Class Beneficial Class of
Owner Beneficially Class
Owned
Class A Common None
Stock. . . . .
Class B Common Bruce A. Shear 671,259 92.3%
Stock. . . . . c/o PHC, Inc.
200 Lake Street
Suite 102
Peabody, MA 0l960
The percentages of voting rights for certain persons or groups are set
forth in the footnotes to the table contained under the heading, "Security
Ownership of Certain Beneficial Owners and Management."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of shares of the Company's Class A Common Stock, and Class B Common Stock (the
only classes of voting capital stock of the Company currently outstanding) as of
October 16, 1998 by (i) each person known by the Company to beneficially own
more than 5% of any class of the Company's voting securities, (ii) each director
of the Company, (iii) the Company's Chief Executive Officer, (iv) each of the
Company's four most highly compensated executive officers other than its Chief
Executive Officer who were serving as officers of the Company at the end of the
1998 fiscal year and whose salary and bonus for the 1998 fiscal year exceeded
$100,000 and (v) all directors and officers of the Company as a group (the
individuals specified in subsections (iii) and (iv) hereof collectively are
referred to herein as the "Named Executive Officers". Unless otherwise indicated
below, to the knowledge of the Company, all persons listed below have sole
voting and investment power with respect to their shares of Common Stock, except
to the extent authority is shared by spouses under applicable law. In preparing
the following table, the Company has relied on the information furnished by the
persons listed below:
Name and Address Amount and Percent
Title of Class of Beneficial Nature of
Owner of Beneficial Class
Owner (11)
Class A Common Gerald M. Perlow 22,250(1) *
Stock ............. c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Donald E. Robar 16,375(2) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA
01960
Bruce A. Shear 36,000(3) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Robert H. Boswell 57,337(4) 1.2%
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Howard W. Phillips 44,004(5) *
P. O. Box 2047
East Hampton, NY
11937
William F. Grieco 65,780(6)(7) 1.3%
115 Marlborough
Street
Boston, MA 02116
J. Owen Todd 59,280(7) 1.2%
c/o Todd and Weld
1 Boston Place
Boston, MA 02108
All Directors and 266,670(8) 5.2%
Officers as a
Group (8 persons)
Class B Common Bruce A. Shear 671,259(10) 92.3%
Stock (9).......... c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
All Directors and 671,259 92.3%
Officers as a
Group (8 persons)
* Less than 1%.
(1) Includes 12,250 shares issuable pursuant to currently exercisable stock
options or stock options which will become exercisable within sixty days,
having an exercise price range of $1.25 to $6.63 per share.
(2) Includes 14,875 shares issuable pursuant to currently exercisable stock
options or stock options which will become exercisable within sixty days,
having an exercise price range of $1.25 to $6.63 per share.
(3) Includes 25,000 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price of $2.63 per
share. Excludes an aggregate of 59,280 shares of Class A Common Stock owned
by the Shear Family Trust and the NMI Trust, of which Bruce A. Shear is a
remainder beneficiary.
(4) Includes an aggregate of 50,250 shares of Class A Common Stock issuable
pursuant to currently exercisable stock options at an exercise price of
$1.25per share.
(5) Includes 37,504 shares issuable upon the exercise of a currently
exercisable Unit Purchase Option for 18,752 Units, at a price per unit of
$5.60, of which each unit consists of one share of Class A Common Stock and
one warrant to purchase an additional share of Class A Common Stock at a
price per share of $7.50 and 6,500 shares issuable pursuant to currently
exercisable stock options having an exercise price range of $1.25 to $3.50
per share.
(6) Includes 6,500 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of
$1.25 to $3.50 per share
(7) Messrs. Todd and Grieco are the two trustees of the Trusts which
collectively hold 59,280 shares of the Company's outstanding Common Stock.
Gertrude Shear, Bruce A. Shear's mother, is the lifetime beneficiary of the
Trusts. In addition to the shares held by the Trusts, to the best of the
Company's knowledge, Gertrude Shear currently owns less than 1% of the
Company's outstanding Class B Common Stock.
(8) Includes an aggregate of 136,875 shares issuable pursuant to currently
exercisable stock options. Of those options, 4,125 have an exercise price
of $6.63 per share, 3,000 have an exercise price of $3.50 per share, 25,000
have an exercise price of $2.63 and 1,500 have an exercise price of $2.06
and 103,250 have an exercise price of $1.25. Also includes 37,504 shares
issuable upon the exercise of the Unit Purchase Option as described in (5).
(9) Each share of Class B Common Stock is convertible into one share of Class A
Common Stock automatically upon any sale or transfer thereof or at any time
at the option of the holder.
(10) Includes 56,369 shares of Class B Common Stock pledged to Steven J. Shear
of 2 Addison Avenue, Lynn, Massachusetts 01902, Bruce A. Shear's brother,
to secure the purchase price obligation of Bruce A. Shear in connection
with his purchase of his brother's stock in the Company in December 1988.
In the absence of any default under this obligation, Bruce A. Shear retains
full voting power with respect to these shares.
(11) Represents percentage of equity of class, based on numbers of shares listed
under the column headed "Amount and Nature of Beneficial Ownership". Each
share of Class A Common Stock is entitled to one vote per share and each
share of Class B Common Stock is entitled to five votes per share on all
matters on which stockholders may vote (except that the holders of the
Class A Common Stock are entitled to elect two members of the Company's
Board of Directors and holders of the Class B Common Stock are entitled to
elect all the remaining members of the Company's Board of Directors).
Based on the number of shares listed under the column headed "Amount and
Nature of Beneficial Ownership," the following persons or groups held the
following percentages of voting rights for all shares of common stock combined
as of October 16, 1998:
Bruce A. Shear ...............39.46%
J. Owen Todd....................0.7%
William F. Grieco...............0.8%
All Directors and Officers as a Group
(8 persons)...............41.42%
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and officers of the Company as of June 30, 1998 are as
follows:
Name Age Position
Bruce A. Shear................... 43 Director, President and Chief
Executive Officer
Robert H. Boswell................ 49 Executive Vice President
Paula C. Wurts................... 49 Controller, Assistant Clerk and
Assistant Treasurer
Gerald M. Perlow, M.D.(1)(2)..... 60 Director and Clerk
Donald E. Robar (1)(2)........... 61 Director and Treasurer
Howard W. Phillips............... 68 Director
William F. Grieco (1)............ 44 Director
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
All of the directors hold office until the annual meeting of stockholders
next following their election, or until their successors are elected and
qualified. The Compensation Committee reviews and sets executive compensation.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board. There are no family relationships among any of the
directors or officers of the Company.
Information with respect to the business experience and affiliations of the
directors and officers of the Company is set forth below.
BRUCE A. SHEAR has been President, Chief Executive Officer and a Director
of the Company since 1980 and Treasurer of the Company from September 1993 until
February, 1996. From 1976 to 1980 he served as Vice President, Financial
Affairs, of the Company. Mr. Shear has served on the Board of Governors of the
Federation of American Health Systems for over ten years. Mr. Shear received an
M.B.A. from Suffolk University in 1980 and a B.S. in Accounting and Finance from
Marquette University in 1976.
ROBERT H. BOSWELL has served as the Executive Vice President of the Company
since 1992. From 1989 until the spring of 1994 Mr. Boswell served as the
Administrator of the Company's Highland Ridge Hospital facility where he is
based. Mr. Boswell is principally involved with the Company's substance abuse
facilities. From 1981 until 1989, he served as the Associate Administrator at
the Prevention Education Outpatient Treatment Program--the Cottage Program,
International. Mr. Boswell graduated from Fresno State University in 1975 and
from 1976 until 1978 attended Rice University's doctoral program in philosophy.
Mr. Boswell is a Board Member of the National Foundation for Responsible Gaming
and the Chair for the National Center for Responsible Gaming.
PAULA C. WURTS has served as the Controller of the Company since 1989 and
as Assistant Treasurer since 1993 and as Assistant Clerk since January, 1996.
Ms. Wurts served as the Company's Accounting Manager from 1985 until 1989. Ms.
Wurts received an Associate's degree in Accounting from the University of South
Carolina in 1980, a B.S. in Accounting from Northeastern University in 1989 and
passed the examination for Certified Public Accountants. She received a Master's
Degree in Accounting from Western New England College in 1996.
GERALD M. PERLOW, M.D. has served as a Director of the Company since May
1993 and as Clerk since February, 1996. Dr. Perlow is a cardiologist in private
practice in Lynn, Massachusetts, and has been Associate Clinical Professor of
Cardiology at the Tufts University School of Medicine since 1972. Dr. Perlow is
a Diplomat of the National Board of Medical Examiners and the American Board of
Internal Medicine (with a subspecialty in cardiovascular disease) and a Fellow
of the American Heart Association, the American College of Cardiology, the
American College of Physicians and the Massachusetts Medical Center. From 1987
to 1990, Dr. Perlow served as the Director, Division of Cardiology, at
AtlantiCare Medical Center in Lynn, Massachusetts. From October 30, 1996 to
March 1, 1997, Dr. Perlow served as President and Director of Shliselberg
Physician Services, P.C. formerly Perlow Physicians, P.C. which has a management
contract with BSC. Dr. Perlow currently holds no ownership interest in
Shliselberg Physician Services, P.C. Dr. Perlow received compensation of $8,333
for the period. Dr. Perlow received a B.A. from Harvard College in 1959 and an
M.D. from Tufts University School of Medicine in 1963.
DONALD E. ROBAR has served as a Director of the Company since 1985 and as
the Treasurer since February, 1996. He served as the Clerk of the Company from
1992 to 1996. Dr. Robar has been a professor of Psychology since 1961, most
recently at Colby-Sawyer College in New London, New Hampshire. Dr. Robar
received an Ed.D. from the University of Massachusetts in 1978, an M.A. from
Boston College in 1968 and a B.A. from the University of Massachusetts in 1960.
HOWARD W. PHILLIPS has served as a Director of the Company since August 27,
1996 and has been employed by the Company as a public relations specialist since
August 1, 1995. From 1982 until October 31, 1995, Mr. Phillips was the Director
of Corporate Finance for D.H. Blair Investment Corp. From 1969 until 1981, Mr.
Phillips was associated with Oppenheimer & Co. where he was a partner and
Director of Corporate Finance. Mr. Phillips currently is a member of the Board
of Directors of Food Court Entertainment Network, Inc., an operator of shopping
mall television networks, and Telechips Corp., a manufacturer of visual phones.
WILLIAM F. GRIECO has served as a Director of the Company since February
18, 1997. Since November of 1995, he has served as Senior Vice President and
General Counsel for Fresenius Medical Care North America. From 1989 until
November of 1995, Mr. Grieco was a partner at Choate, Hall & Stewart. Mr. Grieco
is a member of the Board of Directors of Fresenius National Medical Care
Holdings, Inc. Mr. Grieco received a BS from Boston College in 1975, an MS in
Health Policy and Management from Harvard University in 1978 and a JD from
Boston College Law School in 1981.
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board held seven meetings (including telephonic meetings) during the
fiscal year 1998. During fiscal year 1998, each director attended at least 86%
of the aggregate of the total number of meetings of the Board (held during the
period for which he was a director) and the total number of meetings held by all
Board committees on which such director served (during the periods that he
served as a member). The Board has a standing audit committee and a standing
compensation committee, but does not have a standing nominating committee. The
audit committee is composed of Dr. Perlow, Mr. Robar and Mr. Grieco. The audit
committee held no meetings during fiscal year 1998. The principal functions of
the audit committee are to make recommendations to the Board regarding the
selection of the Company's independent accountants, to consult with the
Company's independent accountants and financial and accounting staff and to
review and report to the Board with respect to the scope of audit procedures,
accounting practices and internal accounting and financial controls. The
compensation committee is composed of Dr. Perlow and Mr. Robar. The compensation
committee held no meetings during fiscal year 1998. The principal functions of
the compensation committee are to review and make recommendations to the Board
on all compensation and hiring issues that relate to officers and senior staff
members.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Employment Agreements
The Company has not entered into any employment agreements with its
executive officers. The Company has acquired a $1,000,000 key man life insurance
policy on the life of Bruce A. Shear.
Executive Compensation
Two executive officers of the Company received compensation in the 1998
fiscal year which exceeded $100,000. The following table sets forth the
compensation paid or accrued by the Company for services rendered to these
executives in fiscal year 1998, 1997 and 1996:
Summary Compensation Table
Long
Term
Annual Compensation Compensation
Awards
____________________ ____________
(a) (b) (c) (d) (e) (g) (i)
Name and Other Securities All
Principal Year Salary Bonus Annual Underlying Other
Position ($) ($) Compensation Options/SARs Compensation
($) (#) ($)
Bruce A. Shear....1998 $309,167(1) -- $8,363(2) $51,256
President and 1997 $294,167(1) -- $12,633(3) --
Chief Executive 1996 $294,063(1) -- $10,818(4) --
Officer
Robert H. 1998 $102,750 -- $6,931(5) $14,149
Boswell...........1997 $ 92,750 -- $6,000(6) $6,821
Executive 1996 $ 80,667 $1,000 $23,750(7) $11,250
Vice President
(1) The last Board approved increase was effective July 1, 1995 to a base
salary of $310,000.
(2) This amount represents (i) $1,341 contributed by the Company to the
Company's Executive Employee Benefit Plan on behalf of Mr. Shear, (ii)
$4,768 in premiums paid by the Company with respect to life insurance for
the benefit of Mr. Shear, and (iii) $2,254 personal use of a Company car
held by Mr. Shear
(3) This amount represents (i) $2,687 contributed by the Company to the
Company's Executive Employee Benefit Plan on behalf of Mr. Shear, (ii)
$6,769 in premiums paid by the Company with respect to life insurance for
the benefit of Mr. Shear, and (iii) $3,177 personal use of a Company car
held by Mr. Shear.
(4) This amount represents (i) $2,650 contributed by the Company to the
Company's Executive Employee Benefit Plan on behalf of Mr. Shear, (ii)
$5,146 in premiums paid by the Company with respect to life insurance for
the benefit of Mr. Shear, and (iii) $3,022 for the personal use of a
Company car held by Mr. Shear.
(5) This amount represents (i) $6,000 automobile allowance, (ii) $408
contributed by the Company to the Company's Executive Employee Benefit Plan
on behalf of Mr. Boswell, (iii) $408 in other benefits paid by the Company
on behalf of Mr. Boswell and (iv) $115 in Class A Common Stock issued to
employees.
(6) This amount represents (i) an automobile allowance
(7) This amount represents (i) $3,750 automobile allowance, and (ii) $20,000
net gain from the exercise of options and subsequent sale of stock.
Stock Options Grants
The following table provides information about options granted to the Named
Executive Officers during fiscal 1998.
Individual Grants
_________________
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees or Base Price Expiration
Name Granted (#) in Fiscal Year ($/Share) Date
_______________________________________________________________________________
Bruce A. Shear. 50,000 22.0% $2.63 8/1/2002
Robert H. Boswell....10,000 4.4% $2.63(1) 8/1/2002
5,000 2.2% $2.00(1) 11/24/2002
(1) These options were repriced by the Board of Directors to $1.25 on September
15, 1998.
Option Exercises and Fiscal 1998 Year-End Values
The following table provides information about options exercised by the
Named Executive Officers during fiscal 1998.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
(a) (b) (c) (d) (e)
Value of
Number of Securities Unexercised
Underlying Unexercised In-the-Money
Options/SARs Options/SARs
Shares FY-End (#) FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name on (#) Realized ($) Unexcerisable Unexcerisable
_______________________________________________________________________________
Bruce A. -- -- 12,500/37,500 $0/$0
Shear.......
Robert H. -- -- 47,600/34,000 $0/$0
Boswell.....
<PAGE>
Compensation of Directors
Directors who are employees of the Company receive no compensation for
services as members of the Board. Directors who are not employees of the Company
receive $2,500 stipend per year and $1,000 for each Board meeting they attend.
In addition, directors of the Company are entitled to receive certain stock
option grants under the Company's Non-Employee Director Stock Option Plan (the
"Director Plan"). In fiscal year 1998 two members of the board of directors of
the Company served on a board of directors of another entity. Mr. Phillips is a
member of the Board of Directors of Food Court Entertainment Network, Inc., an
operator of shopping mall television networks, and Telechips Corp., a
manufacturer of visual phones and Mr. Grieco is a member of the Board of
Directors of Fresenius National Medical Core Holdings, Inc. No other executive
officers or directors of the Company served on a board of directors of any other
entity.
ELECTION OF DIRECTORS
The members of the Board of Directors elected at the Annual Meeting will be
classified into two classes of directors. Two directors will be elected by the
holders of the Company's Class A Common Stock (the "Class A Directors") and the
balance of the directors will be elected by the holders of the Company's Class B
Common Stock (the "Class B Directors"). The terms of the present directors
expire at the Annual Meeting or when the successors are chosen and qualified, if
later. The Board of Directors has fixed at five the number of directors to be
elected at the Annual Meeting.
The nominees for Class A Directors for election at the Annual Meeting are
Donald E. Robar and Gerald M. Perlow. The nominees for Class B Directors for
election at the Annual Meeting are Bruce A. Shear, Howard W. Phillips and
William F. Grieco. The proxy for holders of Class A Common Stock will be voted
to elect as Class A Directors the two nominees (Donald E. Robar and Gerald M.
Perlow), unless authority to vote for the election of directors is withheld by
marking the proxy to that effect or the proxy is marked with the names of
directors as to whom authority to vote is withheld. The proxy for holders of
Class B Common Stock will be voted to elect as Class B Directors the three
nominees (Bruce A. Shear, Howard W. Phillips and William F. Grieco), unless
authority to vote for the election of directors is withheld by marking the proxy
to that effect. Donald E. Robar, Gerald M. Perlow, Bruce A. Shear, Howard W.
Phillips and William F. Grieco are presently directors of the Company and have
consented to serve if reelected.
Each director will be elected to hold office until the next annual meeting
of stockholders following the 1998 Annual Meeting (1999) and until his successor
is elected and qualified. If a nominee becomes unavailable, the proxy may be
voted, unless authority has been withheld as to the nominee, for the election of
a substitute.
THE BOARD RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR.
AMENDMENT TO THE 1993 EMPLOYEE STOCK PURCHASE AND OPTION PLAN
On September 15, 1998, the Board of Directors of the Company adopted an
amendment to the 1993 Employee Stock Purchase and Option Plan (the "Stock Plan")
to increase the maximum number of shares of Common Stock available for issuance
thereunder from 400,000 to 1,000,000 shares. The purpose of the increase is to
permit the continuing grant of stock options to employees, officers, directors
and consultants which the Board of Directors believes is necessary to continue
to attract and retain such persons, particularly in view of the fact that the
Company's business is dependent upon its human resources. If the amendment to
the stock plan is approved by the stock holders, the Company may grant 17,500
options to the current optionholders under the Company's non-employee Director
Stock Plan (the "Director Plan"). The executive officers and directors of the
Company are eligible to receive options and restricted stock under the Stock
Plan and will therefore benefit from such approval. The Company plans to
register the additional shares to be issued under the stock plan on the next
registration filed by the Company under the Securities Act of 1933.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE AMENDMENT TO THE 1993 EMPLOYEE STOCK PURCHASE AND OPTION PLAN
Description of the Company's Stock Plan
General. The Company's Stock Plan was adopted by the Board of Directors on
August 26, 1993 and approved by stockholders on November 30, 1993. The Company's
Stock Plan currently authorizes the grant of options to purchase a maximum of
400,000 shares of Class A Common Stock, subject to adjustment for stock splits
and similar capital changes.
The Stock Plan is administered by the Board of Directors. Under the Stock
Plan, the Board of Directors has the authority to select the recipients of
options or restricted stock and determine the terms of the options or restricted
stock granted, including: (i) the number of shares; (ii) option exercise terms;
(iii) the exercise or purchase price (which in the case of an incentive stock
option cannot be less than the fair market value of the Class A Common Stock on
the date of grant); (iv) the type and duration of transfer or other
restrictions; and (v) the time and form of payment for restricted stock and upon
exercise of options. Generally, an option is not transferable by the option
holder except by will or by the laws of descent and distribution. Also,
generally, no incentive stock option may be exercised more than 60 days
following termination of employment. In the event that termination is due to
death or disability, however, the option is exercisable for a period of one year
following such termination. Options granted to date generally become exercisable
in equal installments over a three-year period on the first, second and third
anniversaries of the grant date and expire on the fifth anniversary of the grant
date.
As of October 16, 1998, the Company had issued options to purchase an
aggregate of 386,250 shares of Class A Common Stock. The exercise prices of all
options granted through October 16, 1998 have ranged from $1.25 to $3.50 per
share. The last sale price of the Class A Common Stock on October 16, 1998 as
reported by the Nasdaq National Market was $.875 per share.
Federal Income Tax Information. Set forth below is a general summary of the
federal income tax consequences to the Company and to recipients who receive
options or restricted stock under the Stock Plan. The following summary is not
intended to be exhaustive, does not address certain special federal tax
provisions, and does not address state, municipal or foreign tax laws.
Tax Treatment of Non-Qualified Stock Options. Under Section 83 of the Code,
optionees realize no taxable income when a non-qualified stock option ("NSO") is
granted. Instead, the difference between the fair market value of the stock and
the option price paid is taxed as ordinary compensation income, on or after the
date on which the option is exercised. The difference is measured and taxed as
of the date of exercise if the stock is not subject at that time to a
"substantial risk of forfeiture," as defined in Section 83. To the extent that
the stock is subject to a substantial risk of forfeiture, the difference is
measured as of the date or dates on which the risk terminates. The Stock Plan
permits the Compensation Committee to impose repurchase rights on stock acquired
upon exercise of options that would constitute such a "substantial risk of
forfeiture." If such repurchase rights are imposed, the optionee would recognize
taxable income and incur a tax liability, and the optionee's holding period for
tax purposes would commence, in the year or years that the substantial risk of
forfeiture terminates with respect to the stock.
Alternatively, an optionee holding an NSO may elect, within thirty days
after the option is exercised, in accordance with Section 83(b), to be taxed on
the difference between the option exercise price and the fair market value of
the stock on the date of exercise even though the stock acquired is subject to a
substantial risk of forfeiture. If the optionee makes this election, subsequent
changes in the value of the Common Stock at the time the forfeiture provisions
lapse will not result in ordinary compensation income to the optionee.
The Company receives no tax deduction on the grant of an NSO, but is
entitled to a tax deduction when the optionee recognizes taxable income on or
after exercise of the option, in the same amount as the income recognized by the
optionee.
Tax Treatment of Incentive Stock Options. Under Section 422 of the Code, an
optionee incurs no federal income tax liability on either the grant or
exercise of an incentive stock option ("ISO"). Provided that the stock is
held for at least one year after the date of exercise of the option and at
least two years after its date of grant, any gain realized on the
subsequent sale of stock will be taxed as long-term or mid-term capital
gain depending on the holding period since the date of exercise. If the
stock is disposed of within a shorter period, the optionee will be taxed,
with respect to the gain realized, as if he or she had then received
ordinary compensation income in an amount equal to the difference between
the fair market value of the stock on the date of exercise of the option
and its fair market value on the date on which the option was granted. The
balance of the gain realized will be taxed as capital gain, long-term,
mid-term or short-term depending on the holding period since the date of
exercise.
The Company receives no tax deduction on the grant or exercise of an ISO,
but is entitled to a tax deduction if the optionee recognizes ordinary
compensation income on account of a premature disposition of ISO stock in
the same amount and at the same time as the optionee's recognition of
income.
Tax Treatment of Purchases of Restricted Stock. An employee or consultant
who receives a grant of restricted stock generally will not recognize
taxable income at the time such stock is received, but will recognize
ordinary compensation income when the transfer and forfeiture restrictions
lapse in an amount equal to the excess of the aggregate fair market value,
as of the date the restrictions lapse, over the amount, if any, paid by the
employee or consultant for the restricted stock. Alternatively, an employee
or consultant receiving restricted stock may elect, in accordance with
Section 83(b) of the Code, to be taxed on the excess of the fair market
value of the shares of restricted stock at the time of grant over the
amount, if any, paid by the employee or consultant, notwithstanding the
transfer and forfeiture restrictions on the stock. All such taxable amounts
are deductible by the Company at the time and in the amount of the ordinary
compensation income recognized by the employee or consultant. The full
amount of dividends or other distributions of property made with respect to
restricted stock prior to the lapse of the transfer and forfeiture
restrictions will constitute ordinary compensation income to the employee
or consultant and the Company will be entitled to a deduction at the same
time and in the same amount.
APPROVAL OF AUDITORS
The Board has selected the firm of BDO Seidman, LLP, independent certified
public accountants, as auditors of the Company for the fiscal year ending
June 30, 1999 and is submitting the selection to stockholders for approval.
The Board recommends a vote "FOR" this proposal. Unless the proxy indicates
otherwise, the shares represented by the enclosed proxy will be voted to
approve such selection.
Although there is no legal requirement that this matter be submitted to a
vote of stockholders, the Board believes that the selection of independent
auditors is of sufficient importance to seek stockholder ratification. In
the event BDO Seidman, LLP is not ratified by the affirmative vote of the
holders of shares representing a majority of the votes cast at the Annual
Meeting, the Board may reconsider its selection. A representative of BDO
Seidman, LLP is expected to attend the Annual Meeting. Such representative
will have an opportunity to make a statement and will be available to
respond to appropriate questions from stockholders.
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE ABOVE SELECTION
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Except as set forth below, to the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and written
representations that no other reports were required during fiscal year 1998, the
Company's directors, officers and grater than 10% beneficial owners complied
with all applicable Section 16(a) filing requirements.
In fiscal year 1998, both Mr. Boswell and Ms. Wurts each failed to file a
Form 4 within the prescribed time limits relating to shares of Class A Common
Stock issued to them on March 30, 1998.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
For approximately the last ten years, Bruce A. Shear, a director and the
President and Chief Executive Officer of the Company, and persons affiliated and
associated with him have made a series of unsecured loans to the Company and its
subsidiaries to enable them to meet ongoing financial commitments. The
borrowings generally were entered into when the Company did not have financing
available from outside sources and, in the opinion of the Company, were entered
into at market rates given the financial condition of the Company and the risks
of repayment at the time the loans were made. As of June 30, 1998, the Company
owed an aggregate of $159,496 to related parties.
During the period ended June 30, 1998, the Company paid Mr. Shear and
affiliates approximately $126,950 in principal and accrued interest under
various notes. As of June 30, 1998, the Company owed Bruce A. Shear $39,496 on a
promissory note, which is dated March 31, 1994, matures on December 31, 1998 and
bears interest at the rate of 8% per year, payable quarterly in arrears, and
requires repayments of principal quarterly in equal installments and Tot Care,
Inc., an affiliate of Bruce A. Shear, $100,000 on promissory notes dated May 28,
1998 and June 9, 1998 which bear interest at the rate of 12% per year and are
payable on demand.
STOCKHOLDER PROPOSALS FOR 1998 MEETING
Proposals of stockholders intended to be presented and director nominations
intended to be made at the 1999 Annual Meeting of Stockholders must be received
by the Company at its principal office, 200 Lake Street, Suite 102, Peabody,
Massachusetts 01960, Attention: Paula C. Wurts, Assistant Clerk, not later than
July 26, 1999 for inclusion in the proxy statement for that meeting. Other
requirements for inclusion are set forth in Rule 14a-8 under the Securities
Exchange Act of 1934.
<PAGE>
OTHER MATTERS
The Board does not know of any other matters which may come before the
Annual Meeting. However, if any other matters are properly presented to the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise to act, in accordance with their judgment on such
matters.
All costs of solicitation of proxies by management will be borne by the
Company. In addition to solicitations by mail, the Company's directors, officers
and regular employees, without additional remuneration, may solicit proxies by
telephone or personal interviews. Brokers, custodians and fiduciaries will be
requested to forward proxy soliciting materials to the beneficial owners of the
Company's stock held in the names of such brokers, custodians and fiduciaries,
and the Company will reimburse them for their out-of-pocket expenses in this
connection.
By order of the Board of Directors
/s/ Paula C. Wurts, Assistant Clerk
November 18, 1998
The Board hopes that stockholders will attend the meeting, WHETHER OR NOT
YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A prompt response will greatly
facilitate arrangements for the meeting, and your cooperation will be
appreciated. Stockholders who attend the meeting may vote their stock personally
even though they have sent in their proxies.
<PAGE>
EXHIBIT A
Section 5. Action at a Meeting. Except as otherwise provided in the
Articles of Organization, the presence of a quorum shall be separately
determined with respect to each matter to be acted on at any meeting of
stockholders, and shall consist of the holders of shares having the right to
cast a majority of the votes which may be cast with respect to such matter
(including shares as to which a nominee has no voting authority as to certain
matters brought before the meeting).
Though less than a quorum be present, any meeting may without further
notice be adjourned to a subsequent date or until a quorum be had, and at any
such adjourned meeting any business may be transacted which might have been
transacted at the original meeting.
When a quorum is present at any meeting, the affirmative vote of shares
representing a majority of the votes which may be cast with respect to such
matter present or represented and voting shall be necessary and sufficient to
the determination of any questions brought before the meeting, unless a larger
vote is required by law, by the articles of organization or by these by-laws,
provided, however, that any election by stockholders shall be determined by a
plurality of the votes cast by the stockholders entitled to vote in such
election. Shares as to which a nominee has no voting authority as to a
particular question or questions brought before the meeting will not be deemed
to be cast with respect to such question or questions.
Except as otherwise provided by law or by the articles of organization or
by these by-laws, each holder of record of shares of stock entitled to vote on
any matter shall have one vote for each such share held of record by him and a
proportionate vote for any fractional shares so held by him. Stockholders may
vote either in person or by proxy. No proxy dated more than six months before
the meeting named therein shall be valid and no proxy shall be valid after the
final adjournment of such meeting. A proxy with respect to stock held in the
name of two or more persons shall be valid if executed by any one of them unless
at or prior to the exercise of the proxy the corporation receives a specific
written notice to the contrary from any one of them. A proxy purporting to be
executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving its invalidity
shall rest on the challenger.
Any election by stockholders and the determination of any other questions
to come before a meeting of the stockholders shall be by ballot if so requested
by any stockholder entitled to vote thereon but need not be otherwise.
<PAGE>
REVOCABLE PROXY - CLASS A COMMON STOCK
PHC, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
1998 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of PHC, Inc., a Massachusetts corporation, (the
"Company") hereby acknowledges receipt of the Notice of 1998 Annual Meeting of
Stockholders and Annual Report on Form 10-KSB for fiscal year ended June 30,
1998 and hereby appoints Bruce A. Shear and Paula C. Wurts, and both of them, as
proxies, with full power to each of substitution, and hereby authorizes either
of them to represent and to vote, as designated on the reverse side, all the
shares of Class A Common Stock of the Company held of record by the undersigned
on November 5, 1998 at the Annual Meeting of Stockholders to be held at 2:00
p.m. (Boston time), on December 23, 1998 at the Corporate offices of PHC, Inc.,
200 Lake Street, Suite 102, Peabody, Massachusetts 01960, and at any
adjournments or postponements thereof. The undersigned stockholder hereby
revokes any proxy or proxies heretofore given.
(Continued And To Be Signed And Dated On Reverse Side)
(BACK)
<PAGE>
FORM OF PROXY FOR CLASS A COMMON STOCK SHAREHOLDERS
(WHITE)
[X} Please mark your
votes as in this
example.
FOR AGAINST ABSTAIN
2. To approve an [ ] [ ] [ ]
WITHHOLD amendment to the
FOR AUTHORITY Company's 1993 Stock Purchase and
Nominees: Option Plan to increase the
Donald E. Robar maximum number of shares which may
Gerald M. Perlow be issued under the plan from
400,000 to 1,000,000 shares.
1. To elect Donald E. [ ] [ ]
Robar and Gerald M. Perlow as the FOR AGAINST ABSTAIN
Class A Directors of the Company, 3. To ratify the [ ] [ ] [ ]
each to hold the office until selection by Board of Directors of
the annual meeting next following BDO Seidman, LLP as the Company's
his election: independent auditors for the 1999
fiscal year.
For, all nominees except as noted below. 4. In their discretion, the Proxies
are authorized to vote upon such
other matters as may prpperly come
before the meeting or any
adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED,
WILL BE VOTED IN THE MANNER
DIRECTED, OR IF NO DIRECTION IS
MADE, FOR SUCH PROPOSALS, AND IN
ACCORDANCE WITH THE DETERMINATION
OF THE PROXY HOLDERS AS TO OTHER
MATTERS. THE UNDERSIGNED
STOCKHOLDER HEREBY ACKNOWLEDGES
RECEIPT OF THE NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT.
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
SIGNATURE DATE DATE
(SIGNATURE IF HELD JOINTLY)
_______________________________________________________________________________
Note: Please sign exactly as name appears on this proxy. All joint owners should
sign. When signing as attorney, executor, administrator, trustee, guardian or
custodian for a minor, please give your full title as such. If a corporation,
please sign full corporate name and indicate signer's office. If a partner sign
in the partnership name.
(FRONT)
<PAGE>
REVOCABLE PROXY - CLASS B COMMON STOCK
PHC, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
1998 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of PHC, Inc., a Massachusetts corporation, (the
"Company") hereby acknowledges receipt of the Notice of 1998 Annual Meeting of
Stockholders and Annual Report on Form 10-KSB for fiscal year ended June 30,
1998 and hereby appoints Bruce A. Shear and Paula C. Wurts, and both of them, as
proxies, with full power to each of substitution, and hereby authorizes either
of them to represent and to vote, as designated on the reverse side, all the
shares of Class B Common Stock of the Company held of record by the undersigned
on November 5, 1998 at the Annual Meeting of Stockholders to be held at 2:00
p.m. (Boston time), on December 23, 1998 at the Corporate offices of PHC, Inc.,
200 Lake Street, Suite 102, Peabody, Massachusetts 01960, and at any
adjournments or postponements thereof. The undersigned stockholder hereby
revokes any proxy or proxies heretofore given.
(Continued And To Be Signed And Dated On Reverse Side)
(BACK)
<PAGE>
FORM OF PROXY FOR CLASS B COMMON STOCK SHAREHOLDERS
(BLUE)
[X} Please mark your
votes as in this
example.
FOR AGAINST ABSTAIN
2. To approve an [ ] [ ] [ ]
WITHHOLD amendment to the
FOR AUTHORITY Company's 1993 Stock Purchase and
Nominees: Option Plan to increase the
Bruce A. Shear maximum number of shares which may
Howard W. Phillips be issued under the plan from
William F. Grieco 400,000 to 1,000,000 shares.
1. To elect Bruce A. [ ] [ ]
Shear, Howard W. Phillips and
William F. Grieco as the FOR AGAINST ABSTAIN
Class B Directors of the Company, 3. To ratify the [ ] [ ] [ ]
each to hold the office until selection by Board of Directors of
the annual meeting next following BDO Seidman, LLP as the Company's
his election: independent auditors for the 1999
fiscal year.
For, all nominees except as noted below. 4. In their discretion, the Proxies
are authorized to vote upon such
other matters as may prpperly come
before the meeting or any
adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED,
WILL BE VOTED IN THE MANNER
DIRECTED, OR IF NO DIRECTION IS
MADE, FOR SUCH PROPOSALS, AND IN
ACCORDANCE WITH THE DETERMINATION
OF THE PROXY HOLDERS AS TO OTHER
MATTERS. THE UNDERSIGNED
STOCKHOLDER HEREBY ACKNOWLEDGES
RECEIPT OF THE NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT.
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
SIGNATURE DATE DATE
(SIGNATURE IF HELD JOINTLY)
_______________________________________________________________________________
Note: Please sign exactly as name appears on this proxy. All joint owners should
sign. When signing as attorney, executor, administrator, trustee, guardian or
custodian for a minor, please give your full title as such. If a corporation,
please sign full corporate name and indicate signer's office. If a partner sign
in the partnership name.
(FRONT)
