As Filed with the Securities and Exchange Commission on July , 2000
Registration No.
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT ON FORM S-3
UNDER THE SECURITIES ACT OF 1933
PHC, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction of incorporation or organization)
04-2601571
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(I.R.S. Employer Identification No.)
BRUCE A. SHEAR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PHC, INC.
200 LAKE STREET - SUITE 102
PEABODY, MASSACHUSETTS 01960
(978) 536-2777
(Address and telephone number of principal executive offices)
with a copy to:
ARNOLD WESTERMAN
ARENT FOX KINTNER PLOTKIN & KAHN, PPLC
1050 CONNECTICUT AVENUE, NW
WASHINGTON, DC 20036
(202) 857-6000
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than offered only in connection with dividend or interest
reinvestment plans, check the following box. [ X ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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C A L C U L AT I ON O F R E G I S T R A T I ON F E E
NUMBER OF PROPOSED PROPOSED AMOUNT OF
TITLE OF EACH CLASS SHARES MAXIMUM MAXIMUM REGISTRATION
OF SECURITIES TO BE BEING OFFERING PRICE AGGREGATE FEE
REGISTERED REGISTERED PER SHARE OFFERING PRICE
Class A Common Stock,
$.01 par value 1,408,018 $1.25 $1,760,023 $533.34
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SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
PHC, INC.
PIONEER BEHAVIORAL HEALTH
1,408,018 SHARES OF CLASS A COMMON STOCK
This prospectus covers the sale from time to time of shares of the
company's class A common stock, issuable on conversion of 136,000 shares of
series C convertible preferred stock and the exercise of warrants to purchase
125,000 shares of class A common stock by a selling security holder.
The company will only receive proceeds if warrants are exercised. Such
funds will be added to working capital. All other proceeds will be realized by
the selling security holder. The company is obligated to pay all of the expenses
incident to the prospectus estimated to be approximately $25,000.
The class A common stock trades in the over-the-counter market and current
prices are available on the Nasdaq SmallCap market under the symbol PIHC. On
July 5, 2000, the closing bid price of the class A common stock was $1.25.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" AT PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 2000
OUR COMPANY
Our company is a national health care company, which provides psychiatric
services primarily to individuals who have alcohol and drug dependency, related
disorders and to individuals in the gaming and trucking industry. We operate
substance abuse treatment facilities in Utah and Virginia, four outpatient
psychiatric facilities in Michigan, two outpatient psychiatric facilities in
Nevada and an inpatient psychiatric facility in Michigan. We also provide
management and administrative services to psychotherapy and psychological
practices in New York and operate a website, Behavioralhealthonline.com, which
provides education, training and materials to behavioral health professionals.
Our company provides behavioral health- services and products through inpatient
and outpatient facilities and online to behavioral health professionals. Our
substance abuse facilities provide specialized treatment services to patients
who typically have poor recovery prognoses and who are prone to relapse. These
services are offered in small specialty care facilities, which permit us to
provide our clients with efficient and customized treatment without the
significant costs associated with the management and operation of general acute
care hospitals. We tailor these programs and services to "safety-sensitive"
industries and concentrate our marketing efforts on the transportation, oil and
gas exploration, heavy equipment, manufacturing, law enforcement, gaming and
health services industries. Our psychiatric facility provides inpatient
psychiatric care and intensive outpatient treatment, referred to as partial
hospitalization, to children, adolescents and adults. Our outpatient mental
health clinics provide services to employees of major employers, as well as to
managed care, Medicare and Medicaid clients. The psychiatric services are
offered in a larger, more traditional setting than PHC's substance abuse
facilities, enabling PHC to take advantage of economies of scale to provide
cost-effective treatment alternatives.
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The company treats employees who have been referred for treatment as a
result of compliance with Subchapter D of the Anti-Drug Abuse Act of 1988
(commonly known as the Drug Free Workplace Act), which requires employers who
are Federal contractors or Federal grant recipients to establish drug-free
awareness programs which, among other things, inform employees about available
drug counseling; rehabilitation and employee assistance programs. We also
provide treatment under the Department of Transportation implemented
regulations, which broaden the coverage and scope of alcohol and drug testing
for employees in "safety sensitive" positions in the transportation industry.
The company was incorporated in 1976 and is a Massachusetts corporation.
Our corporate offices are located at 200 Lake Street, Suite 102, Peabody, MA
01960 and our telephone number is (978) 536-2777.
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THE OFFERING
Securities Outstanding as of June 30, 2000:
Class A common stock 7,016,832
Class B common stock 726,991
Class C common stock 0
Preferred stock 136,000
Securities Offered 1,408,018 shares of class A common stock, of
which 1,283,018 are issuable on
conversion of preferred stock and
125,000 are issuable on exercise
of warrants.
NASDAQ Symbol PIHC
Proceeds to the company $ 375,000 Assuming the warrants are
exercised,
this amount will be added to our
working capital. All other
proceeds will be retained by the
selling security holder.
SUMMARY CONSOLIDATED FINANCIAL DATA
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
---------- -------------------
2000 1999 1999 1998
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STATEMENTS OF OPERATIONS DATA:
Revenue $14,851,592 $14,371,529 $19,139,496 $21,246,189
Operating expenses 14,738,446 14,605,109 19,691,234 24,346,787
---------- ---------- ---------- ----------
Income (loss) from operations 113,146 (233,580) (551,738) (3,100,598)
Other expense (129,356) (597,834) (742,914) (839,706)
Provision for taxes 53,289 44,635 59,434 219,239
-------- -------- ------- ---------
Loss from continuing $ (69,499) $(876,049) $(1,354,086) $(4,159,543)
operations
Loss from discontinued -- -- -- (2,220,296)
operations
Net Loss $ (69,499) $(876,049) $(1,354,086) $(6,379,839)
Dividends (589,514) (92,356) (142,110) (207,060)
Loss applicable to common $(659,013) $(968,405) $(1,496,196) $(6,586,899)
shares
Basic and diluted Loss per $ (0.10) $ (0.16) $ (0.25) $ (1.26)
common share
Basic and diluted weighted
average number of shares
outstanding 6,645,742 5,910,928 6,008,263 5,237,168
AS OF
MARCH 31, 2000
BALANCE SHEET DATA:
Total assets $ 15,612,856
Working capital (deficit) (2,553,482)
Long-term obligations 2,040,479
Stockholders' equity 3,280,164
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RISK FACTORS
An investment in the securities offered hereby is speculative in nature
and involves a high degree of risk. In addition to the other information in this
prospectus, the following risk factors should be considered carefully in
evaluating whether to invest in the securities offered hereby.
OPERATING RISKS
THE CONCENTRATION OF ACCOUNTS RECEIVABLE DUE FROM GOVERNMENT PAYORS COULD
CREATE A SEVERE CASH FLOW PROBLEM SHOULD THESE AGENCIES FAIL TO MAKE TIMELY
PAYMENT. We had substantial receivables from Medicaid and Medicare of
approximately $155,000 at March 31,2000 and $400,000 at June 30, 1999, which
would create a cash flow problem should these agencies defer or fail to make
reimbursement payments as due, which would require us to borrow at unfavorable
rates.
IF MANAGED CARE ORGANIZATIONS DELAY APPROVING TREATMENT, OR REDUCE THE
PATIENT LENGTH OF STAY OR NUMBER OF VISITS OR REIMBURSEMENT, OUR COMPANY'S
ABILITY TO MEET OPERATING EXPENSES IS AFFECTED. As managed care organizations
and insurance companies adopt policies that limit the length of stay for
substance abuse treatment, our business is materially adversely affected since
our revenues and cash flow go down and our fixed operating expenses continue.
Reimbursement for substance abuse and psychiatric treatment from private
insurers is largely dependent on our ability to substantiate the medical
necessity of treatment. The process of substantiating a claim often takes up to
four months and sometimes longer; as a result, we experience significant delays
in the collection of amounts reimbursable by third-party payors, which adversely
affects our working capital condition.
AS OUR ACCOUNTS RECEIVABLE AGE AND BECOME UNCOLLECTABLE OUR CASH FLOW IS
NEGATIVELY IMPACTED. Our accounts receivable (net of allowance for bad debts)
increased to $7,273,608 on March 31, 2000 from $6,214,663 at December 31, 1999
due to an increase of approximately $1,435,000 in net revenue from patient care
for the quarter ended March 31, 2000 over the quarter ended December 31, 1999.
Our accounts receivable (net of allowance for bad debts) were $6,214,663 at
December 31, 1999 compared with $6,938,227 at June 30, 1999 and $8,126,972 at
June 30, 1998. As we expand, we will be required to seek payment from a larger
number of payors and the amount of accounts receivable will likely increase. The
overall decrease in current accounts receivable through December 31, 1999 was
due primarily to significant increases in reserves due to our more aggressive
reserve policies established in June 1997. If the amount of receivables, which
eventually become uncollectible, exceeds such reserves, we could be materially
adversely affected. In addition, any decrease in our ability to collect our
accounts receivable or any further delay in the collection of accounts
receivable would have a material adverse effect on our results of operations.
See the Consolidated Financial Statements and notes related thereto included
herein or incorporated herein by reference.
DUE TO THE COMPANY'S CURRENT HIGH DEBT TO EQUITY RATIO AND RECENT LOSSES
FROM OPERATIONS, IF THE COMPANY NEEDS ADDITIONAL FINANCING IT MAY REQUIRE
BORROWING AT UNFAVORABLE RATES. We are utilizing, to the maximum extent, our
accounts receivable funding facilities, which bear interest at the prime rate
plus 2.25%, to meet our current cash needs. Should we require additional funds
to meet our cash flow requirements or to fund growth or new investments, we may
be required to meet these needs with more costly financing. If we are unable to
obtain needed financing, it could have a material adverse effect on our
financial condition, operations and business prospects. See Consolidated
Financial Statements and related notes included or incorporated into this
prospectus by reference.
THE COMPANY'S RELIANCE ON CONTRACTS WITH KEY CLIENTS TO MAINTAIN
SUFFICIENT PATIENT CENSUS WOULD IMPACT OUR ABILITY TO MEET OUR FIXED COSTS
SHOULD ONE OR MORE OF THESE CLIENTS CANCEL CONTRACTS OR BE UNABLE TO PAY FOR
SERVICES RENDERED. We have entered into relationships with large employers,
health care institutions and labor unions to provide treatment for psychiatric
disorders, chemical dependency and substance abuse in conjunction with
employer-sponsored employee assistance programs. The employees of such
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institutions may be referred to us for treatment, the cost of which is
reimbursed on a per diem or per capita basis. Approximately 30% of our total
revenue is derived from these key clients. No one of these large employers,
health care institutions or labor unions individually accounts for 10% or more
of our consolidated revenues, the loss of any of these key clients would require
us to expend considerable effort to replace patient referrals and would result
in revenue losses and attendant loss in income.
CONTROL OF THE HEALTHCARE INDUSTRY EXERCISED BY FEDERAL, STATE AND LOCAL
REGULATORY AGENCIES CAN INCREASE COSTS, ESTABLISH MAXIMUM REIMBURSEMENT LEVELS
AND LIMIT EXPANSION. Our company and the health care industry are subject to
rapid regulatory change with respect to licensure and conduct of operations at
existing facilities, construction of new facilities, acquisition of existing
facilities, the addition of new services, compliance with physical plant safety
and land use requirements, implementation of certain capital expenditures,
reimbursement for services rendered and periodic government inspections.
Governmental budgetary restrictions have resulted in limited reimbursement rates
in the healthcare industry including our company. As a result of these
restrictions we cannot be certain that payments under government programs will
remain at a level comparable to the present level or be sufficient to cover the
costs allocable to such patients. In addition, many states, including the State
of Michigan, are considering reductions in state Medicaid budgets.
INSURANCE COMPANIES AND MANAGED CARE ORGANIZATIONS ARE ENTERING INTO SOLE
SOURCE CONTRACTS WITH HEALTHCARE PROVIDERS, WHICH COULD LIMIT OUR ABILITY TO
OBTAIN PATIENTS. Private insurers, managed care organizations and, to a lesser
extent, Medicaid and Medicare, are beginning to carve-out specific services,
including mental health and substance abuse services, and establish small,
specialized networks of providers for such services at fixed reimbursement
rates. Continued growth in the use of carve-out systems could materially
adversely affect our business to the extent we are not selected to participate
in such smaller specialized networks or if the reimbursement rate is not
adequate to cover the cost of providing the service.
IF WE ACQUIRE NEW BUSINESSES OR EXPAND OUR BUSINESSES, THE OPERATING COSTS
MAY BE FAR GREATER THAN REVENUES FOR A SIGNIFICANT PERIOD OF TIME. The operating
losses and negative cash flow associated with start-up operations or
acquisitions could have a material adverse effect on our profitability and
liquidity unless and until such facilities are fully integrated with our other
operations and become self sufficient. Until such time we may be required to
borrow at higher rates and less favorable terms.
THE LIMITED NUMBER OF HEALTHCARE PROFESSIONALS IN THE AREAS IN WHICH WE
OPERATE MAY CREATE STAFFING SHORTAGES. Our success depends, in large part, on
our ability to attract and retain highly qualified personnel, particularly
skilled health care personnel, which are in short supply. We face competition
for such personnel from governmental agencies, health care providers and other
companies and are constantly increasing our employee benefit programs, and
related costs, to maintain required levels of skilled professionals. These
increasing costs impact our profitability.
MANAGEMENT RISKS
BRUCE A. SHEAR IS IN CONTROL OF THE COMPANY SINCE HE IS ENTITLED TO ELECT
AND REPLACE A MAJORITY OF THE BOARD OF DIRECTORS. Bruce Shear and his affiliates
own and control 92.3% of the class B common stock which elects three of the five
members of the Board of Directors. Bruce Shear can establish, maintain and
control business policy and decisions by virtue of his control of the board of
directors.
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RETENTION OF KEY PERSONNEL WITH KNOWLEDGE OF KEY CONTRACTS AND CLIENTS IS
ESSENTIAL TO THE SUCCESS OF THE COMPANY. PHC is highly dependent on the
principal members of its management and professional staff, particularly Bruce
A. Shear, PHC's President and Chief Executive Officer, Robert H. Boswell, PHC's
Senior Vice President and the other members of PHC's management and their
continued relationship with key clients.
MARKET RISKS
THE NASDAQ STOCK MARKET MAY DELIST THE COMPANY'S STOCK FROM THE NASDAQ
EXCHANGE IF THE COMPANY FAILS TO MEET LISTING REQUIREMENTS. The Nasdaq staff has
notified us of its concern regarding the continued listing of our Common Stock
on the Nasdaq SmallCap Market based on our failure to maintain a minimum bid
price greater than $1.00 over thirty consecutive trading days as required.
Nasdaq has also advised us that we are not in compliance with the required Net
Tangible Assets for listing. We believe that we are now in compliance with the
minimum bid price requirement since our bid price for Common Stock has closed
higher than $1.00 for the past fifteen trading days. We have discussed the net
tangible asset requirement with the Nasdaq and believe that we will be in
compliance with this requirement following the close of our current fiscal year.
We are awaiting response from the Nasdaq as to whether it will grant us the time
required to get into compliance with this requirement.
SHOULD THE COMPANY'S SECURITIES BE DELISTED FROM THE NASDAQ STOCK MARKET,
STOCKHOLDERS MAY HAVE DIFFICULTY SELLING THE STOCK. If our Common Stock is
delisted from Nasdaq, the Common Stock would be traded on the bulletin board.
Cost of trading on the bulletin board can be more than the cost of trading on
the SmallCap market and since there may be an absence of market makers on the
bulletin board the price may be more volatile and it may be harder to sell the
securities.
IF OUR COMMON STOCK IS NOT ACTIVELY TRADED, THE SMALL NUMBER OF TRANSACTIONS
CAN RESULT IN SIGNIFICANT SWINGS IN THE MARKET PRICE, AND IT MAY BE DIFFICULT
FOR STOCKHOLDERS TO DISPOSE OF STOCK IN A TIMELY WAY AT A DESIRABLE MARKET PRICE
OR MAY RESULT IN PURCHASING OF SHARES FOR A HIGHER PRICE.
OUR RIGHT TO ISSUE CONVERTIBLE PREFERRED STOCK MAY ADVERSELY AFFECT THE
RIGHTS OF THE COMMON STOCK. Our Board of Directors has the right to establish
the preferences for and issue up to 1,000,000 shares of preferred stock without
further stockholder action. The terms of any series of preferred stock, which
may include priority claims to assets and dividends and special voting rights,
could adversely affect the market price of and the ability to sell common stock.
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AVAILABLE INFORMATION
The company filed a registration statement with the Securities and
Exchange Commission covering the securities offered. This prospectus does not
contain all of the information set forth in the registration statement and the
related exhibits and schedules. For further information with respect to the
company and the securities being offered, see the registration statement, and
related exhibits and schedules. Copies of these documents are available for
review at the public reference facilities maintained at the principal office of
the Commission at 450 Fifth Street, N. W., Room 1024, Washington D.C. 20549 and
at the Commission's regional offices at 7 World Trade Center, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You may obtain information on the operation of the
public reference facilities by calling the Commission at 1-800-SEC-0330. Copies
of such materials are available upon written request from the public reference
section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains an Internet site that contains
reports, proxy and information statements and other information about PHC that
is filed electronically at http:\\WWW.SEC.GOV. Reference is made to the copies
of any contracts or other documents filed as exhibits to the registration
statement.
The company is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith files reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information are available for inspection and copying at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can be obtained at prescribed
rates from the Commission at such address. Such reports, proxy statements and
other information can also be inspected at the Commission's regional offices at
7 World Trade Center, New York, New York 10048 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
A copy of our Annual Report on Form 10-KSB for the year ended June 30,
1999, as filed with the Commission, is available upon request, without charge,
by writing to PHC, Inc., 200 Lake Street, Suite 102, Peabody, Massachusetts
01960, Attention: Bruce A. Shear.
We furnish our stockholders and warrant holders with annual reports
containing audited financial statements and such other periodic reports as we
may from time to time deem appropriate or as may be required by law.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated herein by reference and made a part of this prospectus are
the following: (1) our Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1999 filed with the Commission on October 13, 1999 as amended on
October 20, 1999 and November 29, 1999; (2) our Proxy Statement filed with the
Commission on November 18, 1999; (3) our Quarterly Report on Form 10-QSB for the
quarters ended September 30, 1999 filed with the Commission on November 15,
1999, December 31, 1999 filed with the Commission on February 14, 2000 as
amended on May 3, 2000 and May 9, 2000 and March 31, 2000 filed with the
Commission on May 12, 2000 as amended on June 1, 2000; and (4) the description
of the Class A Common Stock, which is registered under Section 12 of the
Exchange Act, contained in the company's Registration Statement on Form 8-A
dated December 17, 1993, and the amendment thereto on Form 8-A/A dated March 2,
1994. All documents subsequently filed by the company with the Commission, as
required by Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this prospectus and prior to the termination of the offering, will be
deemed to be incorporated by reference into this prospectus and to be a part of
this prospectus from the respective dates of filing of such documents. Any
statement contained in any document incorporated by reference shall be deemed to
be modified or superseded for purposes of this prospectus to the extent that a
statement contained in this prospectus or in any other subsequently filed
document which also is or is deemed to be incorporated by reference modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
prospectus. All information appearing in this prospectus is qualified in its
entirety by the information and financial statements (including notes to the
financial statements) appearing in the documents incorporated by reference,
except to the extent set forth in the immediately preceding statement.
The company will provide without charge to each person who receives a
prospectus, upon written or oral request of such person, a copy of the
information that is incorporated by reference herein. Requests for such
information should be directed to: PHC, Inc., 200 Lake Street, Suite 102,
Peabody, Massachusetts 01960, Attention: Bruce A. Shear.
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SELLING SECURITY HOLDER
The Shaar Fund, LTD acquired 136,000 shares of series C convertible
preferred stock and warrants to purchase 125,000 shares of class A common stock
from the company in June 2000. This prospectus registers the shares of common
stock issuable upon conversion of the preferred stock and exercise of the
warrants.
SHARES OF CLASS A
COMMON STOCK
BENEFICIALLY
OWNED OR ISSUABLE
ON CONVERSION OF
OUTSTANDING
CONVERTIBLE
NAME, ADDRESS AND SECURITIES BEFORE WARRANTS TO NUMBER OF
PRIMARY CONTACT OF THE OFFERING PURCHASE SHARES SHARES OF
SELLING SECURITY EXCLUSIVE OF OF CLASS A CLASS A COMMON
HOLDER WARRANTS COMMON STOCK STOCK OFFERED
_______________________________________________________________________________
EXERCISE EXPIRATION
NUMBER PRICE DATE
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The Shaar Fund Ltd. 1,283,018 125,000 $3.00 6/28/2003 1,408,018
Samuel Levinson
c/o Levinson Capital Mgmt
2 World Trade Center
Suite 1820
New York, NY 10048
On June 28, 2000 the company entered into a securities purchase agreement
with The Shaar Fund, LTD, an investor. As a result of this transaction, the
Investor acquired a warrant to purchase 125,000 shares of class A common stock
and 136,000 shares of series C 8% convertible preferred stock for $1,000,000.
The investor is required to purchase an additional 34,000 shares of series C
preferred stock as provided in the agreement for $250,000.
Each share of preferred stock may be converted, in whole or in part, at
any time following the earlier of 180 days after the Closing Date and the
effective date of this prospectus.
The number of shares of common stock issuable upon conversion of each share
of preferred stock is calculated by multiplying the number of shares of
preferred stock to be converted by the stated value of $10.00, plus accrued and
unpaid dividends and divided by the applicable conversion price calculated as
described below. For the purpose of this filing we are assuming the conversion
price was $1.06 on the date of the transaction.
The conversion price is equal to the lesser of 125% of the closing bid
price for the Common Stock on the closing date of the agreement (subject to
adjustment for any stock-split or stock combination to occur after the date of
the agreement) and 97% of the market price (the arithmetic mean of the closing
bid prices of the common stock as reported on Nasdaq for the five consecutive
trading days on which the lowest closing bid prices are reported during any
valuation period) on the date of conversion; PROVIDED that any unconverted
preferred stock remaining 211 days after the closing date may be converted at a
conversion price per share of common stock equal to 94% of the market price;
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PROVIDED, FURTHER, that any unconverted preferred stock remaining 271 days after
the closing date may be converted at a conversion price per share of common
stock equal to 91% of the market price; and PROVIDED, FURTHER, that if the
common stock is delisted off Nasdaq for any reason, then any remaining
unconverted preferred stock may be converted at a conversion price per share of
common stock equal to 50% of the market price. At the company's option, the
amount of accrued and unpaid dividends as of the date of a conversion (whether
or not earned or declared, whether or not there were funds legally available for
the payment of dividends and whether or not a dividend payment due date has
occurred since the last dividend payment) shall not be subject to conversion but
instead may be paid in cash as of the conversion date; if the company elects to
convert the amount of such accrued and unpaid dividends at the conversion date
into common stock, the common stock issued to the investor shall be valued at
the applicable conversion price.
Conversion of the preferred stock is subject to limitations by the
agreement as follows. The investor shall not have the right, and the company
shall not have the obligation, to convert all or any portion of the preferred
stock (and the company shall not have the right to pay dividends on the
preferred stock in shares of common stock) if and to the extent that the
issuance to the investor of shares of common stock upon such conversion (or
payment of dividends) would result in the investor being deemed the "beneficial
owner" of more than 5% of the then outstanding shares of common stock within the
meaning of Section 13(d) of the Securities Exchange Act.
The agreement further provides that if and to the extent that, on any
date, the holding by the investor of shares of the preferred stock would result
in the investor's becoming subject to the provisions of Section 16(b) of the
Exchange Act in virtue of being deemed the "beneficial owner" of more than 10%
of the then outstanding shares of common stock, then the investor shall not have
the right, and the company shall not have the obligation, to convert so many of
the shares of preferred stock that it would cause the investor to be deemed the
beneficial owner of more than 10% of the then outstanding shares of common stock
during the period ending 60 days after the Section 16 determination date.
Finally, the company shall not issue shares of common stock upon conversion
of any shares of preferred stock or as a dividend on the preferred stock, if
such issuance of common stock, when added to the number of shares of common
stock previously issued by the company upon conversion of shares of the
Preferred Stock, upon exercise of the Warrant and in payment of dividends on the
preferred stock, would equal or exceed 20% of the number of shares of the common
stock issued and outstanding on the date of issuance of the preferred stock.
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PLAN OF DISTRIBUTION
The class A common stock offered hereby may be sold from time to time in
the over the counter market through underwriters, dealers, brokers or other
agents. PHC will receive $375,000 if the warrants to purchase 125,000 shares
being registered are exercised; however, PHC will receive no proceeds from the
sale of the additional 1,283,018 shares of class A common stock included in this
registration statement.
The class A common stock offered may be sold from time to time in one
or more transactions at a fixed offering price, which may be changed, or at
varying prices determined at the time of sale or at negotiated prices. The
selling security holder will determine the selling price at the time of the
transaction or by an agreement with its underwriters, dealers, brokers or other
agents.
Any underwriters, dealers, brokers or other agent to or through whom
class A common stock offered hereby is sold may receive compensation in the form
of underwriting discounts, concessions, commissions or fees from a selling
security holder and/or purchasers of class A common stock for whom they may act
as agent or to whom they may sell as principal, or both (which compensation to a
particular underwriter, broker, dealer or other agent might be in excess of
customary commissions). In addition, a selling security holder and any such
underwriters, dealers, brokers or other agents may be deemed to be underwriters
under the Securities Act, and any profits on the sale of class A common stock by
them and any discounts, commissions or concessions received by any of such
persons may be deemed to be underwriting discounts and commissions under the
Securities Act. Those who act as underwriter, broker, dealer or other agent in
connection with the sale of the class A common stock will be selected by a
selling security holder and may have other business relationships with PHC and
its subsidiaries or affiliates in the ordinary course of business. PHC cannot
presently estimate the amount of any such discounts, commissions or concessions.
PHC knows of no existing arrangements between the selling security holders and
any underwriter, dealer, broker or other agent.
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<PAGE>
LEGAL MATTERS
Arent Fox Kintner Plotkin & Kahn, Washington, DC have passed upon the
validity of the securities offered hereby for PHC.
EXPERTS
The financial statements incorporated by reference in this prospectus have
been audited by BDO Seidman, LLP., independent certified public accountants, to
the extent and for the periods set forth in their report incorporated herein by
reference and are incorporated herein by reference in reliance upon the
authority of said firm as experts in accounting and auditing.
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<PAGE>
No dealer, salesman or any other person
has been authorized to give any
information or to make any
representations other than those
contained in this prospectus in PHC, INC.
connection with the offering made
hereby, and, if given or made, such PIONEER BEHAVIORAL HEALTH
information or representations must not
be relied upon as having been authorized
by PHC. This Prospectus does not
constitute an offer to sell or a 1,408,018 SHARES OF CLASS A COMMON
solicitation of an offer to buy, by any STOCK
person in any jurisdiction in which it
is unlawful for such person to make such
offer or solicitation. Neither the
delivery of this prospectus nor any
offer, solicitation or sale made
hereunder shall under any circumstances
create any implication that the
information herein contained is correct
as of any time subsequent to the date of
the prospectus.
TABLE OF CONTENTS
PAGE
Prospectus Summary 3
Risk Factors
Operating Risks: 6-7
Delay in government payments 6
Managed care rates 6
Collectability of Accounts
Receivable 6
Lack of access to capital 6
Reliance on key clients 7
Rapid regulatory change 7
Negative cash flow 7
Sole source contracts 7
Acquisition and expansion 7
Staffing shortages 7
Management Risks: 8
Control of PHC by Bruce A.
Shear 8
Retaining key personnel 8
Market Risks: 8
Nasdaq delisting 8
Common Stock liquidity 8
Low trading volume 8
Issuance of Preferred Stock 8
Available Information 9
Incorporation of Documents by
Reference 10
Selling security holders 11-15
Plan of Distribution 16
Legal Matters 17
Experts 17
PROSPECTUS
JULY , 2000
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
It is estimated that the following expenses will be incurred in connection with
the proposed offering hereunder.
SEC Registration Fee $ 533.34
NASDAQ Registration Fee $ 14,080,018
Legal Fees and Expenses $ 6,500.00
Accounting Fees and Expenses $ 3,500.00
Miscellaneous $ 386.48
-------------
TOTAL $ 25,000.00
The Registrant will bear all expenses shown above.
Item 15. Indemnification of Directors and Officers.
Section 6 of the Registrant's Restated Articles of Organization provides,
in part, that the Registrant shall indemnify its directors, trustees, officers,
employees and agents against all liabilities, costs and expenses, including but
not limited to amounts paid in satisfaction of judgments, in settlement or as
fines and penalties, and counsel fees, reasonably incurred by such person in
connection with the defense or disposition of or otherwise in connection with or
resulting from any action, suit or proceeding in which such director or officer
may be involved or with which he may be threatened, while in office or
thereafter, by reason of his actions or omissions in connection with services
rendered directly or indirectly to the Registrant during his term of office,
such indemnification to include prompt payment of expenses in advance of the
final disposition of any such action, suit or proceeding.
In addition, the Restated Articles of Organization of the Registrant,
under authority of the Business Corporation Law of The Commonwealth of
Massachusetts, contain a provision eliminating the personal liability of a
director to the Registrant or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, or (3) for any transaction from which the director
derived an improper personal benefit. The foregoing provision also is
inapplicable to situations wherein a director has voted for, or assented to the
declaration of, a dividend, repurchase of shares, distribution, or the making of
a loan to an officer or director, in each case where the same occurs in
violation of applicable law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of PHC
pursuant to the foregoing provisions, or otherwise, PHC has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by PHC of expenses incurred or paid by a director, officer or
controlling person of PHC in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, PHC will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
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<PAGE>
ITEM 16. EXHIBITS.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
4.1 Form of Warrant Agreement. (Filed as exhibit 4.1 to PHC's
Registration Statement on March 2, 1994)
4.2 Form of Unit Purchase Option. (Filed as exhibit 4.4 to PHC's
Registration Statement on March 2, 1994)
4.3 Form of warrant issued to Robert A. Naify, Marshall Naify, Sarah
M. Hassanein and Whitney Gettinger. (Filed as exhibit 4.6 to
PHC's Registration Statement on Form 3 dated March 12, 1996.
Commission file number 333-71418).
4.4 Warrant Agreement by and among PHC, American Stock Transfer & Trust
Company and AmeriCorp Securities, Inc. executed in connection with
the Private Placement. (Filed as exhibit 4.8 to PHC's Registration
Statement on Form 3 dated March 12, 1996. Commission file number
333-71418).
4.5 Warrant Agreement issued to Alpine Capital Partners, Inc. to
purchase 25,000 Class A Common shares dated October 7, 1996. (Filed
as exhibit 4.15 to PHC's Current Report on Form 8-K, filed with the
Securities and Exchange Commission November 5, 1996. Commission
file number 0-22916).
4.6 Warrant Agreement issued to Barrow Street Research, Inc. to
purchase 3,000 Class A Common shares dated February 18, 1997.
(Filed as exhibit 4.17 to PHC's Registration Statement on Form
SB-2 dated April 15, 1997. Commission file number 333-25231).
4.7 Consultant Warrant Agreement by and between PHC, Inc., and C.C.R.I.
Corporation dated March 3, 1997 to purchase 160,000 shares Class A
Common Stock. (Filed as an exhibit to PHC's Registration Statement
on Form SB-2 dated April 15, 1997. Commission file number
333-25231).
4.8 Warrant Agreement by and between PHC, Inc. and ProFutures Special
Equities Fund, L.P. for 50,000 shares of Class A Common Stock
dated 6/4/97. (Filed as exhibit 4.22 to PHC's Registration
Statement on Form SB-2 dated April 15, 1997. Commission file
number 333-25231).
4.9 Warrant Agreement by and between PHC, Inc. and ProFutures Special
Equities Fund, L.P. for up to 86,207 shares of Class A Common Stock
dated 09/19/97. (Filed as exhibit 4.25 to PHC's report on Form
10-KSB, filed with the Securities and Exchange Commission on
October 14, 1997. Commission file number 0-22916).
4.10 Transfer from Seacrest Capital Securities of PHC, Inc. and
securities to Summit Capital Limited dated 12/19/97. (Filed as
exhibit 4.26 to PHC's report on Form 10-KSB, filed with the
Securities and Exchange Commission on October 14, 1997.
Commission file number 0-22916).
4.11 Warrant Agreement by and between PHC, Inc. and ProFutures Special
Equities Fund, LP for 3,000 shares of Class A Common Stock. (Filed
as exhibit 4.27 to PHC's Current Report on Form 8-K, filed with the
Securities and Exchange Commission on April 29, 1998. Commission
file number 0-22916).
4.12 Subscription Agreements and Warrants for Series B Convertible
Preferred Shares and Warrants by and between PHC, Inc., ProFutures
Special Equities Fund, L.P., Gary D. Halbert, John F. Mauldin and
Augustine Fund, L.P. dated March 16, 1998. (Filed as exhibit 4.28
to PHC's Current Report on Form 8-K, filed with the Securities and
Exchange Commission on April 29, 1998. Commission file number
0-22916).
4.13 Warrant to purchase up to 52,500 shares of Class A Common Stock by
and between PHC, Inc., and HealthCare Financial Partners, Inc.
dated March 10, 1998. (Filed as exhibit 4.16 to PHC's Registration
Statement on Form SB-2 dated July 24, 1998. Commission file number
333-59927).
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<PAGE>
EXHIBIT NO. DESCRIPTION
4.14 Warrant to purchase up to 52,500 shares of Class A Common Stock by
and between PHC, Inc., and HealthCare Financial Partners, Inc.
dated July 10, 1998. (Filed as exhibit 4.15 to PHC's Registration
Statement on Form SB-2 dated July 24, 1998. Commission file number
333-59927.)
4.15 Warrant Agreement by and between Joan Finsilver and PHC, Inc. dated
07/31/98 for 60,000 shares Common Stock. (Filed as exhibit 4.16 to
PHC's report on 10-KSB filed with the Securities and Exchange
Commission on October 13, 1998. Commission file number 0-22916.
Replaces exhibit 4.23 to PHC's report on Form 10-KSB. Filed with
the Securities and Exchange Commission on October 14, 1997.
Commission file number 0-22916).
4.16 Warrant Agreement by and between Brean Murray and company and PHC,
Inc. dated 07/31/98 for 90,000 shares Common Stock. (Filed as
exhibit 4.17 to PHC's report on 10-KSB filed with the Securities
and Exchange Commission on October 13, 1998. Replaces exhibit 4.23
to PHC's report on Form 10-KSB, filed with the Securities and
Exchange Commission on October 14, 1997. Commission file number
0-22916).
4.17 Warrant Agreement by and between HealthCare Financial Partners,
Inc. and its subsidiaries (collectively "HCFP) and PHC, Inc. dated
July 10, 1998 - Warrant No. 3 for 20,000 shares of Class A Common
Stock. (Filed as exhibit 4.18 to PHC's report on Form 10-KSB, filed
with the Securities and Exchange Commission on October 14, 1997.
Commission file number 0-22916).
4.19 12% Convertible Debenture by and between PHC, Inc., and Dean &
Co., dated December 3, 1998 in the amount of $500,000. (Filed as
exhibit 4.20 to PHC's report on Form 10-QSB dated February 12,
1999. Commission file number 0-22916).
4.20 Securities Purchase Agreement for 12% Convertible Debenture by
and between PHC, Inc. and Dean & Co., a Wisconsin nominee
partnership for Common Stock. (Filed as exhibit 4.21 to PHC's
report on Form 10-QSB dated February 12, 1999. Commission file
number 0-22916).
4.21 Warrant Agreement to purchase up to 25,000 shares of Class A
Common Stock by and between PHC, Inc., and Dean & Co., dated
December 3, 1998. (Filed as exhibit 4.22 to PHC's report on Form
10-QSB dated February 12, 1999. Commission file number 0-22916).
4.22 Warrant Agreement by and between PHC, Inc., and National Securities
Corporation dated January 5, 1999 to purchase 37.500 shares of
Class A Common Stock. (Filed as exhibit 4.23 to PHC's report on
Form 10-QSB dated February 12, 1999. Commission file number
0-22916).
4.23 Warrant Agreements by and between PHC, Inc., and George H. Gordon
for 10,000 shares, 15,000 shares, 5,000 shares, 5,000 shares,
50,000 shares and 10,000 shares of Class A Common Stock dated
December 31, 1998; 5,000 shares of Class A Common Stock dated
December 1, 1998; 10,000 shares of Class A Common Stock dated
January 1, 1999; and 10,000 shares of Class A Common Stock dated
February 1, 1999. (Filed as exhibit 4.24 to PHC's report on Form
10-QSB dated February 12, 1999. Commission file number 0-22916).
4.24 Warrant Agreement by and between PHC, Inc., and Barrow Street
Research for 3,000 shares of Class A Common Stock dated February
23, 1999.
4.25 Warrant Agreement by and between PHC, Inc., and George H. Gordon
for 10,000 shares of Class A Common Stock dated March 1, 1999.
4.26 Agreement dated April 5, 1999 modifying the payment terms on the
price guarantee associated with the Series B Convertible Preferred
Stock.
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<PAGE>
EXHIBIT NO. DESCRIPTION
4.27 Warrant Agreement by and between PHC, Inc., and George H. Gordon
for 10,000 shares of Class A Common Stock dated May 1, 1999. (Filed
as exhibit 4.27 to the company's Registration Statement on Form S-3
dated May 14, 1999. Commission file number 0-22916).
4.28 Warrant Agreements by and between PHC, Inc., and George H. Gordon
for 10,000 shares of Class A Common Stock dated April 1, 1999.
(Filed as exhibit to the company's report on Form 10-KSB dated
October 13, 1999. Commission file number 0-22916).
4.29 Warrant Agreements by and between PHC, Inc., and George H. Gordon
for 10,000 shares of Class A Common Stock dated July 1, 1999.
(Filed as exhibit to the company's report on Form 10-KSB dated
October 13, 1999. Commission file number 0-22916).
4.30 Warrant Agreements by and between PHC, Inc., and George H. Gordon
for 10,000 shares of Class A Common Stock dated August 1, 1999.
(Filed as exhibit to the company's report on Form 10-KSB dated
October 13, 1999. Commission file number 0-22916).
4.31 Warrant to purchase up to 37,500 shares of Class A Common Stock by
and between PHC, Inc., and National Securities Corporation dated
April 5, 1999. (Filed as exhibit to the company's report on Form
10-KSB dated October 13, 1999. Commission file number 0-22916).
4.32 Warrant to purchase up to 37,500 shares of Class A Common Stock by
and between PHC, Inc., and National Securities Corporation dated
July 5, 1999. (Filed as exhibit to the company's report on Form
10-KSB dated October 13, 1999. Commission file number 0-22916).
4.33 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. (Filed as exhibit to
the company's report on Form 10-KSB dated October 13, 1999.
Commission file number 0-22916).
4.34 Warrant to purchase 40,000 shares of Class A Common Stock by and
between PHC, Inc. and CCRI, Inc. and Warrant to purchase 40,000
shares of Class A Common Stock by and between PHC, Inc. and M&K
Partners both dated 3/3/97; replaces warrant for 160,000 shares
dated 3/3/97 by and between PHC, Inc. and CCRI, Inc. (Filed as
exhibit to the company's report on Form 10-QSB filed with the
Securities and Exchange Commission on May 11, 2000. Commission file
0-22916).
*4.35 Certificate of Designation of Series C Convertible Preferred Stock
of PHC, Inc. adopted by the Board of Directors on June 15, 2000 and
June 26, 2000. (Filed as exhibit to the company's Registration
Statement on Form S-3 dated July 14, 2000. Commission file number).
*4.36 Common Stock Purchase Warrant by and between PHC, Inc. and The
Shaar Fund Ltd. dated June 28, 2000. (Filed as exhibit to the
company's Registration Statement on Form S-3 dated July 14, 2000.
Commission file number ).
*5.1 Opinion of Arent Fox Kintner Plotkin & Kahn, PPLC.
10.1 1993 Stock Purchase and Option Plan of PHC, Inc., as amended
December 26, 1997. (Filed as exhibit 10.1 to the company's
Post-Effective Amendment No. 2 on Form S-3 to Registration
Statement on Form SB-2 under the Securities Act of 1933 dated
November 13, 1995. Commission file number 333-71418).
10.2 Form of Warrant Agreement for Bridge financing with List of bridge
investors holding warrant agreements and corresponding numbers of
bridge units for which warrant is exercisable. (Filed as exhibit
10.6 to the company's Registration Statement on Form SB-2 dated
March 2, 1994. Commission file number 33-71418).
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<PAGE>
EXHIBIT NO. DESCRIPTION
10.3 Lease Agreement between Palmer-Wells Enterprises and AIHS, Inc. and
Edwin G. Brown, dated September 23, 1983, with Addendum dated March
23, 1989, and Renewal of Addendum dated April 7, 1992. (Filed as
exhibit 10.14 to the company's Registration Statement on Form SB-2
dated March 2, 1994. Commission file number 333-71418).
10.4 Note of PHC of Virginia, Inc. in favor of Himanshu S. Patel and
Anna H. Patel, dated April 1, 1995, in the amount of $10,000.
(Filed as exhibit 10.29 to the company's annual report on Form
10-KSB. Filed with the Securities and Exchange on October 2,
1995. Commission file number 0-22916).
10.5 Note of PHC of Virginia, Inc. in favor of Mukesh P. Patel and
Falguni M. Patel, dated April 1, 1993, in the amount of $10,000.
(Filed as exhibit 10.30 to the company's Registration Statement on
Form SB-2 dated March 2, 1994. Commission file number 333-71418).
10.6 Deed of Trust Note of Mount Regis Center Limited Partnership in
favor of Douglas M. Roberts, dated July 28, 1987, in the amount of
$560,000, guaranteed by PHC, Inc., with Deed of Trust executed by
Mount Regis Center, Limited Partnership of even date. (Filed as
exhibit 10.33 to Form SB-2 dated March 2, 1994). Assignment and
Assumption of Limited Partnership Interest, by and between PHC of
Virginia Inc. and each assignor dated as of June 30, 1994. (Filed
as exhibit 10.57 to Form 10-KSB on September 28, 1994).
10.7 Security Agreement Note of PHC of Virginia, Inc. in favor of Mount
Regis Center, Inc., dated July 28, 1987, in the amount of $90,000,
guaranteed by PHC, Inc., with Security Agreement, dated July
1987. (Filed as exhibit 10.34 to the company's Registration
Statement on Form SB-2 dated March 2, 1994. Commission file
number 333-71418).
10.8 Copy of Note of Bruce A. Shear in favor of Steven J. Shear, dated
December 1988, in the amount of $195,695; Pledge Agreement by and
between Bruce A. Shear and Steven J. Shear, dated December 15,
1988; Stock Purchase Agreement by and between Steven J. Shear and
Bruce A. Shear, dated December 1, 1988. (Filed as exhibit 10.52 to
the company's Registration Statement on Form SB-2 dated March 2,
1994. Commission file number 333-71418).
10.9 Lease Agreement by and between Conestoga Corp. and PHC, Inc.,
dated July 11, 1994. (Filed as exhibit 10.69 to the company's
annual report on Form 10-KSB, filed with the Securities and
Exchange Commission on September 28, 1994. Commission file number
0-22916).
10.10 Renewal of Lease Addendum between Palmer Wells Enterprises and PHC
of Utah, Inc., executed February 20, 1995. (Filed as exhibit
10.73 to the company's annual report on Form 10-KSB, filed with
the Securities and Exchange on October 2, 1995. Commission file
number 0-22916)
10.11 1995 Employee Stock Purchase Plan. (Filed as exhibit 10.74 to the
company's Post-Effective Amendment No. 2 on Form S-3 to
Registration Statement on Form SB-2 under the Securities Act of
1933 dated November 13, 1995. Commission file number 333-71418.
As amended on Form S-8 dated March 12, 1999. Commission File
number 333-74373).
10.12 1995 Employee Stock Purchase Plan. (Filed as exhibit 10.74 to the
company's Post-Effective Amendment No. 2 on Form S-3 to
Registration Statement on Form SB-2 under the Securities Act of
1933 dated November 13, 1995. Commission file number 333-71418.
As amended on Form S-8 dated March 12, 1999. Commission File
number 333-74373).
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<PAGE>
EXHIBIT NO. DESCRIPTION
10.13 1995 Non-Employee Director Stock Option Plan. (Filed as exhibit
10.75 to the company's Post-Effective Amendment No. 2 on Form S-3
to Registration Statement on Form SB-2 under the Securities Act of
1933 dated November 13, 1995. Commission file number 333-71418. As
amended on Form S-8 dated March 12, 1999. Commission File number
333-74373).
10.14 Loan and Security Agreement of PHC of Nevada, Inc., in favor of
LINC Anthem Corporation, dated November 7, 1995. (Filed as exhibit
10.76 to the company's Form 10-KSB, filed with the Securities and
Exchange Commission on October 4, 1996.)
10.15 Secured Promissory Note in the amount of $750,000 by and between
PHC of Nevada, Inc. and LINC Anthem Corp. (Filed as exhibit 10.77
to the company's Form 10-KSB, filed with the Securities and
Exchange Commission on October 4, 1996.)
10.16 Stock Pledge by and between PHC, Inc. and Linc Anthem
Corporation. (Filed as exhibit 10.81 to the company's report on
Form 10-KSB, filed with the Securities and Exchange Commission on
September 28, 1994. )
10.17 Custodial Agreement by and between LINC Anthem Corporation and PHC,
Inc. and Choate, Hall and Stewart dated July 25, 1996. (Filed as
exhibit 10.85 to the company's quarterly report on Form 10-QSB,
filed with the Securities and Exchange Commission on February 25,
1997. Commission file number 0-22916).
10.18 Loan and Security Agreement by and between Northpoint-Pioneer Inc.
and LINC Anthem Corporation dated July 25, 1996. (Filed as exhibit
10.86 to the company's quarterly report on Form 10-QSB, filed with
the Securities and Exchange Commission on December 5, 1996.
Commission file number 0-22916).
10.19 Corporate Guaranty by PHC, Inc., PHC of Rhode Island, Inc., PHC of
Virginia, Inc., PHC of Nevada, Inc. and LINC Anthem Corporation
dated July 25, 1996 for North Point-Pioneer, Inc. (Filed as
exhibit 10.87 to the company's quarterly report on Form 10-QSB,
filed with the Securities and Exchange Commission on December 5,
1996. Commission file number 0-22916).
10.20 Stock Pledge and Security Agreement by and between PHC, Inc. and
LINC Anthem Corporation. (Filed as exhibit 10.88 to the company's
quarterly report on Form 10-QSB, filed with the Securities and
Exchange Commission on December 5, 1996. Commission file number
0-22916).
10.21 Secured Promissory Note of North Point-Pioneer, Inc. in favor of
LINC Anthem Corporation dated July 25, 1996 in the amount of
$500,000. (Filed as exhibit 10.89 to the company's quarterly report
on Form 10-QSB, filed with the Securities and Exchange Commission
on December 5, 1996. Commission file number 0-22916).
10.22 Lease Agreement by and between PHC, Inc. and 94-19 Associates dated
October 31, 1996 for BSC-NY, Inc. (Filed as exhibit 10.90 to the
company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on December 5, 1996. Commission
file number 0-22916).
10.23 Note by and between PHC Inc. and Yakov Burstein in the amount of
$180,000. (Filed as exhibit 10.91 to the company's quarterly report
on Form 10-QSB, filed with the Securities and Exchange Commission
on December 5, 1996. Commission file number 0-22916).
10.24 Note by and between PHC, Inc. and Irwin Mansdorf in the amount of
$570,000. (Filed as exhibit 10.92 to the company's quarterly report
on Form 10-QSB, filed with the Securities and Exchange Commission
on December 5, 1996. Commission file number 0-22916).
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<PAGE>
EXHIBIT NO. DESCRIPTION
10.25 Employment Agreement by and between BSC-NY, Inc. and Yakov Burstein
dated November 1, 1996. (Filed as exhibit 10.93 to the company's
quarterly report on Form 10-QSB, filed with the Securities and
Exchange Commission on December 5, 1996. Commission file number
0-22916).
10.26 Consulting Agreement by and between BSC-NY, Inc. and Irwin Mansdorf
dated November 1, 1996. (Filed as exhibit 10.94 to the company's
quarterly report on Form 10-QSB, filed with the Securities and
Exchange Commission on December 5, 1996. Commission file number
0-22916).
10.27 Agreement and Plan of Merger by and among PHC, Inc., BSC-NY, Inc.,
Behavioral Stress Centers, Inc., Irwin Mansdorf, and Yakov
Burstein dated October 31, 1996. (Filed as exhibit 10.95 to the
company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on December 5, 1996. Commission
file number 0-22916).
10.28 Employment Agreement by and between Perlow Physicians, P.C. and
Yakov Burstein dated November 1, 1996. (Filed as exhibit 10.98 to
the company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on December 5, 1996. Commission
file number 0-22916).
10.29 Agreement for Purchase and Sale of Assets by and between Clinical
Associates and Clinical Diagnostics and PHC, Inc., BSC-NY, Inc.,
Perlow Physicians, P.C., Irwin Mansdorf, and Yakov Burstein dated
October 31, 1996. (Filed as exhibit 10.99 to the company's
quarterly report on Form 10-QSB, filed with the Securities and
Exchange Commission on December 5, 1996. Commission file number
0-22916).
10.30 Consulting Agreement by and between Perlow Physicians, P.C. and
Irwin Mansdorf dated November 1, 1996. (Filed as exhibit 10.100 to
the company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on December 5, 1996. Commission
file number 0-22916).
10.31 Mortgage by and between PHC of Michigan, Inc. and HCFP Funding Inc.
dated January 13, 1997 in the amount of $2,000,000. (Filed as
exhibit 10.106 to the company's quarterly report on Form 10-QSB,
filed with the Securities and Exchange Commission on February 25,
1997 Commission file number 0-22916).
10.32 Employment Agreement for Dr. Himanshu Patel; Employment Agreement
for Dr. Mukesh Patel; and Fringe Benefit Exhibit for both of the
Patels' Employment Agreements. (Filed as exhibit 10.107 to the
company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on February 25, 1997.
Commission file number 0-22916).
10.33 Unconditional Guaranty of Payment and performance by and between
PHC, Inc. in favor of HCFP. (Filed as exhibit 10.112 to the
company's quarterly report on Form 10-QSB, filed with the
Securities and Exchange Commission on February 25, 1997. Commission
file number 0-22916).
10.34 Amendment number 1 to Loan and Security Agreement dated May 21,
1996 by and between PHC, of Utah, Inc. and HCFP Funding providing
collateral for the PHC of Michigan, Inc. Loan and Security
Agreement. (Filed as exhibit 10.113 to the company's quarterly
report on Form 10-QSB, filed with the Securities and Exchange
Commission on February 25, 1997 Commission file number 0-22916).
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<PAGE>
EXHIBIT NO. DESCRIPTION
10.35 Employment Agreement by and between Perlow Physicians P.C. and
Nissan Shliselberg, M.D. dated March, 1997. (Filed as exhibit
10.114 to the company's Registration Statement on Form SB-2 dated
April 15, 1997. Commission file number 333-25231).
10.36 Option and Indemnity Agreement by and between PHC, Inc. and Nissan
Shliselberg, M.D. dated February, 1997. (Filed as exhibit 10.115
to the company's Registration Statement on Form SB-2 dated April
15, 1997. Commission file number 333-25231).
10.37 Secured Term Note by and between PHC of Michigan, Inc. and
Healthcare Financial Partners - Funding II, L.P. in the amount of
$1,100,000 dated March, 1997. (Filed as exhibit 10.116 to the
company's Registration Statement on Form SB-2 dated April 15,
1997. Commission file number 333-25231).
10.38 Mortgage between PHC of Michigan, Inc. and Healthcare Financial
Partners - Funding II, L.P. in the amount of $1,100,000 dated
March, 1997 for Secured Term Note. (Filed as exhibit 10.117 to
the company's Registration Statement on Form SB-2 dated April 15,
1997. Commission file number 333-25231).
10.39 Submission of Lease between PHC, Inc. and Conestoga Corporation
dated 11/09/95 for space at 200 Lake Street, Suite 101b, Peabody,
MA 01960. (Filed as exhibit 10.119 to the company's Registration
Statement on Form SB-2 dated April 15, 1997. Commission file number
333-25231).
10.40 Master Equipment Lease Agreement by and between PHC, Inc. and LINC
Capital Partners dated March 18, 1997 in the amount of $200,000.
(Filed as exhibit 10.121 to the company's Registration Statement on
Form SB-2 dated April 15, 1997. Commission file number 333-25231).
10.41 Agreement between Family Independence Agency and Harbor Oaks
Hospital effective January 1, 1997. (Filed as exhibit 10.122 to
the company's report on Form 10-KSB, with the Securities and
Exchange Commission on October 14, 1997. Commission file number
0-22916)
10.42 Master Contract by and between Family Independence Agency and
Harbor Oaks Hospital effective January 1, 1997. (Filed as exhibit
10.122 to the company's report on Form 10-KSB, filed with the
Securities and Exchange Commission on October 14, 1997.
Commission file number 0-22916)
10.43 Deed, Deed of Trust and Deed Trust Note in the amount of $540,000
by and between Dillon and Dillon Associates and Pioneer Counseling
of Virginia, Inc. (Filed as exhibit 10.124 to the company's report
on Form 10-KSB, filed with the Securities and Exchange Commission
on October 14, 1997. Commission file number 0-22916)
10.44 Financial Advisory Agreement, Indemnification Agreement and Form
of Warrant by and between Brean Murray & company and PHC, Inc.
dated 06/01/97. (Filed as exhibit 10.125 to the company's report
on Form 10-KSB, filed with the Securities and Exchange Commission
on October 14, 1997. Commission file number 0-22916)
10.45 Secured Term Note; Mortgage; Environmental Indemnity; Agreement
Guaranty by PHC, Inc.; and Amendment No. 2 Loan and Security
Agreement by and between Healthcare Financial; and PHC, Inc. of
Michigan dated December, 1997. (Filed as exhibit 10.129 to the
company's Registration Statement on Form SB-2 dated January 8,
1997. Commission file number 333-25231).
10.46 First Amendment to Sale and Purchase Agreement by and between LINC
Financial Services, Inc., LINC Finance Corporation VII and PHC of
Rhode Island dated January 20, 1995 and Sale and Purchase Agreement
dated March 6, 1995. (Filed as exhibit 10.132 to the company's
10-QSB dated February 17, 1998).
- 24 -
<PAGE>
EXHIBIT NO. DESCRIPTION
10.47 Agreement by and between PHC, Inc., and Irwin Mansdorf and Yakov
Burstein dated March 2, 1998. (Filed as exhibit 10.135 to the
company's Current Report on Form 8-K, filed with the Securities and
Exchange Commission. Commission file number 0-22916 on April 29,
1998).
10.48 Secured Bridge Loan to be made to PHC, Inc. by HCFP Funding II,
Inc. in the amount of $350,000 dated March 10, 1998. (Filed as
exhibit 10.136 to the company's Current Report on Form 8-K, filed
with the Securities and Exchange Commission. Commission file
number 0-22916 on April 29, 1998).
10.49 First Amendment to Mortgage between PHC of Michigan, Inc. and HCFP
Funding, Inc. (Filed as Exhibit 10.137 to the company's 10-QSB
filed on May 15, 1998. Commission file number 0-22916).
10.50 Secured Unconditional Guaranty of Payment and performance by and
between BSC-NY, Inc. and HCFP Funding II, Inc. in the amount of
$350,000. (Filed as exhibit 10.58 to the company's Registration
Statement on Form SB-2 dated July 24, 1998. Commission file
number 333-59927).
10.51 Loan and Security Agreement by and among HCFP Funding, Inc., and
PHC of Michigan, Inc., PHC of Utah, Inc., PHC of Virginia, Inc.,
PHC of Rhode Island, Inc., and Pioneer Counseling of Virginia,
Inc. dated as of February 18, 1998. (Filed as exhibit 10.59 to
the company's Registration Statement on Form SB-2 dated July 24,
1998. Commission file number 333-59927).
10.52 Credit Line Deed of Trust by and between PHC of Virginia, Inc.,
and HCFP Funding II, Inc. dated July, 1998. (Filed as exhibit
10.60 to the company's Registration Statement on Form SB-2 dated
July 24, 1998. Commission file number 333-59927).
10.53 Amendment No. 1 to Secured Bridge Note dated July 10, 1998 by and
between PHC, Inc. and HCFP Funding II, Inc. (Filed as exhibit
10.61 to the company's Registration Statement on Form SB-2 dated
July 24, 1998. Commission file number 333-59927).
10.54 Promissory Note for $50,000 dated May 18, 1998 by and between PHC,
Inc. and Tot Care, Inc. (Filed as exhibit 10.62 to the company's
Registration Statement on Form SB-2 dated July 24, 1998.
Commission file number 333-59927).
10.55 Promissory Note for $50,000 dated June 9, 1998 by and between PHC,
Inc. and Tot Care, Inc. (Filed as exhibit 10.63 to the company's
Registration Statement on Form SB-2 dated July 24, 1998.
Commission file number 333-59927).
10.56 Letter Agreement dated May 31, 1998 by and between NMI Realty, Inc.
and PHC of Rhode Island, Inc. to terminate the Lease and Option
Agreement entered into March 16, 1994. (Filed as exhibit 10.64 to
the company's Registration Statement on Form SB-2 dated July 24,
1998. Commission file number 333-59927).
10.57 Amendment No. 1 to Loan and Security Agreement in the amount of
$4,000,000.00 by and among HCFP Funding, Inc., and PHC of
Michigan, Inc., PHC of Utah, Inc., PHC of Virginia, Inc., PHC of
Rhode Island, Inc., and Pioneer Counseling of Virginia, Inc. dated
as of February 18, 1998. (Filed as exhibit 10.65 to the company's
report on Form 10-KSB dated October 13, 1998. Commission file
number 0-22916).
10.58 Promissory Note by and between PHC, Inc. and Bruce A. Shear dated
August 13, 1998, in the amount of $100,000. (Filed as exhibit
10.66 to the company's report on Form 10-QSB dated November 3,
1998. Commission file number 0-22916).
- 25 -
<PAGE>
EXHIBIT NO. DESCRIPTION
10.59 Amendment to Overline Letter Agreement pursuant to the Loan and
Security Agreement by and among HCFP Funding, Inc., and PHC of
Michigan, Inc., PHC of Utah, Inc., PHC of Virginia, Inc., PHC of
Rhode Island, Inc., and Pioneer Counseling of Virginia, Inc. dated
June 8, 1998 extending the maturity date from November 10, 1998 to
May 10, 1999. (Filed as exhibit 10.67 to the company's report on
Form 10-QSB filed with the Securities and Exchange Commission on
February 12, 1999. Commission file number 0-22916).
10.60 The Overline Letter agreement pursuant to the Loan and Security
Agreement by and among HCFP Funding, Inc., and PHC of Michigan,
Inc., PHC of Utah, Inc., PHC of Virginia, Inc., PHC of Rhode
Island, Inc., and Pioneer Counseling of Virginia, Inc. dated as of
February 18, 1998 extending the maturity date from November 10,
1998 to May 10, 1999. (Filed as exhibit 10.68 to the company's
Registration Statement on Form 10-QSB dated 12, 1999. Commission
file number 0-22916).
10.61 Financial Advisory and Consultant Agreement by and between
National Securities Corporation and PHC, Inc. dated 01/05/99
(Filed as exhibit 10.69 to the company's report on Form 10-QSB
dated February 12, 1999. Commission file number 0-22916).
10.62 Agreement for Purchase and Sale of Pioneer Counseling of Virginia,
Inc. to Dr. Mukesh Patel and Dr. Himanshu Patel dated February 15,
1999. (Filed as exhibit 10.62 to the company's Registration
Statement on Form 10-QSB filed with the Securities and Exchange
Commission on May 14, 1999. Commission file number 0-22916).
10.63 This amendment no. 2 to secured bridge note (the "AMENDMENT") is
hereby entered into as of the 10th day of May 1999 by and among
PHC, INC., a Massachusetts corporation ("BORROWER"), and HCFP
FUNDING II, INC., a Delaware corporation ("LENDER"). (Filed as an
exhibit to the company's report on Form 10-KSB dated October 13,
1999. Commission file number 0-22916).
10.64 Seller's Settlement Statement related to the sale of the real
estate owned by Pioneer Counseling of Virginia, Inc. dated March
15, 1999. (Filed as exhibit 10.64 to the company's report on Form
10-QSB filed with the Securities and Exchange Commission on May 14,
1999. Commission file number 0-22916).
10.65 This amendment no. 2 to secured bridge note (the "Amendment") is
hereby entered into as of the 10th day of May 1999 by and among
PHC, INC., a Massachusetts corporation ("Borrower"), and HCFP
FUNDING II, INC., a Delaware corporation ("Lender"). (Filed as an
exhibit to the company's report on Form 10-KSB dated October 13,
1999. Commission file number 0-22916).
10.66 Loan and Security Agreement by and between Heller Healthcare
Finance, Inc. f/k/a HCFP Funding, Inc. and PHC of Michigan, Inc.
PHC of Utah, Inc. PHC of Virginia, Inc. PHC of Rhode Island, Inc.
and Pioneer Counseling of Virginia, Inc. dated August 11, 1999.
(Filed as an exhibit to the company's report on Form 10-KSB dated
October 13, 1999. Commission file number 0-22916).
10.67 Amendment number 3 to Secured Bridge Note dated May 10, 1999 by and
between PHC, Inc. and HCFP (Filed as exhibit to the company's
report on Form 10-KSB, filed with the Securities and Exchange
Commission on October 13, 1999. Commission file number 0-22916).
10.68 Promissory Note by and between PHC, Inc. and Mellon US Leasing
Corporation dated November, 1999, in the amount of $160,000. (Filed
as exhibit 10.68 to the company's report on Form 10-QSB dated
November 15, 1999.
- 26 -
<PAGE>
EXHIBIT NO. DESCRIPTION
10.69 Secured Term Loan for $1,000,000 by and between PHC of Michigan,
Inc and Heller Finance, Inc., which includes Secured Term Note
from Borrower; Restated Mortgage by and between Borrower and
Lender; Guaranty of Term Loan by PHC, Inc.; Secured Guaranty of
Term Loan by BSC-NY, Inc.; Guaranty of Term Loan by Bruce A. Shear
and Letter Agreement. (Filed as exhibit to the company's report
on Form 10-QSB filed with the Securities and Exchange Commission
on February 14, 2000. Commission file 0-22916).
10.70 Amendment number 1 to Loan and Security Agreement dated February
17, 2000 by and between PHC of Michigan, Inc., PHC, of Utah, Inc.,
PHC of Virginia, Inc., PHC of Rhode Island, Inc. and Pioneer
Counseling of Virginia, Inc. and Heller Healthcare Finance, Inc.,
f/k/a HCFP Funding in the amount of $2,500,000. (Filed as
exhibit to the company's report on Form 10-QSB filed with the
Securities and Exchange Commission on May 11, 2000. Commission
file 0-22916).
*10.71 Secured Term Note by and between PHC of Michigan, Inc. and Heller
Healthcare Finance, Inc. in the amount of $500,000 dated May 23,
2000. (Filed as exhibit to the company's Registration Statement
on Form S-3 dated July 14, 2000).
*10.72 Registration Rights Agreement by and between PHC, Inc. and The
Shaar Fund Ltd. dated June 28, 2000. (Filed as exhibit to the
company's Registration Statement on Form S-3 dated July 14, 2000.
*10.73 Release Notice by and between PHC, Inc. and The Shaar Fund Ltd.
dated June 28, 2000. (Filed as exhibit to the company's
Registration Statement on Form S-3 dated July 14, 2000.
*10.74 Escrow Instruction by and between PHC, Inc.; The Shaar Fund Ltd.
and Cadwalader, Wickersham & Taft (an Escrow Agent) dated June 28,
2000. (Filed as exhibit to the company's Registration Statement
on Form S-3 dated July 14, 2000).
*10.75 Securities Purchase Agreement by and between PHC, Inc. and The
Shaar Fund Ltd. dated June 28, 2000 to purchase 125,000 shares of
Class A Common Stock. (Filed as exhibit to the company's
Registration Statement on Form S-3 dated July 14, 2000).
16.1 Letter on Change in Independent Public Accountants. (Filed as an
exhibit to the company's report on Form 10-KSB, filed with the
Securities and Exchange Commission on September 28, 1994 and as
exhibit 16.1 in the company's Current Report on Form 8-K, filed
with the Securities and Exchange Commission. (Commission file
number 0-22916 on April 29, 1998).
*21.1 List of Subsidiaries. (Filed as an exhibit to the Company
Registration Statement on Form SB-3 dated July 14, 2000.
*23.1 Consent of Independent Certified Public Accountants.
*23.3 Consent of Arent Fox Kintner Plotkin & Kahn, PPLC. Included in
exhibit 5.1.
*24.1 Power of Attorney: included on signature page.
99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995.
* Indicates exhibits filed with this registration statement
Item 17. Undertakings.
Registrant undertakes that it will:
1. file, during any period in which it offers or sells securities, a
post-effective amendment to the registration statement to include any
additional or changed material information on the plan of distribution;
2. for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering; and
3. file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
- 27 -
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Peabody, State of Massachusetts.
PHC, INC.
Date: July 14, 2000 BY: /S/ BRUCE A. SHEAR
----------------------
Bruce A. Shear
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Bruce A.
Shear his or her true and lawful attorney-in-fact and agent, each acting alone,
with full power of substitution and resubstitution, for him or her in his or her
name, place and stead, in any and all capacities, to sign any or all Amendments
(including post-effective Amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing appropriate or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
President, Chief
/S/ BRUCE A. SHEAR Executive Officer and
Bruce A. Shear Director (principal July 14, 2000
executive officer)
Controller and
/s/ PAULA C. WURTS Treasurer
Paula C. Wurts (principal financial July 14, 2000
and accounting officer)
/S/ GERALD M. PERLOW Director July 14, 2000
Gerald M. Perlow
/S/ DONALD E. ROBAR Director July 14, 2000
Donald E. Robar
/S/ HOWARD PHILLIPS Director July 14, 2000
Howard Phillips
/S/ WILLIAM F. GRIECO Director July 14, 2000
William F. Grieco
- 28 -
<PAGE>
Exhibit 5.1
Arent Fox
1050 Connecticut Avenue, NW
Washington, DC 20036-5339
Arnold R. Westerman
Tel: 202/857-6243
Fax: 202/857-6395
[email protected]
http://www.arentfox.com
July 7, 2000
PHC, Inc.
200 Lake Street
Suite 102
Peabody, Massachusetts 01960
Gentlemen:
We have acted as counsel for PHC, Inc., a Massachusetts corporation
("PHC"), with respect to PHC's Registration Statement on Form S-3, filed by PHC
with the Securities and Exchange Commission (the "Registration Statement") in
connection with the company's registration under the Securities Act of 1933, as
amended (the "Act"), of 1,408,018 shares of the Class A Common Stock.
In connection with this opinion, we have examined, among other things, such
federal and state laws and originals and/or copies (certified or otherwise
identified to our satisfaction) of such corporate and other documents,
certificates, and other records as we deemed necessary or appropriate to the
purposes of preparing this opinion. Based on the foregoing, we hereby advise you
that we are of the opinion that the 1,408,018 shares of Common Stock subject to
the Registration Statement have been duly and validly authorized for issuance
and that such shares will be, when issued in accordance with the terms of the
warrants or Series C convertible preferred stock referred to in the Registration
Statement, legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to such
Registration Statement and to the reference to our firm in the Registration
Statement. In giving this consent, we do not hereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the general rules and regulations there
under.
Very truly yours,
ARENT FOX KINTNER PLOTKIN & KAHN
By /s/ Arnold R. Westerman
Arnold R. Westerman
ARENT FOX KINTNER PLOTKIN & KAHN
New York, NY - McLean, VA - Bethesda, MD -
Budapest, Hungary - Jeddah, Kingdom of
Saudi Arabia
- 29 -
<PAGE>
Exhibit 21.1
PIONEER BEHAVIORAL HEALTH
SUBSIDIARIES
MASSACHUSETTS:
PHC, Inc. PHC of Utah, Inc.
D/B/A Pioneer Behavioral Health D/B/A Highland Ridge Hospital
D/B/A PDS(2) 175 West 7200 South
DB/A Pioneer Recovery Systems Midvale, UT 84047
200 Lake Street EIN #87-0401574
Suite 102
Peabody, MA 01960
EIN #04-2601571
PHC of Virginia, Inc. PHC of Rhode Island, Inc.
D/B/A Mount Regis Center D/B/A Good Hope Center
D/B/A Changes P.O. Box 1491
405 Kimball Avenue Coventry, RI 02816-0029
Salem, VA 24153 EIN #04-3223361
EIN #04-2901824
Quality Care Centers of Mass, Inc. PHC of Michigan, Inc.
D/B/A Franvale Nursing & Rehab Center D/B/A Harbor Oaks Hospital
20 Pond Street D/B/A Pioneer Healthcare of Michigan
Braintree, MA 02184 35031 23 Mile Road
EIN #04-3014675 New Baltimore, MI 48047
EIN #04-3232990
PHC of Nevada, Inc. PHC of Kansas, Inc.
D/B/A Harmony Healthcare D/B/A Total Concept EAP
1701 W. Charleston; Suite 300 10501 Metcalf
Las Vegas, NV 89102 Overland Park, KS 66212
EIN # 04-3290453 EIN #04-3306774
North Point - Pioneer, Inc. PHC of California, Inc.
D/B/A Pioneer Counseling Centers D/B/A Marin Grove
D/B/A Pioneer Healthcare of Michigan 42 Grove Street DISSOLVED
D/B/A Pioneer Pharmaceutical Research San Rafael, CA 94901 10/26/98
28511 Orchard Lake Road EIN #04-3069152
Farmington Hills, MI 48334
EIN #04-3317934
STL, Inc. Behavioral Health Online, Inc.
200 Lake Street 200 Lake Street
Suite 102 DISSOLVED Suite 102
Peabody, MA 01960 11/25/98 Peabody, MA 01960
EIN # 04-3002757 EIN # 04-3456003
- 30 -
<PAGE>
Pioneer Counseling of Virginia, Inc. PPR, Inc.
D/B/A Pioneer Counseling of Virginia D/B/A Pioneer Pharmaceutical Research
D/B/A Counseling Associates of Virginia 200 Lake Street; Suite 102
400 East Burwell Street Peabody, MA 01960
Salem, VA 24153 EIN # 04-3501353
EIN # 54-1830984
NEW YORK:
BSC-NY, Inc. Rubenfaer Physician Services, P.C.
D/B/A Behavioral Stress Center 99 West Hawthorne Avenue; Suite 400
99 West Hawthorne Avenue; Suite 400 Valley Stream, NY 11580
Valley Stream, NY 11580 EIN # 11-3346739
EIN # 11-3346703
Professional Health Associates
94-19 59 Avenue
Elmhurst, NY 11373
EIN # 11-2857533
NEVADA:
Harmony Behavioral Health
1701 W. Charleston Boulevard
Suite 300
Las Vegas, NV 89102
JOINT VENTURE WITH LEXINGTON HEALTHCARE GROUP, INC.
MASSACHUSETTS:
Behavioral Rehab Services of Massachusetts, Inc.
200 Lake Street; Suite 102
Peabody, MA 01960 DISSOLVED
EIN # 04-3415040 09/21/99
CONNECTICUT:
Behavioral Rehab Services of Connecticut, Inc.
1577 New Britain Avenue
Farmington, CT 06032
EIN # 06-1512418
- 31 -
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the prospectus
constituting a part of this Registration Statement of our report dated September
10, 1999 relating to the consolidated financial statements of PHC, Inc. (the
"company") appearing in the company's Annual Report on Form 10-KSB for the year
ended June 30, 1999.
BDO Siedman, LLP
Boston, Massachusetts
July 14, 2000
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<PAGE>
Exhibit 4.35
CERTIFICATE OF DESIGNATION
OF
SERIES C 8% CONVERTIBLE PREFERRED STOCK
OF
PHC, Inc.
--------------------------------------------------------------------
Pursuant to Section 25 of the
Business Corporation Law of the State of
Massachusetts
--------------------------------------------------------------------
PHC, Inc., a corporation organized and existing under the General
Corporation Law of the State of Massachusetts (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation on June 15, 2000 and on June 26, 2000 pursuant to authority
of the Board of Directors as required by Section 25 of the Business Corporation
Law of the State of Massachusetts:
Resolved, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (the "Board of Directors" or the "Board") in
accordance with the provisions of its Certificate of Incorporation, the Board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock, par value $.01 per share (the "Preferred Stock"), and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
Series C 8% Convertible Preferred Stock:
ARTICLE 1
Definitions
The terms defined in this Article whenever used in this Certificate of
Designation have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in Section
6.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.
(c) "Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.
(d) "Closing Date" has the meaning set forth in the Securities Purchase
Agreement.
(e) "Capital Shares" means the Common Shares and any other shares of any
other class or series of capital stock, whether now or hereafter authorized and
however designated, which have the right to participate in the distribution of
earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.
(f) "Common Shares" or "Common Stock" means shares of class A common stock,
par value $.01 per share, of the Corporation.
(g) "Common Stock Issued at Conversion", when used with reference to the
securities issuable upon conversion of the Series C Preferred Stock, means all
Common Shares now or hereafter Outstanding and securities of any other class or
series into which the Series C Preferred Stock hereafter shall have been changed
or substituted, whether now or hereafter created and however designated.
(h) "Conversion Date" means any day on which all or any portion of shares
of the Series C Preferred Stock is converted in accordance with the provisions
hereof.
(i) "Conversion Notice" means a written notice of conversion substantially
in the form annexed hereto as Annex I.
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<PAGE>
(j) "Conversion Price" means on any date of determination the applicable
price for the conversion of shares of Series C Preferred Stock into Common
Shares on such day as set forth in Section 6.1.
(k) "Corporation" means PHC, Inc., a Massachusetts corporation, and any
successor or resulting corporation by way of merger, consolidation, sale or
exchange of all or substantially all of the Corporation's assets, or otherwise.
(l) "Current Market Price" means on any date of determination the closing
bid price of a Common Share on such day as reported on Nasdaq; provided, if such
security bid is not listed or admitted to trading on Nasdaq, as reported on the
principal national security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system, the
closing bid price of such security on the over-the-counter market on the day in
question as reported by Bloomberg LP, or a similar generally accepted reporting
service, as the case may be.
(m) "Default Dividend Rate" is equal to the Dividend Rate plus an
additional 4% per annum.
(n) "Dividend Period" means the semi-annual period commencing on and
including the Issue Date or, if a dividend has previously been paid, the day
after the immediately preceding Dividend Payment Due Date and ending on and
including the immediately subsequent Dividend Payment Due Date.
(o) "Dividend Payment Due Date" means March 31 and September 30 of each
year.
(p) "Dividend Rate" means 8% per annum, computed on the basis of a 360-day
year.
(q) "Holder" means The Shaar Fund Ltd., any successor thereto, or any
Person or Persons to whom the Series C Preferred Stock is subsequently
transferred in accordance with the provisions hereof.
(r) "Issue Date" means, as to any share of Series C Preferred Stock, the
date of issuance of such share.
(s) "Junior Securities" means all capital stock of the Corporation except
for the Series C Preferred Stock.
(t) "Liquidation Preference" means, with respect to a share of the Series C
Preferred Stock, an amount equal to the sum of (i) the Stated Value thereof,
plus (ii) the aggregate of all accrued and unpaid dividends (whether or not
earned or declared, whether or not there were funds legally available for the
payment of dividends and whether or not a Dividend Payment Due Date has occurred
since the last dividend payment) on such share of Series C Preferred Stock until
the most recent Dividend Payment Due Date; provided that, in the event of an
actual liquidation, dissolution or winding up of the Corporation, the amount
referred to in clause (iii) above shall be calculated by including accrued and
unpaid dividends to the actual date of such liquidation, dissolution or winding
up, rather than the Dividend Payment Due Date referred to above.
(u) "Mandatory Conversion Date" has the meaning set forth in Section 6.8.
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<PAGE>
(v) "Market Price" per Common Share means the arithmetic mean of the
closing bid prices of the Common Shares as reported on Nasdaq for the five
consecutive Trading Days on which the lowest closing bid prices are reported
during any Valuation Period; provided, if such security bid is not listed or
admitted to trading on Nasdaq, as reported on the principal national security
exchange or quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the closing bid price of such
security on the over-the-counter market on the day in question as reported by
Bloomberg LP, or a similar generally accepted reporting service, for the five
consecutive Trading Days on which the five lowest closing bid prices are
reported during any Valuation Period.
(w) "Nasdaq" means the Nasdaq SmallCap Market.
(x) "Optional Redemption Price" has the meaning set forth in Section 6.5.
(y) "Outstanding", when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any Subsidiary of the
Corporation shall not be deemed "Outstanding" for purposes hereof.
(z) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(aa) "Redemption Date" has the meaning set forth in Section 6.5.
(bb) "Registration Rights Agreement" means that certain Registration Rights
Agreement to be dated as of June 28, 2000 between the Corporation and The Shaar
Fund Ltd.
(cc) "SEC" means the United States Securities and Exchange Commission.
(dd) "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.
(ee) "Securities Purchase Agreement" means that certain Securities Purchase
Agreement to be dated as of June 28, 2000 between the Corporation and The Shaar
Fund Ltd.
(ff) "Series C Preferred Shares" or "Series C Preferred Stock" means the
shares of Series C 8% Convertible Preferred Stock of the Corporation or such
other convertible preferred stock of the Corporation as may be exchanged
therefor.
(gg) "Stated Value" has the meaning set forth in Article 2.
(hh) "Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Corporation.
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<PAGE>
(ii) "Trading Day" means any day on which (a) purchases and sales of
securities authorized for quotation on Nasdaq are reported thereon, (b) no event
which results in a material suspension or limitation of trading of the Common
Shares on Nasdaq has occurred and (c) at least one bid for the trading of Common
Shares is reported on Nasdaq.
(jj) "Valuation Event" has the meaning set forth in Section 6.1.
(kk) "Valuation Period" means the period of 20 Trading Days immediately
preceding the Conversion Date; provided, however, that if a Valuation Event
occurs during a Valuation Period on a date less than 5 Trading Days before the
Conversion Date, the Valuation Period shall be extended until the date 5 Trading
Days after the occurrence of the Valuation Event.
All references to "cash" or "$" herein mean currency of the United States
of America.
ARTICLE 2
Designation and Amount
The designation of this series, which consists of 170,000 shares of
Preferred Stock, shall be Series C 8% Convertible Preferred Stock (the "Series C
Preferred Stock") and the stated value shall be $10 per share (the "Stated
Value").
ARTICLE 3
Rank
The Series C Preferred Stock shall rank prior to any other capital stock of
the Corporation.
ARTICLE 4
Dividends
(a) (i) The Holder shall be entitled to receive, when, as and if declared
by the Board of Directors, out of funds legally available for the payment of
dividends, dividends at the Dividend Rate on the Stated Value of each share of
Series C Preferred Stock on and as of each Dividend Payment Due Date with
respect to each Dividend Period; provided, however, that if any dividend is not
paid in full on any Dividend Payment Due Date, dividends shall thereafter accrue
and be payable at the Default Dividend Rate on the Stated Value of each share of
Series C Preferred Stock until all accrued dividends are paid in full. Dividends
on the Series C Preferred Stock shall be cumulative from the date of issue,
whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
(ii) Each dividend shall be payable in equal semi-annual amounts on each
Dividend Payment Due Date, commencing September 30, 2000, to the Holders of
record of shares of the Series C Preferred Stock, as they appear on the stock
records of the Corporation at the close of business on such record date, not
more than 60 days or less than 10 days preceding the payment dates thereof, as
shall be fixed by the Board of Directors. Accrued and unpaid dividends for any
past Dividend Period may be declared and paid at any time, without reference to
any Dividend Payment Due Date, to Holders of record, not more than 15 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
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(iii) At the option of the Corporation, the dividend shall be paid either
(x) in cash or (y) through the issuance of duly and validly authorized and
issued, fully paid and nonassessable shares of the Common Stock valued at the
then applicable Conversion Price calculated in accordance with the provisions of
Section 6.1, assuming for this purpose, that the applicable Dividend Payment
Date is the applicable Conversion Date and registered for resale in open market
transactions on the Registration Statement (as defined in the Registration
Rights Agreement), which Registration Statement shall then be effective under
the Securities Act; provided, however, that if no funds are legally available
for the payment of cash dividends on the Series C Preferred Stock, dividends
shall be paid as provided in clause (y) above.
(b) Except as provided in Section 4(d) hereof, the Holder shall not be
entitled to any dividends in excess of the cumulative dividends, as herein
provided, on the Series C Preferred Stock.
(c) So long as any shares of the Series C Preferred Stock are outstanding,
no dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon any Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any Subsidiary) for any consideration by the
Corporation, directly or indirectly, nor shall any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any Junior
Securities, unless in each case (i) the full cumulative dividends required to be
paid in cash on all outstanding shares of the Series C Preferred Stock shall
have been paid or set apart for payment for all past Dividend Periods with
respect to the Series C Preferred Stock and (ii) sufficient funds shall have
been paid or set apart for the payment of the dividend for the current Dividend
Period with respect to the Series C Preferred Stock.
(d) If the Corporation shall at any time or from time to time after the
Issue Date declare, order, pay or make a dividend or other distribution
(including, without limitation, any distribution of stock or other securities or
property or rights or warrants to subscribe for securities of the Corporation or
any of its Subsidiaries by way of dividend or spin-off) on shares of its Common
Stock, then, and in each such case, in addition to the dividend obligation of
the Corporation specified in Section 4(a) hereof, the Corporation shall declare,
order, pay and make the same dividend or distribution to each Holder of Series C
Preferred Stock as would have been made with respect to the number of Common
Shares the Holder would have received had it converted all of its Series C
Preferred Shares, and exercised the Warrant held by it in full for all the
Common Shares then underlying the Warrant, immediately prior to such dividend or
distribution.
ARTICLE 5
Liquidation Preference; Mergers, Consolidations, etc.
(a) If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee or sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
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respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of 30 consecutive days and, on account of any such event, the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, no distribution shall be made to the holders of
any shares of capital stock of the Corporation upon liquidation, dissolution or
winding-up unless prior thereto, the Holders of shares of Series C Preferred
Stock, subject to this Article 5, shall have received the Liquidation Preference
with respect to each share.
(b) In case the Corporation shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another Person (where the
Corporation is not the survivor or where there is a change in or distribution
with respect to the Common Stock of the Corporation), sell, convey, transfer or
otherwise dispose of all or substantially all its property, assets or business
to another Person, or effectuate a transaction or series of related transactions
in which more than 50% of the voting power of the Corporation is disposed of
(each, a "Fundamental Corporate Change") and, pursuant to the terms of such
Fundamental Corporate Change, shares of common stock of the successor or
acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Corporation, then each Holder of Series C
Preferred Stock shall have the right thereafter, at its sole option, either (x)
to require the Corporation to deem such Fundamental Corporate Change to be a
liquidation, dissolution or winding up of the Corporation pursuant to which the
Corporation shall be required to distribute, upon consummation of and as a
condition to, such Fundamental Corporate Change an amount equal to 100% of the
Liquidation Preference with respect to each outstanding share of Series C
Preferred Stock, (y) to receive the number of shares of common stock of the
successor or acquiring corporation or of the Corporation, if it is the surviving
corporation, and Other Property as is receivable upon or as a result of such
Fundamental Corporate Change by a holder of the number of shares of Common Stock
into which such Series C Preferred Stock may be converted at the Conversion
Price applicable immediately prior to such Fundamental Corporate Change or
(z)require the Corporation, or such successor, resulting or purchasing
corporation, as the case may be, to, without benefit of any additional
consideration therefor, to execute and deliver to the Holder shares of its
Preferred Stock with substantial identical rights, preferences, privileges,
powers, restrictions and other terms as the Series C Preferred Stock equal to
the number of shares of Series C Preferred Stock held by such Holder immediately
prior to such Fundamental Corporate Change; provided, that all Holders of Series
C Preferred Stock shall be deemed to elect the option set forth in clause (x)
above if at least a majority in interest of such Holders elect such option. For
purposes of this Section 5(b), "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 5(b) shall similarly apply to successive
Fundamental Corporate Changes.
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ARTICLE 6
Conversion of Preferred Stock
Section 6.1 Conversion; Conversion Price
At the option of the Holder, the shares of Series C Preferred Stock may be
converted, either in whole or in part, into Common Shares (calculated as to each
such conversion to the nearest 1/100th of a share) at any time and from time to
time following the earlier of (i) the date which is 180 days after the Closing
Date and (ii) the date on which the registration statement filed pursuant to the
Registration Rights Agreement becomes effective, at a Conversion Price per share
of Common Stock equal to the lesser of: (i) 125% of the closing bid price for
the Common Stock on the Closing Date (subject to adjustment for any stock-split
or stock combination to occur after the date hereof), and (ii) 97% of the Market
Price; provided that any unconverted Series C Preferred Stock remaining 211 days
after the Closing Date may be converted, at the sole option of the Holder, at a
Conversion Price per share of Common Stock equal to 94% of the Market Price;
provided, further, that any unconverted Series C Preferred Stock remaining 271
days after the Closing Date may be converted, at the sole option of the Holder,
at a Conversion Price per share of Common Stock equal to 91% of the Market
Price; and provided, further, that if the Corporation's Common Stock is delisted
off Nasdaq for any reason, then any remaining unconverted Series C Preferred
Stock may be converted, at the sole option of the Holder, at a Conversion Price
per share of Common Stock equal to 50% of the Market Price. At the Corporation's
option, the amount of accrued and unpaid dividends as of the Conversion Date
(whether or not earned or declared, whether or not there were funds legally
available for the payment of dividends and whether or not a Dividend Payment Due
Date has occurred since the last dividend payment) shall not be subject to
conversion but instead may be paid in cash as of the Conversion Date; if the
Corporation elects to convert the amount of such accrued and unpaid dividends at
the Conversion Date into Common Stock, the Common Stock issued to the Holder
shall be valued at the applicable Conversion Price.
The number of shares of Common Stock due upon conversion of Series C
Preferred Stock shall be (i) the number of shares of Series C Preferred Stock to
be converted, multiplied by (ii) the Stated Value plus accrued and unpaid
dividends (whether or not earned or declared, whether or not there were funds
legally available for the payment of dividends and whether or not a Dividend
Payment Due Date has occurred since the last dividend payment), to the extent
the Corporation does not at its election pay such accrued and unpaid dividends
in cash, and divided by (iii) the applicable Conversion Price.
Within two Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice thereof to each Holder. Notwithstanding anything
to the contrary contained herein, if a Valuation Event occurs during any
Valuation Period, the Holder may convert some or all of its Series C Preferred
Stock, at its sole option, at a Conversion Price equal to the Current Market
Price on any Trading Day during the Valuation Period.
For purposes of this Section 6.1, a "Valuation Event" shall mean an event
in which the Corporation takes any of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution on its Capital Shares;
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(c) issues any additional Capital Shares (the "Additional Capital Shares"),
otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b) above, at
a price per share less, or for other consideration lower, than the Current
Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans consistent with
those presently in effect and issuances under presently outstanding warrants,
options or convertible securities;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares if the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or exercisable
for Additional Capital Shares if the consideration per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to the
terms of such convertible, exchangeable or exercisable securities shall be less
than the Current Market Price in effect immediately prior to such issuance;
(f) announces or effects a Fundamental Corporate Change;
(g) makes any distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 6.1(a) through 6.1(e)); or
(h) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Sections 6.1(a) through
6.1(g) hereof, inclusive, which in the opinion of the Holder, determined in good
faith, would have a material adverse effect upon the rights of the Holder at the
time of a conversion of the Preferred Stock or is reasonably likely to result in
a decrease in the Market Price.
Section 6.2 Exercise of Conversion Privilege
(a) Conversion of the Series C Preferred Stock may be exercised, in whole
or in part, by the Holder by telecopying an executed and completed Conversion
Notice to the Corporation. Each date on which a Conversion Notice is telecopied
to the Corporation in accordance with the provisions of this Section 6.2 shall
constitute a Conversion Date. The Corporation shall convert the Preferred Stock
and issue the Common Stock Issued at Conversion, and all voting and other rights
associated with the beneficial ownership of the Common Stock Issued at
Conversion shall vest with the Holder, effective as of the Conversion Date at
the time specified in the Conversion Notice. The Conversion Notice also shall
state the name or names (with addresses) of the Persons who are to become the
holders of the Common Stock Issued at Conversion in connection with such
conversion. The Holder shall deliver the shares of Series C Preferred Stock to
the Corporation by express courier within 30 days following the Conversion Date.
Upon surrender for conversion, the Preferred Stock shall be accompanied by a
proper assignment thereof to the Corporation or be endorsed in blank. As
promptly as practicable after the receipt of the Conversion Notice as aforesaid,
but in any event not more than five Business Days after the Corporation's
receipt of such Conversion Notice, the Corporation shall (i) issue the Common
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Stock issued at Conversion in accordance with the provisions of this Article 6,
and (ii) cause to be mailed for delivery by overnight courier to the Holder (x)
a certificate or certificate(s) representing the number of Common Shares to
which the Holder is entitled by virtue of such conversion, (y) cash, as provided
in Section 6.3, in respect of any fraction of a Common Share issuable upon such
conversion and (z) if the Corporation chooses to pay accrued and unpaid
dividends in cash, cash in the amount of accrued and unpaid dividends as of the
Conversion Date. Such conversion shall be deemed to have been effected at the
time at which the Conversion Notice indicates so long as the Series C Preferred
Stock shall have been surrendered as aforesaid at such time, and at such time
the rights of the Holder of the Series C Preferred Stock, as such, shall cease
and the Person or Persons in whose name or names the Common Stock Issued at
Conversion shall be issuable shall be deemed to have become the holder or
holders of record of the Common Shares represented thereby and all voting and
other rights associated with the beneficial ownership of such Common Shares
shall at such time vest with such Person or Persons. The Conversion Notice shall
constitute a contract between the Holder and the Corporation, whereby the Holder
shall be deemed to subscribe for the number of Common Shares which it will be
entitled to receive upon such conversion and, in payment and satisfaction of
such subscription (and for any cash adjustment to which it is entitled pursuant
to Section 6.3), to surrender the Series C Preferred Stock and to release the
Corporation from all liability thereon. No cash payment aggregating less than
$1.00 shall be required to be given unless specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or denies the
right of the Holder hereof to effect the conversion of the Series C Preferred
Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 6.2 or (ii) any third party commences
any lawsuit or proceeding or otherwise asserts any claim before any court or
public or governmental authority which seeks to challenge, deny, enjoin, limit,
modify, delay or dispute the right of the Holder hereof to effect the conversion
of the Series C Preferred Stock into Common Shares, then the Holder shall have
the right, by written notice to the Corporation, to require the Corporation
promptly to redeem the Series C Preferred Stock for cash at a redemption price
equal to 135% of the Stated Value thereof together with all accrued and unpaid
dividends (whether or not earned or declared, whether or not there were funds
legally available for the payment of dividends and whether or not a Dividend
Payment Due Date has occurred since the last dividend payment) thereon (the
"Mandatory Purchase Amount"). Under any of the circumstances set forth above,
the Corporation shall be responsible for the payment of all costs and expenses
of the Holder, including reasonable legal fees and expenses, as and when
incurred in disputing any such action or pursuing its rights hereunder (in
addition to any other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. (subsection)101 et
seq. (the "Bankruptcy Code"). In the event the Corporation is a debtor under the
Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. (subsection) 362 in respect of
the Holder's conversion privilege. The Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C.
(subsection)362 in respect of the conversion of the Series C Preferred Stock.
The Corporation agrees, without cost or expense to the Holder, to take or
consent to any and all action necessary to effectuate relief under 11 U.S.C.
(subsection)362.
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Section 6.3 Fractional Shares
No fractional Common Shares or scrip representing fractional Common Shares
shall be issued upon conversion of the Series C Preferred Stock. Instead of any
fractional Common Shares which otherwise would be issuable upon conversion of
the Series C Preferred Stock, the Corporation shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction.
Section 6.4 Adjustments to Conversion Price
For so long as any shares of the Series C Preferred Stock are outstanding,
if the Corporation issues and sells pursuant to an exemption from registration
under the Securities Act (other than pursuant to presently outstanding warrants,
options or convertible securities) (A) Common Shares at a purchase price that is
lower than the Conversion Price on the date of issuance of such Common Shares,
(B) warrants or options with an exercise price on the date of issuance thereof
that is lower than the Conversion Price for the Holder on such date, except for
warrants or options issued pursuant to employee stock option agreements or stock
incentive agreements of the Corporation, or (C) convertible, exchangeable or
exercisable securities with a right to exchange at lower than the Current Market
Price on the date of issuance or conversion, as applicable, of such convertible,
exchangeable or exercisable securities, except for stock option agreements or
stock incentive agreements, then the Conversion Price shall be reduced to equal
the lowest of any such purchase price, exercise price or exchange price, and the
number of shares of Common Stock into which the Series C Preferred Stock is
convertible pursuant to the second paragraph of Section 6.1 shall be
correspondingly adjusted. After such reduction, the Conversion Price shall never
exceed the Conversion Price as so reduced, in spite of any subsequent increase
in the Market Price.
Section 6.5 Optional Redemption
At any time after the date of issuance of the Series C Preferred Stock
until the Mandatory Conversion Date (as defined below), the Corporation, upon
notice delivered to the Holder as provided in Section 6.6, may redeem, in cash,
the Series C Preferred Stock (but only with respect to such shares as to which
the Holder has not theretofore furnished a Conversion Notice in compliance with
Section 6.2), at 100% of the Stated Value thereof (the "Optional Redemption
Price"), together with all accrued and unpaid dividends (whether or not earned
or declared, whether or not there were funds legally available for the payment
of dividends and whether or not a Dividend Payment Due Date has occurred since
the last dividend payment) thereon to the date of redemption (the "Redemption
Date"); provided, however, that the Corporation may only redeem the Series C
Preferred Stock under this Section 6.5 if the Current Market Price is less than
the Current Market Price on the Issue Date. Except as set forth in this Section
6.5, the Corporation shall not have the right to redeem the Series C Preferred
Stock.
Section 6.6 Notice of Redemption
Notice of redemption pursuant to Section 6.5 shall be provided by the
Corporation to the Holder in writing (by registered mail or overnight courier at
the Holder's last address appearing in the Corporation's security registry) not
less than 10 nor more than 15 days prior to the Redemption Date, which notice
shall specify the Redemption Date and refer to Section 6.5 (including a
statement of the Current Market Price per Common Share) and this Section 6.6.
Section 6.7 Surrender of Preferred Stock
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Upon any redemption of the Series C Preferred Stock pursuant to Sections
6.5 and 6.6, the Holder shall either deliver the Series C Preferred Stock by
hand to the Corporation at its principal executive offices or surrender the same
to the Corporation at such address by express courier within 14 days after the
date that the Buyer receives payment therefore. Payment of the Optional
Redemption Price shall be made by the Corporation to the Holder by wire transfer
of immediately available funds to such account(s) as the Holder shall specify to
the Corporation. If payment of such Optional Redemption Price is not made in
full by the Redemption Date, the Holder shall again have the right to convert
the Series C Preferred Stock as provided in Article 6 hereof. Section 6.8
Mandatory Conversion
On the third anniversary of the date of this Certificate of Designation
(the "Mandatory Conversion Date"), the Corporation shall convert all Series C
Preferred Stock outstanding, at the Conversion Price utilizing the Stated Value
(plus accrued and unpaid dividends (whether or not earned or declared, whether
or not there were funds legally available for the payment of dividends and
whether or not a Dividend Payment Due Date has occurred since the last dividend
payment)) as the value of each share of Series C Preferred Stock, into shares of
Common Stock registered for resale in open market transactions on the
Registration Statement (as defined in the Registration Rights Agreement), which
Registration Statement shall then be effective under the Securities Act.
Section 6.9 Certain Conversion Limitations
(a) Notwithstanding anything herein to the contrary, the Holder shall not
have the right, and the Corporation shall not have the obligation, to convert
all or any portion of the Series C Preferred Stock (and the Corporation shall
not have the right to pay dividends on the Series C Preferred Stock in shares of
Common Stock) if and to the extent that the issuance to the Holder of shares of
Common Stock upon such conversion (or payment of dividends) would result in the
Holder being deemed the "beneficial owner" of more than 5% of the then
Outstanding shares of Common Stock within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder. If any court of competent jurisdiction shall determine that the
foregoing limitation is ineffective to prevent a Holder from being deemed the
beneficial owner of more than 5% of the then Outstanding shares of Common Stock,
then the Corporation shall redeem so many of such Holder's shares (the
"Redemption Shares") of Series C Preferred Stock as are necessary to cause such
Holder to be deemed the beneficial owner of not more than 5% of the then
Outstanding shares of Common Stock. Upon such determination by a court of
competent jurisdiction, the Redemption Shares shall immediately and without
further action be deemed returned to the status of authorized but unissued
shares of Series C Preferred Stock, and the Holder shall have no interest in or
rights under such Redemption Shares. Any and all dividends paid on or prior to
the date of such determination shall be deemed dividends paid on the remaining
shares of Series C Preferred Stock held by the Holder. Such redemption shall be
for cash at a redemption price equal to the sum of (i) 100% of the Stated Value
of the Redemption Shares and (ii) any accrued and unpaid dividends (whether or
not earned or declared, whether or not there were funds legally available for
the payment of dividends and whether or not a Dividend Payment Due Date has
occurred since the last dividend payment) to the date of such redemption.
(b) Notwithstanding anything herein to the contrary, if and to the extent
that, on any date (the "Section 16 Determination Date"), the holding by the
Holder of shares of the Series C Preferred Stock would result in the Holder's
becoming subject to the provisions of Section 16(b) of the Exchange Act in
virtue of being deemed the "beneficial owner" of more than 10% of the then
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Outstanding shares of Common Stock, then the Holder shall not have the right,
and the Corporation shall not have the obligation, to convert so many of such
Holder's shares of Series C Preferred Stock (the "Section 16 Redemption Shares")
as shall cause such Holder to be deemed the beneficial owner of more than 10% of
the then Outstanding shares of Common Stock during the period ending 60 days
after the Section 16 Determination Date. If any court of competent jurisdiction
shall determine that the foregoing limitation is ineffective to prevent a Holder
from being deemed the beneficial owner of more than 10% of the then Outstanding
shares of Common Stock for the purposes of such Section 16(b), then the
Corporation shall redeem the Section 16 Redemption Shares. Upon such
determination by a court of competent jurisdiction, the Section 16 Redemption
Shares shall immediately and without further action be deemed returned to the
status of authorized but unissued shares of Series C Preferred Stock, and the
Holder shall have no interest in or rights under such Section 16 Redemption
Shares. Any and all dividends paid on or prior to the date of such determination
shall be deemed dividends paid on the remaining shares of Series C Preferred
Stock held by the Holder. Such redemption shall be for cash at a redemption
price equal to the sum of (i) 100% of the Stated Value of the Section 16
Redemption Shares and (ii) any declared and unpaid dividends to the date of such
redemption.
(c) Unless the Corporation shall have obtained the approval of its voting
stockholders to such issuance in accordance with the rules of Nasdaq or any
other stock market rules with which the Corporation shall be required to comply,
but only to the extent required thereby, the Corporation shall not issue shares
of Common Stock (i) upon conversion of any shares of Series C Preferred Stock or
(ii) as a dividend on the Series C Preferred Stock, if such issuance of Common
Stock, when added to the number of shares of Common Stock previously issued by
the Corporation (x) upon conversion of shares of the Series C Preferred Stock,
(y) upon exercise of the Warrants issued pursuant to the terms of the Securities
Purchase Agreement and (z) in payment of dividends on the Series C Preferred
Stock, would equal or exceed 20% of the number of shares of the Corporation's
Common Stock which were issued and Outstanding on the Issue Date (the "Maximum
Issuance Amount"). In the event that a properly executed Conversion Notice is
received by the Corporation which would require the Corporation to issue shares
of Common Stock equal to or in excess of the Maximum Issuance Amount, the
Corporation shall honor such conversion request by (a) converting the number of
shares of Series C Preferred Stock stated in the Conversion Notice which is not
in excess of the Maximum Issuance Amount and (b) redeeming the remaining number
of shares of Series C Preferred Stock stated in the Conversion Notice in cash at
a price equal to 100% of the Stated Value thereof, together with all accrued and
unpaid dividends (whether or not earned or declared, whether or not there were
funds legally available for the payment of dividends and whether or not a
Dividend Payment Due Date has occurred since the last dividend payment) on the
total number of shares stated in the Conversion Notice. In the event that the
Corporation shall elect to pay a dividend in shares of Common Stock which would
require the Corporation to issue shares of Common Stock equal to or in excess of
the Maximum Issuance Amount, the Corporation shall pay (1) a dividend in a
number of shares of Common Stock equal to one less than the Maximum Issuance
Amount and (2) the balance of the dividend in cash.
ARTICLE 7
Voting Rights
The Holders of the Series C Preferred Stock have no voting power, except as
otherwise provided by the Business Corporation Law of the State of Massachusetts
(the "MBCL"), in this Article 7, and in Article 8 below.
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Notwithstanding the above, the Corporation shall provide each Holder of
Series C Preferred Stock with prior notification of any meeting of the
shareholders (and copies of all proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice thereof to
each Holder at least 30 days prior to the date on which any such record is to be
taken for the purpose of such dividend, distribution, right or other event,
together with a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the MBCL the vote of the Holders of the Series C
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the Holders of at least a majority of the outstanding shares of
Series C Preferred Stock represented at a duly held meeting at which a quorum is
present or by written consent of a majority of the outstanding shares of Series
C Preferred Stock (except as otherwise may be required under the MBCL) shall
constitute the approval of such action by the class. To the extent that under
the MBCL Holders of the Series C Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series C Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series C Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents (and
copies of all proxy materials and other information sent to shareholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the MBCL.
ARTICLE 8
Protective Provisions
So long as shares of Series C Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided in the MBCL) of the Holders of at least a majority of the
then outstanding shares of Series C Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series C
Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Series C Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series C Preferred Stock;
(c) increase the authorized number of shares of Series C Preferred Stock;
or
(d) do any act or thing not authorized or contemplated by this Certificate
of Designation which would result in taxation of the Holders of shares of the
Series C Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code of 1986, as
hereafter from time to time amended).
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<PAGE>
In the event Holders of least a majority of the then outstanding shares of
Series C Preferred Stock agree to allow the Corporation to alter or change the
rights, preferences or privileges of the shares of Series Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series C Preferred Stock,
then the Corporation will deliver notice of such approved change to the Holders
of the Series Preferred Stock that did not agree to such alteration or change
(the "Dissenting Holders") and Dissenting Holders shall have the right for a
period of 30 days to convert pursuant to the terms of this Certificate of
Designation as in effect prior to such alteration or change or to continue to
hold their shares of Series C Preferred Stock.
Notwithstanding anything to the contrary herein, if at any time the
Corporation shall "spin-off" certain of its assets or businesses by
transferring, directly or indirectly, such assets or businesses to a Subsidiary
of the Corporation ("Spinco") and making a dividend (the "Spin-off Dividend") to
the Corporation's stockholders of the shares of capital stock of Spinco, then
prior to making the Spin-off Dividend, the Corporation shall cause Spinco to
issue to each Holder that number of shares of preferred stock of Spinco with
substantially identical rights, preferences, privileges, powers, restrictions
and other terms as the Series C Preferred Stock equal to the number of shares of
Series C Preferred Shares held by such Holder immediately prior to the Spin-off
Dividend.
ARTICLE 9
Miscellaneous
Section 9.1 Loss, Theft, Destruction of Preferred Stock
Upon receipt of evidence satisfactory to the Corporation of the loss,
theft, destruction or mutilation of shares of Series C Preferred Stock and, in
the case of any such loss, theft or destruction, upon receipt of indemnity or
security reasonably satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of the Series C Preferred Stock, the
Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated shares of Series C Preferred Stock, new shares of Series
C Preferred Stock of like tenor. The Series C Preferred Stock shall be held and
owned upon the express condition that the provisions of this Section 9.1 are
exclusive with respect to the replacement of mutilated, destroyed, lost or
stolen shares of Series C Preferred Stock and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
Section 9.2 Who Deemed Absolute Owner
The Corporation may deem the Person in whose name the Series C Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
may treat it as, the absolute owner of the Series C Preferred Stock for the
purpose of receiving payment of dividends on the Series C Preferred Stock, for
the conversion of the Series C Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary. All such
payments and such conversion shall be valid and effectual to satisfy and
discharge the liability upon the Series C Preferred Stock to the extent of the
sum or sums so paid or the conversion so made.
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<PAGE>
Section 9.3 Fundamental Corporate Change
In the case of the occurrence of any Fundamental Corporate Change described
in Section 5(b), the Corporation shall cause to be mailed to the Holder of the
Series C Preferred Stock at its last address as it appears in the Corporation's
security registry, at least 20 days prior to the applicable record, effective or
expiration date specified in connection therewith (or, if such 20 days notice is
not possible, at the earliest possible date prior to any such record, effective
or expiration date), a notice stating (x) the date on which a record is to be
taken for the purpose of such corporate action, or if a record is not to be
taken, the date as of which the Holders of record of Series C Preferred Stock to
be entitled to any dividend, distribution, issuance or granting of rights,
options or warrants are to be determined or the date on which such Fundamental
Corporate Change is expected to become effective, and (y) the date as of which
it is expected that Holders of record of Series C Preferred Stock will be
entitled to exchange their shares for securities, cash or other property
deliverable upon such Fundamental Corporate Change.
Section 9.4 Register
The Corporation shall keep at its principal office a register in which the
Corporation shall provide for the registration of the Series C Preferred Stock.
Upon any transfer of the Series C Preferred Stock in accordance with the
provisions hereof, the Corporation shall register such transfer on the register
of Series C Preferred Stock.
Section 9.5 Withholding
To the extent required by applicable law, the Corporation may withhold
amounts for or on account of any taxes imposed or levied by or on behalf of any
taxing authority in the United States having jurisdiction over the Corporation
from any payments made pursuant to the Series C Preferred Stock.
Section 9.6 Headings
The headings of the Articles and Sections of this Certificate of
Designation are inserted for convenience only and do not constitute a part of
this Certificate of Designation. Section 9.7 Severability
If any provision of this Certificate of Designation, or the application
thereof to any person or entity or any circumstance, is invalid or
unenforceable, (i) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision, and (ii) the
remainder of this Certificate of Designation and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
[SIGNATURE PAGE FOLLOWS.]
CWT\NYLIB1\474477.2
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<PAGE>
In Witness Whereof, the Corporation has caused this Certificate of
Designation to be signed by its duly authorized officers on June 28, 2000.
PHC, Inc.
By: Name: /s/ Bruce A. Shear
Title: President
By: Name: /s/ Paula C. Wurts
Title: Chief Financial officer
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<PAGE>
ANNEX I
FORM OF CONVERSION NOTICE
To: PHC, Inc.
200 Lake Street, Suite 102
Peabody, MA 01960
Attention: Bruce Shear
The undersigned owner of this Series C 8% Convertible Preferred Stock (the
"Series C Preferred Stock") issued by PHC, Inc. (the "Corporation") hereby
irrevocably exercises its option to convert __________ shares of the Series C
Preferred Stock into shares of the common stock, par value $.01 per share
("Common Stock"), of the Corporation in accordance with the terms of the
Certificate of Designation. The undersigned hereby instructs the Corporation to
convert the number of shares of the Series C Preferred Stock specified above
into Shares of Common Stock Issued at Conversion in accordance with the
provisions of Article 6 of the Certificate of Designation. The undersigned
directs that the Common Stock issuable and certificates therefor deliverable
upon conversion and the recertificated Series C Preferred Stock, if any, not
being surrendered for conversion hereby, together with any check in payment for
fractional Common Stock, be issued in the name of and delivered to the
undersigned unless a different name has been indicated below. All capitalized
terms used and not defined herein have the respective meanings assigned to them
in the Certificate of Designation. So long as the Series C Preferred Stock shall
have been surrendered for conversion hereby, the conversion pursuant hereto
shall be deemed to have been effected at the date and time specified below, and
at such time the rights of the undersigned as a Holder of the Series C Preferred
Stock shall cease and the Person or Persons in whose name or names the Common
Stock Issued at Conversion shall be issuable shall be deemed to have become the
holder or holders of record of the Common Shares represented thereby and all
voting and other rights associated with the beneficial ownership of such Common
Shares shall at such time vest with such Person or Persons.
Date and time:
--------------------------------------- -----------------------------------
Signature
Fill in for registration of Series C Preferred Stock:
Please print name and address (including zip code number)
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<PAGE>
Exhibit 10.71
SECURED TERM NOTE
$500,000.00 MAY 26, 2000
FOR VALUE RECEIVED, and intending to be legally bound, the undersigned,
PHC OF MICHIGAN, INC., a Massachusetts corporation ("BORROWER"), promises to
pay, in lawful money of the United States, to the order of HELLER HEALTHCARE
FINANCE, INC., a Delaware corporation, its successors and assigns ("LENDER"),
the principal sum of FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000.00) (the
"PRINCIPAL SUM") together with interest, costs of collection and other fees as
further set forth in this Secured Term Note (the "NOTE"), to be paid in
accordance with the terms set forth below (the "LOAN").
1. PRINCIPAL AND INTEREST.
a. Beginning November 30, 2001, continuing on the last day of each
month thereafter through September 30, 2002, Borrower shall make eleven (11)
consecutive monthly installment payments, each in the amount of $41,667.00,
which payments shall be applied to Borrower's obligations hereunder. On October
31, 2002, Borrower shall make a final balloon payment of all remaining unpaid
Principal Sum, together with all accrued and unpaid interest, fees, and charges.
b. In addition to 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 (as defined herein). Interest shall be at a
fluctuating rate per annum compounded daily (on the basis of the actual number
of days elapsed over a year of 360 days) equal to the Prime Rate plus three
percent (Prime plus 3.0%) (the "BASE RATE"), provided that after an Event of
Default such 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 Citibank, N.A. (the "BANK"),
or any successor to the Bank, as the rate 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 from the date of this Note
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.
c. Notwithstanding anything in this Section 1 to the contrary, the
Principal Sum, together with all accrued and unpaid interest, fees, and charges,
shall be due and payable on the date (referred to as the "IPO DATE") on which
the initial public offering of Behavioral Health Online, Inc., a Massachusetts
corporation, (the "INTERNET SUBSIDIARY") is closed. For purposes of this Note,
"Maturity Date" shall mean the earlier of October 31, 2002 and the IPO Date.
d. Repayment of Borrower's obligations under this Note is secured by,
among other things, the Collateral defined and described in Section 7 of this
Note.
2. FEES. Borrower acknowledges and agrees that the financing provided by
Lender pursuant to this Note is essential to Borrower in continuing to finance
its operations. Accordingly, in consideration thereof and as a material
inducement to Lender to make the Loan, Borrower shall issue to Lender the
following:
a. a warrant for the purchase of 60,000 shares of PHC, Inc., a
Massachusetts corporation and Borrower's parent as listed on NASDAQ, at a price
per share of $1.50; PROVIDED that such warrant shall include a minimum price
guarantee of $60,000, and such warrant and minimum price guarantee shall all be
in a form acceptable to Lender (collectively, the "MAY 2000 WARRANT"); and
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b. a warrant to purchase a one percent (1%) equity interest in the
Internet Subsidiary, in a form acceptable to Lender (the "INTERNET SUBSIDIARY
Warrant").
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.
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, the following documents
(collectively, the "LOAN DOCUMENTS"):
(A) This Note;
(B) That certain Unconditional Guaranty of Payment and
Performance made by PHC, Inc. in favor of Lender (the "PHC GUARANTY");
(C) That certain Secured Unconditional Guaranty of Payment
and Performance made by BSCBNY, Inc. in favor of Lender (the "BSC GUARANTY");
(D) That certain Unconditional Guaranty of Payment and
Performance made by Bruce A. Shear in favor of Lender (the "SHEAR GUARANTY" and
collectively with the PHC Guaranty and the BSC Guaranty, the "GUARANTIES");
(E) That certain Restated Mortgage made by Borrower as
mortgagor and Lender as mortgagee (the "RESTATED MORTGAGE") covering the real
property commonly known as 35031 23 Mile Road, New Baltimore, Michigan 48047,
which is more particularly described on EXHIBIT "A" to this Note; and
(F) The May 2000 Warrant in a form acceptable to Lender;
(G) The Internet Subsidiary Warrant in a form acceptable to
Lender;
(H) An amendment (the "CROSS-DEFAULT AMENDMENT") to that
certain Cross-Collateralization and Cross-Default Agreement dated as of July
13th, 1998 (as amended, supplemented and modified from time to time, (the
"CROSS-DEFAULT AGREEMENT") by and among Borrower, PHC, Inc., a Massachusetts
corporation, PHC OF UTAH, INC., a Massachusetts corporation, PHC OF VIRGINIA,
INC., a Massachusetts corporation, PHC OF RHODE ISLAND, INC., a Massachusetts
corporation, and PIONEER COUNSELING OF VIRGINIA, INC., a Massachusetts
corporation, which Cross-Default Amendment shall be in a form acceptable to
Lender;
(I) All financing statements and other documents,
certificates and agreements reasonably deemed necessary or appropriate by Lender
to effectuate the transaction;
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<PAGE>
(ii) All representations, warranties and covenants contained in
this Note or otherwise made in writing in connection with this Note or the other
Loan Documents by or on behalf of Borrower shall be true and correct in all
material respects, and no Event of Default shall have occurred or be continuing
under this Note or any other Loan Documents;
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(iii) All representations, warranties and covenants contained in
the Loan Agreement or otherwise made in writing in documents entered into or
executed in connection with the Loan Agreement (collectively with the Loan
Agreement, the "REVOLVING LOAN DOCUMENTS"), by or on behalf of Borrower shall be
true and correct in all material respects, and no Event of Default shall have
occurred and be continuing under the Loan Agreement or the Revolving Loan
Documents;
(iv) All representations, warranties and covenants contained in
that certain Secured Term Note in the original principal amount of $1,100,000
made by Borrower in favor of HealthCare Financial Partners-Funding II, L.P. as
to which Lender is the successor-in-interest and dated March 12, 1997 (as it has
been or may be amended, restated, modified or replaced from time to time, the
"MARCH 97 TERM Note") or otherwise made in writing in documents entered into or
executed in connection with the March 97 Term Note (collectively with the March
97 Term Note, the "MARCH 97 LOAN DOCUMENTS"), by or on behalf of Borrower shall
be true and correct in all material respects, and no Event of Default shall have
occurred and be continuing under the March 97 Term Note or the March 97 Loan
Documents;
(v) All representations, warranties and covenants contained in
that certain Secured Term Note in the original principal amount of $500,000.00
made by Borrower in favor of HCFP Funding II, Inc. and dated as of December 9,
1997 (as it has been or may be amended, restated, modified or replaced from time
to time, the "DECEMBER 97 TERM NOTE"), which December 97 Term Note was assigned
by HCFP Funding II, Inc. to Lender by an Assignment dated July 31, 1999, or
otherwise made in writing in documents entered into or executed in connection
with the December 97 Term Note (collectively with the December 97 Term Note, the
"DECEMBER 97 LOAN DOCUMENTS"), by or on behalf of Borrower shall be true and
correct in all material respects, and no Event of Default shall have occurred
and be continuing under the December 97 Term Note or the December 97 Loan
Documents;
(vi) All representations, warranties and covenants contained in
that certain Secured Term Note in the original principal amount of $1,000,000
made by Borrower in favor of Lender, dated November 23, 1999 (as it has been or
may be amended, restated, modified or replaced from time to time, the "NOVEMBER
99 TERM Note") or otherwise made in writing in documents entered into or
executed in connection with the November 99 Term Note (collectively with the
November 99 Term Note, the "NOVEMBER 99 LOAN DOCUMENTS"), by or on behalf of
Borrower shall be true and correct in all material respects, and no Event of
Default shall have occurred and be continuing under the November 99 Term Note or
the November 99 Loan Documents (the Revolving Loan Documents, the March 97 Loan
Documents, the December 97 Loan Documents and the November 99 Loan Documents are
sometimes collectively referred to as the "EXISTING LOAN DOCUMENTS");
(vii) Lender shall have received amendments to the Loan
Agreement, the March 97 Term Note, the December 97 Term Note, and the November
99 Term Note, respectively, containing appropriate cross-default and
cross-collateralization provisions; and
(viii) 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.
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<PAGE>
b. Borrower hereby irrevocably authorizes Lender to disburse the
proceeds of the Principal Sum 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 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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d. All outstanding principal, interest, fees and other amounts due
under this Note shall be prepaid in full simultaneously with repayment of all
obligations of Borrower under the Revolving Loan Agreement and/or the
termination of the Revolving Loan Agreement or the acceleration by Lender of
Borrower's obligations thereunder.
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.
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: Steven M. Curwin, Deputy General
Counsel, 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 11 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, to secure Borrower's
obligations under this Note and the other Loan Documents, and under the Loan
Agreement and the Revolving Loan Documents, a security interest in the following
(collectively, the "COLLATERAL"):
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(i) All of Borrower's now-owned and hereafter acquired or arising
accounts, contract rights, general intangibles, chattel paper, documents and
instruments, as such terms are defined in the UCC, including, without
limitation, all obligations for the payment of money arising out of Borrower's
sale of goods or rendition of services ("ACCOUNTS"), accounts receivable and
rights to payment of every kind and description, and all of Borrower's contract
rights, chattel paper, documents and instruments with respect thereto, and all
of Borrower's rights, remedies, security and liens, in, to and in respect of the
Accounts, including, without limitation, rights of stoppage in transit,
replevin, repossession and reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, guaranties or other contracts of
suretyship with respect to the Accounts, deposits or other security for the
obligation of any Account Debtor, and credit and other insurance ("ACCOUNT
DEBTOR" means any person obligated on any Account of Borrower, including without
limitation, any Insurer and any Medicaid/Medicare payor);
(ii) All moneys, securities and other property and the proceeds
thereof, now or hereafter held or received by, in transit to, in possession of,
or under the control of Lender or a bailee or Affiliate of Lender, from or for
Borrower, whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all of Borrower's deposits (general or special), balances, sums
and credits with Lender at any time existing ("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);
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(iii) All of Borrower's right, title and interest in, to and in
respect of all goods relating to, or which by sale have resulted in, Accounts,
including, without limitation, all goods described in invoices or other
documents or instruments with respect to, or otherwise representing or
evidencing, any Account, and all returned, reclaimed or repossessed goods;
(iv) All of Borrower's now or hereafter acquired deposit accounts
into which Accounts are deposited, including the Lockbox Account ("LOCKBOX
ACCOUNT" means an account maintained by Borrower at Bank One Arizona, N.A. (or a
successor financial institution), into which all collections of Accounts are
paid directly);
(v) All of Borrower's now owned and hereafter acquired or arising
general intangibles and other property of every kind and description with
respect to, evidencing or relating 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, ledger cards,
contracts, licenses, formulae, tax and other types of refunds, returned and
unearned insurance premiums, rights and claims under insurance policies, and
computer programs, information, software, records, and data, as the same relates
to the Accounts;
(vi) All of Borrower's other 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;
(vii) 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;
(viii) 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;
(ix) The Real Property; and
(x) The proceeds (including, without limitation, insurance
proceeds) of all of the foregoing.
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b. Upon the occurrence of an Event of Default under this Note or the
other Loan Documents, or an Event of Default under any of the Existing Loan
Documents, Lender, in addition to all other rights, options, and remedies
granted to Lender under this Note or at law or in equity, may take any of the
following steps:
(i) Declare the Loan to be immediately due and payable;
(ii) Exercise all other rights granted to it under this Note and
all rights under the UCC in effect in the applicable jurisdiction(s) and under
any other applicable law; and
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(iii) Exercise all rights and remedies under all Loan Documents
or Existing Loan Documents now or hereafter in effect, including but not limited
to:
(A) The right to take possession of, send notices regarding,
and collect directly the Collateral, with or without judicial process;
(B) 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; and
(C) The right to require Borrower at Borrower's expense to
assemble all or any part of the Collateral and make it available to Lender at
any place designated by Lender.
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 in any order (i) the liabilities and obligations of
Borrower to Lender under this Note and the other Loan Documents or (ii) upon the
occurrence of an Event of Default under any of the Existing Loan Documents, the
liabilities and obligations of Borrower under the Existing Loan Documents. All
rights and remedies granted Lender under this Note or under any of the other
Loan Documents, 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 the State of Michigan and in any other
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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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b. Borrower has full corporate power and authority to borrow the
Loan and to enter into, execute, and deliver this Note, and to incur and perform
its obligations under this Note and the other Loan Documents, all of which have
been duly authorized by all necessary corporate action. No consent or approval
of shareholders of, or lenders to, Borrower, and no consent, approval, filing or
registration with any governmental authority is required as a condition to the
validity of this Note or the other Loan Documents or the performance by Borrower
of its obligations under this Note or the other Loan Documents.
c. This Note, when issued and delivered for value received, and all
other Loan Documents constitute the valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms.
d. The execution and delivery by Borrower of this Note and the other
Loan Documents do not, and the performance of Borrower's obligations under this
Note and the other Loan Documents will not, violate, conflict with, constitute a
default under, or result in the creation of a lien or encumbrance (other than a
lien, security interest, charge or other encumbrance in favor of Lender) upon
the property of Borrower under (i) any provision of Borrower's certificate of
incorporation or bylaws, (ii) any provision of any law, rule or regulation
applicable to Borrower, or (iii) any of the following (A) any indenture or other
agreement or instrument to which Borrower is a party or by which Borrower or its
property is bound, or (B) any judgment, order or decree of any court,
arbitration tribunal, or governmental entity applicable to Borrower or
Borrower's properties or assets.
e. There are no actions, suits, proceedings or investigations
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 or the ability of Borrower to perform any obligations under 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, arbitration tribunal or
governmental authority having jurisdiction over Borrower.
f. The audited financial statements of Borrower as of June 30, 1999,
and the unaudited financial statements as of March 31, 2000, certified by the
chief financial officer of Borrower, which were previously delivered to Lender,
are true, correct and complete and fairly present the financial condition of
Borrower and the results of Borrower's operations and changes in financial
condition as of the dates and for the periods referred to, and have been
prepared in accordance with generally accepted accounting principles. There are
no material unrealized or anticipated liabilities, direct or indirect, fixed or
contingent, of Borrower as of the dates of such financial statements that are
not reflected in the financial statements or the notes thereto. There has been
no material adverse change in the business, properties, condition (financial or
otherwise) of Borrower since June 30,1999. Borrower's fiscal year ends on June
30.
g. Borrower is not in default under or with respect to any
obligation in any respect that could be adverse to its business, operations,
property or financial condition, or that could adversely affect the ability of
Borrower to perform its obligations under this Note or the other Loan Documents.
No Event of Default or event that, with the giving of notice or lapse of time,
or both, could become an Event of Default, has occurred and is continuing.
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h. Borrower has good and marketable title to its properties and
assets, including the Collateral and the properties and assets reflected in the
financial statements in described in paragraph (f) above, subject to no lien,
mortgage, pledge, encumbrance or charge of any kind. Borrower has not agreed or
consented to cause any of its properties or assets, whether owned now or
hereafter acquired, to be subject in the future (upon the happening of a
contingency or otherwise) to any lien, mortgage, pledge, encumbrance or charge
of any kind.
i. Borrower has filed, or has obtained extensions for the filing of,
all federal, state and other tax returns which are required to be filed, and has
paid all taxes shown as due on those returns and all assessments, fees and other
amounts due as of the date hereof. All tax liabilities of Borrower were, as of
June 30, 1999 and are now, adequately provided for on Borrower's books. No tax
liability has been asserted by the Internal Revenue Service or other taxing
authority against Borrower for taxes in excess of those already paid.
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j. The use of the proceeds of the Loan and Borrower's issuance of
this Note will not, directly or indirectly, violate or result in a violation of
the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended,
or any regulations issued pursuant thereto, including without limitation
Regulations U, T, or X of the Board of Governors of the Federal Reserve System.
Borrower is not engaged in the business of extending credit for the purpose of
the purchasing or carrying "margin stock" within the meaning of those
regulations. No part of the proceeds of the Loan will be used to purchase or
carry any margin stock or to extend credit to others for such purpose.
k. Borrower is not an investment company within the meaning of the
Investment Company Act of 1940, as amended, nor is it, directly or indirectly,
controlled by or acting on behalf of any Person which is an investment company
within the meaning of that Act.
l. Borrower is not in violation of any statute, rule or regulation
of any governmental authority (including, without limitation, any statute, rule
or regulation relating to employment practices or to environmental, occupational
and health standards and controls). Borrower has obtained all licenses, permits,
franchises, and other governmental authorizations necessary for the ownership of
its properties and the conduct of its business. Borrower is current with all
reports and documents required to be filed with any state or federal securities
commission or similar governmental authority and is in full compliance with all
applicable rules and regulations of such commissions.
m. No use, exposure, release, generation, manufacture, storage,
treatment, transportation or disposal of hazardous material has occurred or is
occurring on or from the Real Property or any other real property on which the
Collateral is located (together with the Real Property, the "PREMISES") or which
is owned, leased or otherwise occupied by Borrower, or has occurred off the
Premises as a result of any action of Borrower. All hazardous material used,
treated, stored, transported to or from, generated or handled on the Premises,
or off the Premises by Borrower, has been disposed of on or off the Premises by
or on behalf of Borrower in a lawful manner. There are no underground storage
tanks present on or under the Premises owned or leased by Borrower. No other
environmental, public health or safety hazards exist with respect to the
Premises.
n. The only places of business of Borrower, and the places where it
keeps and intends to keep the Collateral and records concerning the Collateral,
are at the addresses set forth in SCHEDULE 9(N), which also lists the owner of
record of each such property.
o. Borrower exclusively owns or possesses all the patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, franchises, licenses, and rights with respect to the foregoing
necessary for the current and planned future conduct of its business, without
any conflict with the rights of others. A list of all such intellectual property
(indicating the nature of Borrower's interest), as well as all outstanding
franchises and licenses given by or held by Borrower, is attached as SCHEDULE
9(O). Borrower is not in default of any obligation or undertaking with respect
to such intellectual property or rights.
p. The identity of the stockholders of record of all classes of the
outstanding stock of Borrower, together with the respective ownership
percentages held by such stockholders, are as set forth on SCHEDULE 9(P).
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q. Neither this Note nor any other Loan Document nor any other
agreement, document, certificate, or statement furnished to Lender by or on
behalf of Borrower in connection with the transactions contemplated hereby
contains any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained in this Note or in the other Loan
Documents or such other documents not misleading. There is no fact known to
Borrower that adversely affects or in the future may adversely affect the
business, operations, affairs or financial condition of Borrower, or any of its
properties or assets.
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r. Borrower does not own or hold any equity or long-term debt
investments in, have any outstanding advances to, have any outstanding
guarantees for the obligations of, or have any outstanding borrowings from, any
Person. Borrower is not a party to any contract or agreement, or subject to any
corporate restriction, which adversely affects its business.
s. Within five (5) years before the date of this Note, neither the
business, property or assets, or operations of Borrower has been adversely
affected in any way by any casualty, strike, lockout, combination of workers, or
order of the United States of America or other governmental authority, directed
against Borrower. There are no pending or threatened labor disputes, strikes,
lockouts, or similar occurrences or grievances against Borrower or its business.
t. Within five (5) years before the date of this Note, Borrower has
not conducted business under or used any other name (whether corporate,
partnership or assumed) except as listed on SCHEDULE 9(T). Borrower is the sole
owner of all names listed on that Schedule and any and all business done and
invoices issued in such names are Borrower's sales, business, and invoices. Each
trade name of Borrower represents a division or trading style of Borrower and
not a separate Person or independent Affiliate.
u. Borrower is not engaged in any joint venture or partnership with
any other Person.
10. AFFIRMATIVE AND NEGATIVE COVENANTS. Borrower covenants and agrees that
until this Note shall be repaid in full, it shall be bound by, and shall comply
fully with, all of the affirmative and negative covenants set forth in Article
VI and Article VII of the Loan Agreement, all of which covenants are hereby
incorporated by reference into this Note. To the extent that the Restated
Mortgage, the Guaranties, the May 2000 Warrant and/or the Internet Subsidiary
Warrant are not delivered on or before the date of this Warrant (in a form
acceptable to Lender), such documents shall be delivered by Borrower to Lender,
in a form acceptable to Lender, on or before the fifteenth day after the date of
this Note.
11. 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
b. Borrower has made any representations or warranties in this Note,
the other 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, including without limitation the delivery of
documents pursuant to Sections 4 and 10 hereof, 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
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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
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e. Either (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 sixty (60) 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;
h. An Event of Default occurs under the Loan Agreement or other
Revolving Loan Documents;
i. An Event of Default occurs under the March 97 Term Note or other
March 97 Loan Documents;
j. An Event of Default occurs under the December 97 Term Note
or other December 97 Loan Documents;
k. Borrower ceases any material portion of its business operations
as currently conducted;
l. 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.
12. LENDER'S RIGHTS.
a. Upon the occurrence of an Event of Default, Lender may, in
addition to its rights and remedies set forth in Sections 6 and 7 above,
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, 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
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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.
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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.
13. 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.
14. 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.
15. 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.
16. 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.
17. NOTICES. Any notice or demand given under this Note shall be given by
delivering it, sending by fax (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: Paula Wurts,
Chief Financial Officer, telephone (978) 536-2777, fax (978) 536-2677. Any
notice to be given to Lender under this Note shall be given by personally
delivering it, sending it by fax (with a confirming copy by regular mail),
mailing it by certified 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: Steven M. Curwin, Deputy General
Counsel, telephone (301) 961-1640, fax (301) 664-9866, 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 17 at least
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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 or overnight courier service and five (5) days
after it is deposited in the U.S. mail if it is sent by regular mail.
18. 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.
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19. SEVERABILITY. If any term, provision, covenant or condition of this
Note or the application of such term, provision, covenant or condition to any
party or circumstance shall be found by a court of competent jurisdiction to be,
to any extent, invalid or unenforceable, the remainder of this Note and the
application of such term, provision, covenant, or condition to parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term, provision, covenant or condition
shall be valid and enforced to the fullest extent permitted by law. Upon
determination that any such term, provision, covenant or condition is invalid,
illegal or unenforceable, Lender may, but is not obligated to, advance funds to
Borrower under this Note until Borrower and Lender amend this Note so as to
effect the original intent of the parties as closely as possible in a valid and
enforceable manner.
20. 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.
21. INDEMNITY. Borrower hereby agrees to indemnify and hold harmless
Lender, its partners, officers, agents and employees (collectively,
"INDEMNITEE") from and against any liability, loss, cost, expense, claim,
damage, suit, action or proceeding ever suffered or incurred by Lender
(including reasonable attorneys' fees and expenses) arising from Borrower's
failure to observe, perform or discharge any of its covenants, obligations,
agreements or duties under this Note or from the breach of any of the
representations or warranties contained in this Note. In addition, Borrower
shall defend Indemnitee against and save it harmless from all claims of any
Person with respect to the Collateral. Notwithstanding any contrary provision in
this Agreement, the obligations of Borrower under this Section 21 shall survive
the payment in full of the all obligations under this Note and the termination
of this Note.
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 17 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
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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.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the undersigned have executed this Secured Term Note as of
the day and year first above written.
BORROWER:
PHC OF MICHIGAN, INC.
a Massachusetts corporation
By: /s/ Bruce A. Shear
President
WITH RESPECT TO SECTIONS 2(B) AND 4(A)(I)(G) ONLY
BEHAVIORAL HEALTH ONLINE, INC.
A Massachusetts corporation
By: /s/ Bruce A. Shear
Name: Bruce A. Shear
President
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Exhibit 10.72
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of June 28, 2000 (this
"Agreement"), by and between PHC, Inc., a Massachusetts corporation, with
principal executive offices located at 200 Lake Street, Suite 102, Peabody, MA
01960 (the "Company"), and The Shaar Fund Ltd. (the "Initial Investor").
Whereas, upon the terms and subject to the conditions of the Securities
Purchase Agreement dated as of June 28, 2000, by and between the Initial
Investor and the Company (the "Securities Purchase Agreement"), the Company has
agreed to issue and sell to the Initial Investor (i) an aggregate of 170,000
shares of Series C 8% Convertible Preferred Stock, par value $.01 per share (the
"Preferred Shares") which, upon the terms of and subject to the conditions of
the Company's Certificate of Designation of Series C 8% Convertible Preferred
Stock (the "Certificate of Designation"), are convertible into shares of the
Company's class A common stock, par value $.01 per share (the "Common Stock")
and (ii) Common Stock Purchase Warrants (the "Warrants") to purchase shares of
Common Stock; and
Whereas, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide with respect to
the Common Stock issued or issuable in lieu of cash dividend payments on the
Preferred Shares, upon conversion of the Preferred Shares and exercise of the
Warrants certain registration rights under the Securities Act;
Now, Therefore, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows: 1. Definitions (a) As used in this Agreement, the following
terms shall have the meanings: (i) "Affiliate," of any specified Person means
any other Person who directly, or indirectly through one or more intermediaries,
is in control of, is controlled by, or is under common control with, such
specified Person. For purposes of this definition, control of a Person means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract, securities,
ownership or otherwise; and the terms "controlling" and "controlled" have the
respective meanings correlative to the foregoing. (ii) "Closing Date" shall have
the meaning set forth in the Securities Purchase Agreement. (iii) "Commission"
means the Securities and Exchange Commission. (iv) "Current Market Price" on any
date of determination means the closing bid price of a share of the Common Stock
on such day as reported on the Nasdaq SmallCap Market ("Nasdaq"); provided, if
such security is not listed or admitted to trading on the Nasdaq, as reported on
the principal national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange or quotation system,
the closing bid price of such security on the over-the-counter market on the day
in question as reported by Bloomberg LP, or a similar generally accepted
reporting service, as the case may be. (v) "Exchange Act" means the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Commission thereunder, or any similar successor statute. (vi) "Investor" means
each of the Initial Investor and any permitted transferee or assignee of
Registrable Securities which agrees to become bound by all of the terms and
provisions of this Agreement in accordance with Section 8 hereof. (vii) "Person"
means any individual, partnership, corporation, limited liability company, joint
stock company, association, trust, unincorporated organization, or a government
or agency or political subdivision thereof. (viii) "Prospectus" means the
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prospectus (including, without limitation, any preliminary prospectus and any
final prospectus filed pursuant to Rule 424(b) under the Securities Act,
including any prospectus that discloses information previously omitted from a
prospectus filed as part of an effective registration statement in reliance on
Rule 430A under the Securities Act) included in the Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and supplements to such
prospectus, including all material incorporated by reference in such prospectus
and all documents filed after the date of such prospectus by the Company under
the Exchange Act and incorporated by reference therein. (ix) "Public Offering"
means an offer registered with the Commission and the appropriate state
securities commissions by the Company of its Common Stock and made pursuant to
the Securities Act. (x) "Registrable Securities" means the Common Stock issued
or issuable (i) in lieu of cash dividend payments on the Preferred Shares, (ii)
upon conversion or redemption of the Preferred Shares or (iii) upon exercise of
the Warrants; provided, however, a share of Common Stock shall cease to be a
Registrable Security for purposes of this Agreement when it no longer is a
Restricted Security. (xi) "Registration Statement" means a registration
statement of the Company filed on an appropriate form under the Securities Act
providing for the registration of, and the sale on a continuous or delayed basis
by the holders of, all of the Registrable Securities pursuant to Rule 415 under
the Securities Act, including the Prospectus contained therein and forming a
part thereof, any amendments to such registration statement and supplements to
such Prospectus, and all exhibits to and other material incorporated by
reference in such registration statement and Prospectus. (xii) "Restricted
Security" means any share of Common Stock issued or issuable in lieu of cash
dividend payments on the Preferred Shares, upon conversion or redemption of the
Preferred Shares or exercise of the Warrants except any such share that (i) has
been registered pursuant to an effective registration statement under the
Securities Act and sold in a manner contemplated by the prospectus included in
such registration statement, (ii) has been transferred in compliance with the
resale provisions of Rule 144 under the Securities Act (or any successor
provision thereto) or is transferable pursuant to paragraph (k) of Rule 144
under the Securities Act (or any successor provision thereto), or (iii)
otherwise has been transferred and a new share of Common Stock not subject to
transfer restrictions under the Securities Act has been delivered by or on
behalf of the Company. (xiii) "Securities Act" means the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder, or any
similar successor statute. (b) All capitalized terms used and not defined herein
have the respective meaning assigned to them in the Securities Purchase
Agreement. 2. Registration (a) Filing and Effectiveness of Registration
Statement. The Company shall prepare and file with the Commission not later than
60 days after the Closing Date, a Registration Statement relating to the offer
and sale of the Registrable Securities and shall use its best efforts to cause
the Commission to declare such Registration Statement effective under the
Securities Act as promptly as practicable but in no event later than 150 days
after the Closing Date, assuming for purposes hereof a Conversion Price under
the Certificate of Designation of $.75 per share. The Company shall promptly
(and, in any event, no more than 24 hours after it receives comments from the
Commission), notify the Buyer when and if it receives any comments from the
Commission on the Registration Statement and promptly forward a copy of such
comments, if they are in writing, to the Buyer. At such time after the filing of
the Registration Statement pursuant to this Section 2(a) as the Commission
indicates, either orally or in writing, that it has no further comments with
respect to such Registration Statement or that it is willing to entertain
appropriate requests for acceleration of effectiveness of such Registration
Statement, the Company shall promptly, and in no event later than two business
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days after receipt of such indication from the Commission, request that the
effectiveness of such Registration Statement be accelerated within 48 hours of
the Commission's receipt of such request. The Company shall not include any
other securities in the Registration Statement relating to the offer and sale of
the Registrable Securities. The Company shall notify the Initial Investor by
written notice that such Registration Statement has been declared effective (the
"Effective Date") by the Commission within 24 hours of such declaration by the
Commission. (b) Registration Default. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a), is not (i) filed with the Commission within 60 days after the Closing Date
or (ii) declared effective by the Commission within 150 days after the Closing
Date (either of which, without duplication, an "Initial Date"), then the Company
shall make the payments to the Initial Investor as provided in the next sentence
as liquidated damages and not as a penalty. The amount to be paid by the Company
to the Initial Investor shall be determined as of each Computation Date (as
defined below), and such amount shall be equal to 2% (the "Liquidated Damage
Rate") of the Purchase Price (as defined in the Securities Purchase Agreement)
from the Initial Date to the first Computation Date and for each Computation
Date thereafter, calculated on a pro rata basis to the date on which the
Registration Statement is filed with (in the event of an Initial Date pursuant
to clause (i) above) or declared effective by (in the event of an Initial Date
pursuant to clause (ii) above) the Commission (the "Periodic Amount") provided,
however, that in no event shall the liquidated damages be less than $25,000;
provided, further, however, that if the Registration Statement is not declared
effective by the Commission within 210 days after the Initial Date set forth in
clause (ii) above, then the Liquidated Damage Rate shall increase to 4%;
provided, further, however, that the Liquidated Damage Rate shall increase by 1%
for each 30 day period after the 210th day after the Initial Date set forth in
clause (ii) above that the Registration Statement is not declared effective by
the Commission. The full Periodic Amount shall be paid by the Company to the
Initial Investor by wire transfer of immediately available funds within three
days after each Computation Date.
As used in this Section 2(b), "Computation Date" means the date which is 30
days after the Initial Date and, if the Registration Statement required to be
filed by the Company pursuant to Section 2(a) has not theretofore been declared
effective by the Commission, each date which is 30 days after the previous
Computation Date until such Registration Statement is so declared effective. (c)
Eligibility for Use of Form S-3. The Company agrees that at such time as it
meets all the requirements for the use of Securities Act Registration Statement
on Form S-3 it shall file all reports and information required to be filed by it
with the Commission in a timely manner and take all such other action so as to
maintain such eligibility for the use of such form. (d) Additional Registration
Statement. In the event the Current Market Price declines to $.90 per share or
less and each time thereafter that the Current Market Price declines by 10%
(each such date, a "Decline Date"), the Company shall, to the extent required by
the Securities Act (because the additional shares were not covered by the
Registration Statement filed pursuant to Section 2(a)), as reasonably determined
by the Initial Investor, file an additional Registration Statement with the
Commission for such additional number of Registrable Securities as would be
issuable upon conversion of the Preferred Shares and exercise of the Warrants
(the Additional Registrable Securities") in addition to those previously
registered, assuming (x) with respect to the first Additional Registration
Statement, a Conversion Price of $.40 per share and (y) with respect to each
succeeding Additional Registration Statement, a Conversion Price of 10% less
than the Conversion Price assumed with respect to the immediately preceding
Additional Registration Statement. The Company shall, to the extent required by
the Securities Act, as reasonably determined by the Initial Investor, prepare
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and file with the Commission not later than the 30th day thereafter, a
Registration Statement relating to the offer and sale of such Additional
Registrable Securities and shall use its best efforts to cause the Commission to
declare such Registration Statement effective under the Securities Act as
promptly as practicable but not later than 60 days thereafter. The Company shall
not include any other securities in the Registration Statement relating to the
offer and sale of such Additional Registrable Securities.
If the Additional Registration Statement is not (i) filed with the
Commission within 30 days after the Decline Date or (ii) declared effective by
the Commission within 90 days after the Decline Date (either of which, without
duplication, an "Additional Registration Date"), then the Company shall make the
payments to the Initial Investor at the Liquidated Damage Rate from the
Additional Registration Date to the first Additional Computation Date and for
each Additional Computation Date thereafter, calculated on a pro rata basis to
the date on which the Additional Registration Statement is filed with (in the
event of an Additional Registration Date pursuant to clause (i) above) or
declared effective by (in the event of an Additional Registration Date pursuant
to clause (ii) above) the Commission (the "Additional Periodic Amount")
provided, however, that in no event shall the liquidated damages be less than
$25,000; provided, further, however, that if the Additional Registration
Statement is not declared effective by the Commission within 120 days after the
Additional Registration Date set forth in clause (ii) above, then the Liquidated
Damage Rate shall increase to 4%; provided, further, however, that the
Liquidated Damage Rate shall increase by 1% for each 30 day period after the
120th day after the Additional Registration Date set forth in clause (ii) above
that the Additional Registration Statement is not declared effective by the
Commission. The full Additional Periodic Amount shall be paid by the Company to
the Initial Investor by wire transfer of immediately available funds within
three days after each Additional Computation Date.
As used in this Section 2(d), "Additional Computation Date" means the date
which is 30 days after the Additional Registration Date and, if the Additional
Registration Statement required to be filed by the Company pursuant to this
Section 2(d) has not theretofore been declared effective by the Commission, each
date which is 30 days after the previous Additional Computation Date until such
Additional Registration Statement is so declared effective.
(e) (i) If the Company proposes to register any of its warrants, Common
Stock or any other shares of common stock of the Company under the Securities
Act (other than a registration (A) on Form S-8 or S-4 or any successor or
similar forms, (B) relating to Common Stock or any other shares of common stock
of the Company issuable upon exercise of employee share options or in connection
with any employee benefit or similar plan of the Company or (C) in connection
with a direct or indirect acquisition by the Company of another Person or any
transaction with respect to which Rule 145 (or any successor provision) under
the Securities Act applies), whether or not for sale for its own account, it
will each such time, give prompt written notice at least 20 days prior to the
anticipated filing date of the registration statement relating to such
registration to each Investor, which notice shall set forth such Investor's
rights under this Section 2(e) and shall offer such Investor the opportunity to
include in such registration statement such number of Registrable Securities as
such Investor may request. Upon the written request of any Investor made within
10 days after the receipt of notice from the Company (which request shall
specify the number of Registrable Securities intended to be disposed of by such
Investor), the Company will use its best efforts to effect the registration
under the Securities Act of all Registrable Securities that the Company has been
so requested to register by each Investor, to the extent requisite to permit the
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disposition of the Registrable Securities so to be registered; provided,
however, that (A) if such registration involves a Public Offering, each Investor
must sell its Registrable Securities to any underwriters selected by the Company
and (B) if, at any time after giving written notice of its intention to register
any Registrable Securities pursuant to this Section 2 and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register such Registrable
Securities, the Company shall give written notice to each Investor and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration. The Company's obligations under
this Section 2(e) shall terminate on the date that the registration statement to
be filed in accordance with Section 2(a) is declared effective by the
Commission.
(ii) If a registration pursuant to this Section 2(e) involves a Public
Offering and the managing underwriter thereof advises the Company that, in its
view, the number of shares of Common Stock, Warrants or other shares of Common
Stock that the Company and the Investors intend to include in such registration
exceeds the largest number of shares of Common Stock or Warrants (including any
other shares of Common Stock or Warrants of the Company) that can be sold
without having an adverse effect on such Public Offering (the "Maximum Offering
Size"), the Company will include in such registration only such number of shares
of Common Stock or Warrants, as applicable, as does not exceed the Maximum
Offering Size, and the number of shares in the Maximum Offering Size shall be
allocated among the Company, the Investors and any other sellers of Common Stock
or Warrants in such Public Offering ("Third-Party Sellers"), first, pro rata
among the Investors until all the shares of Common Stock or Warrants originally
proposed to be offered for sale by the Investors have been allocated, and
second, pro rata among the Company and any Third-Party Sellers, in each case on
the basis of the relative number of shares of Common Stock or Warrants
originally proposed to be offered for sale under such registration by each of
the Investors, the Company and the Third-Party Sellers, as the case may be. If
as a result of the proration provisions of this Section 2(e)(ii), any Investor
is not entitled to include all such Registrable Securities in such registration,
such Investor may elect to withdraw its request to include any Registrable
Securities in such registration. With respect to registrations pursuant to this
Section 2(e), the number of securities required to satisfy any underwriters'
over-allotment option shall be allocated among the Company, the Investors and
any Third Party Seller pro rata on the basis of the relative number of
securities offered for sale under such registration by each of the Investors,
the Company and any such Third Party Sellers before the exercise of such
over-allotment option.
3. Obligations of the Company
In connection with the registration of the Registrable Securities, the
Company shall:
(a) Promptly (i) prepare and file with the Commission such amendments
(including post-effective amendments) to the Registration Statement and
supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of five years from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
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covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred in a
manner that results in the delivery of new securities not subject to transfer
restrictions under the Securities Act (the "Registration Period") and (ii) take
all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, not misleading and
(B) the Prospectus forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing provisions of this Section 3(a), the Company may,
during the Registration Period, suspend the use of the Prospectus for a period
not to exceed 60 days (whether or not consecutive) in any 12-month period if the
Board of Directors of the Company determines in good faith that because of valid
business reasons, including pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets, pending material
corporate developments and similar events, it is in the best interests of the
Company to suspend such use, and prior to or contemporaneously with suspending
such use the Company provides the Investors with written notice of such
suspension, which notice need not specify the nature of the event giving rise to
such suspension. At the end of any such suspension period, the Company shall
provide the Investors with written notice of the termination of such suspension;
(b) During the Registration Period, comply with the provisions of the
Securities Act with respect to the Registrable Securities of the Company covered
by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement;
(c) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide (A) draft copies
thereof to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (B) to the Investors a
copy of the accountant's consent letter to be included in the filing and (ii)
furnish to each Investor whose Registrable Securities are included in the
Registration Statement and its legal counsel identified to the Company, (A)
promptly after the same is prepared and publicly distributed, filed with the
Commission, or received by the Company, one copy of the Registration Statement,
each Prospectus, and each amendment or supplement thereto, and (B) such number
of copies of the Prospectus and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) (i) Register or qualify the Registrable Securities covered by the
Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
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registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction or
(C) file a general consent to service of process in any such jurisdiction;
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the
Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
(g) Cause all the Registrable Securities covered by the Registration
Statement to be listed on the principal national securities exchange, and
included in an inter-dealer quotation system of a registered national securities
association, on or in which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent for the Registrable Securities not later than
the effective date of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the registration statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Investors reasonably may
request and registered in such names as the Investor may request; and, within
three business days after a registration statement which includes Registrable
Securities is declared effective by the Commission, deliver and cause legal
counsel selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such registration statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
(j) Take all such other lawful actions reasonably necessary to expedite and
facilitate the disposition by the Investors of their Registrable Securities in
accordance with the intended methods therefor provided in the Prospectus which
are customary under the circumstances;
(k) Make generally available to its security holders as soon as
practicable, but in any event not later than three (3) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and
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(ii) the effective date of each post-effective amendment to the
Registration Statement, as the case may be, an earnings statement of the Company
and its subsidiaries complying with Section 11(a) of the Securities Act and the
rules and regulations of the Commission thereunder (including, at the option of
the Company, Rule 158);
(l) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by Investors, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided, further, that, if the foregoing inspection and information
gathering would otherwise disrupt the Company's conduct of its business, such
inspection and information gathering shall, to the maximum extent possible, be
coordinated on behalf of the Investors and the other parties entitled thereto by
one firm of counsel designed by and on behalf of the majority in interest of
Investors and other parties;
(n) In connection with any underwritten offering, make such representations
and warranties to the Investors participating in such underwritten offering and
to the managers, in form, substance and scope as are customarily made by the
Company to underwriters in secondary underwritten offerings;
(o) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
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the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold comfort"
letters and updates thereof from the independent public accountants of the
Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(q) In connection with any underwritten offering, deliver such documents
and certificates as may be reasonably required by the managers, if any; and
(r) In the event that any broker-dealer registered under the Exchange Act
shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD
Rules") (or any successor provision thereto)) of the Company or has a "conflict
of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor
provision thereto)) and such broker-dealer shall underwrite, participate as a
member of an underwriting syndicate or selling group or assist in the
distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 6 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
4. Obligations of the Investors
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. As least seven days prior to
the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
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such Investor (the "Requested Information") if such Investor elects to have any
of its Registrable Securities included in the Registration Statement. If at
least two business days prior to the anticipated filing date the Company has not
received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor and have no
further obligations to the Non-Responsive Investor; (b) Each Investor by its
acceptance of the Registrable Securities agrees to cooperate with the Company in
connection with the preparation and filing of the Registration Statement
hereunder, unless such Investor has notified the Company in writing of its
election to exclude all of its Registrable Securities from the Registration
Statement; and (c) Each Investor agrees that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in Section 3(e)
or 3(f), it shall immediately discontinue its disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(e) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice. 5.
Expenses of Registration
All expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Section
3, but including, without limitation, all registration, listing, and
qualifications fees, printing and engraving fees, accounting fees, and the fees
and disbursements of counsel for the Company, and the reasonable fees of one
firm of counsel to the holders of a majority in interest of the Registrable
Securities shall be borne by the Company.
6. Indemnification and Contribution
(a) The Company shall indemnify and hold harmless each Investor and each
underwriter, if any, which facilitates the disposition of Registrable
Securities, and each of their respective officers and directors and each person
who controls such Investor or underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such person being
sometimes hereinafter referred to as an "Indemnified Person") from and against
any losses, claims, damages or liabilities, joint or several, to which such
Indemnified Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
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omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
(b) Indemnification by the Investors and Underwriters. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company or such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in light of the circumstances under which they were
made, in the case of the Prospectus), not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such holder or
underwriter expressly for use therein; provided, however, that no Investor or
underwriter shall be liable under this Section 6(b) for any amount in excess of
the net proceeds paid to such Investor or underwriter in respect of shares sold
by it, and (ii) reimburse the Company for any legal or other expenses incurred
by the Company in connection with investigating or defending any such action or
claim as such expenses are incurred.
(c) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section 6 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
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reasonably have concluded that representation of the Indemnified Party and the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
(d) Contribution. If the indemnification provided for in this Section 6 is
unavailable to or insufficient to hold harmless an Indemnified Person under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnifying Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 6(d).
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Investors and any underwriters in this
Section 6(d) to contribute shall be several in proportion to the percentage of
Registrable Securities registered or underwritten, as the case may be, by them
and not joint.
(e) Notwithstanding any other provision of this Section 6, in no event
shall any (i) Investor be required to undertake liability to any person under
this Section 6 for any amounts in excess of the dollar amount of the proceeds to
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be received by such Investor from the sale of such Investor's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are to be registered under the Securities Act and (ii) underwriter be
required to undertake liability to any Person hereunder for any amounts in
excess of the aggregate discount, commission or other compensation payable to
such underwriter with respect to the Registrable Securities underwritten by it
and distributed pursuant to the Registration Statement. (f) The obligations of
the Company under this Section 6 shall be in addition to any liability which the
Company may otherwise have to any Indemnified Person and the obligations of any
Indemnified Person under this Section 6 shall be in addition to any liability
which such Indemnified Person may otherwise have to the Company. The remedies
provided in this Section 6 are not exclusive and shall not limit any rights or
remedies which may otherwise be available to an indemnified party at law or in
equity.
7. Rule 144
With a view to making available to the Investors the benefits of Rule 144
under the Securities Act or any other similar rule or regulation of the
Commission that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to
use its best efforts to:
(a) comply with the provisions of paragraph (c) (1) of Rule 144; and
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Investor, make available other information as required
by, and so long as necessary to permit sales of, its Registrable Securities
pursuant to Rule 144.
8. Assignment
The rights to have the Company register Registrable Securities pursuant to
this Agreement shall be automatically assigned by the Investors to any permitted
transferee of all or any portion of such Registrable Securities (or all or any
portion of any Preferred Shares or Warrant of the Company which is convertible
into such securities) pursuant to any assignment permitted by applicable laws
only if: (a) the Investor agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (b) the Company is, within a
reasonable time after such transfer or assignment, furnished with written notice
of (i) the name and address of such transferee or assignee and (ii) the
securities with respect to which such registration rights are being transferred
or assigned, (c) immediately following such transfer or assignment, the
securities so transferred or assigned to the transferee or assignee constitute
Restricted Securities, and (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein.
9. Amendment and Waiver
Any provision of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
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retroactively or prospectively), only with the written consent of the Company
and Investors who hold a majority-in-interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 9 shall be binding
upon each Investor and the Company.
10. Changes in Common Stock
If, and as often as, there are any changes in the Common Stock by way of
stock split, stock dividend, reverse split, combination or reclassification, or
through merger, consolidation, reorganization or recapitalization, or by any
other means, appropriate adjustment shall be made in the provisions hereof, as
may be required, so that the rights and privileges granted hereby shall continue
with respect to the Common Stock as so changed.
11. Miscellaneous
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) If, after the date hereof and prior to the Commission declaring the
Registration Statement to be filed pursuant to Section 2(a) effective under the
Securities Act, the Company grants to any Person any registration rights with
respect to any Company securities which are more favorable to such other Person
than those provided in this Agreement, then the Company forthwith shall grant
(by means of an amendment to this Agreement or otherwise) identical registration
rights to all Investors hereunder.
(c) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
(i) if to the Company, to:
PHC, Inc.
200 Lake Street, Suite 102
Peabody, MA 01960
Attention: Bruce Shear
(978) 536-2777
(978) 536-2677 (fax)
with a copy to:
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, N.W.
Washington, DC 20036-5339
Attention: Arnold R. Westerman
(202) 857-6000
(202) 857-6395 (fax)
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(ii) if to the Initial Investor, to:
The Shaar Fund Ltd.,
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
(iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company.
The Company, the Initial Investor or any Investor may change the foregoing
address by notice given pursuant to this Section 11(c).
(d) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(e) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(g) The Company shall not enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder or gives any
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other party the right to include any securities in any Registration Statement
filed pursuant hereto, except for such rights and conflicts as have been
irrevocably waived. Without limiting the generality of the foregoing, without
the written consent of the holders of a majority in interest of the Registrable
Securities, the Company shall not grant to any person the right to request it to
register any of its securities under the Securities Act unless the rights so
granted are subject in all respect to the prior rights of the holders of
Registrable Securities set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement. The restrictions on the
Company's rights to grant registration rights under this paragraph shall
terminate on the date the Registration Statement to be filed pursuant to Section
2(a) is declared effective by the Commission.
(h) This Agreement, the Securities Purchase Agreement, the Escrow
Instructions, dated as of a date even herewith (the "Escrow Instructions"),
between the Company, the Initial Investor and Cadwalader, Wickersham & Taft, the
Preferred Shares and the Warrants constitute the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement, the Securities Purchase Agreement, the
Escrow Instructions, the Certificate of Designation and the Warrants supersede
all prior agreements and undertakings among the parties hereto with respect to
the subject matter hereof.
(i) Subject to the requirements of Section 8 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(j) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(k) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(l) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3, or any delay in such performance could result in
direct damages to the Investors and the Company agrees that, in addition to any
other liability the Company may have by reason of any such failure or delay, the
Company shall be liable for all direct damages caused by such failure or delay.
(m) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
[SIGNATURE PAGE FOLLOWS.]
CWT\NYLIB1\474479.7
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In Witness Whereof, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
PHC, Inc.
By: Name: /s/ Bruce A. Shear
Title: President
The Shaar Fund Ltd.
By: Intercaribbean Services (the sole
director of The Shaar Fund)
By: _____________________________
Name:
Title:
By: CITA Investments (a sub-advisor to
Shaar Advisors Services, N.V., the
advisor to The Shaar Fund)
By: Name: /s/ Uri Wolfson
Title:
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Exhibit 10.73
RELEASE NOTICE
June 28, 2000
The Undersigned, pursuant to the Escrow Instructions, dated June 28, 2000,
(the "Escrow Instructions"), among PHC, Inc., (the "Company"), The Shaar Fund
Ltd., and Cadwalader, Wickersham & Taft, as Escrow Agent, hereby notify the
Escrow Agent that each of the conditions precedent to the purchase and sale of
the Securities set forth in Articles VIII and IX of the Securities Purchase
Agreement have been satisfied. The Company hereby authorizes the release by the
Escrow Agent of the Escrowed Certificates to The Shaar Fund Ltd., and The Shaar
Fund Ltd. hereby authorizes the release by the Escrow Agent to the Company of
the Escrow Funds. The undersigned hereby instruct the Escrow Agent to withhold
$50,000 from the Escrowed Funds as payment in full of The Shaar Fund Ltd.
expenses in accordance with the provisions of the Escrow Instructions.
Capitalized terms used herein and not defined shall have the meaning ascribed to
such terms in the Escrow Instructions.
The Escrow Agent shall transfer $950,000 of the Escrowed Funds by wire
transfer to the Company's account at:
Bank: Fleet Bank
75 State Street
Boston, MA 02109
ABA No.: 011000138
Acct. Name: PHC, Inc.
DBA Pioneer Behavioral Health
200 Lake Street, Suite 102
Peabody MA 01960
Acct. No: 93738-21232
This Release Notice may be signed in one or more counterparts, each of
which shall be deemed an original.
[SIGNATURE PAGE FOLLOWS.]
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In Witness Whereof, the undersigned have caused this Release Notice to be
duly executed and delivered as of the date first above written.
PHC, Inc.
By: Name: /s/ Bruce A. Shear
Title: President
The Shaar Fund Ltd.
By: Intercaribbean Services (the
sole director of The Shaar Fund)
By: ___________________________________
Name:
Title:
By: CITA Investments (a sub-advisor
to Shaar Advisors Services, N.V.,
the advisor to The Shaar Fund)
By: Name: /s/ Uri Wolfson
Title:
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Exhibit 10.74
ESCROW INSTRUCTIONS
June 28, 2000
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
Ladies and Gentlemen:
Reference is hereby made to that certain Securities Purchase Agreement,
dated as of a date even herewith (the "Securities Purchase Agreement"), between
PHC, Inc., a Massachusetts corporation (the "Company"), and The Shaar Fund Ltd.
(the "Buyer"), pursuant to which, upon the terms and subject to the conditions
set forth therein, the Company has agreed to issue and sell to the Buyer and the
Buyer has agreed to purchase from the Company, on the Closing Date, 136,000
shares of the Company's Series C 8% Convertible Preferred Stock, par value $.01
per share (the "Preferred Shares") and warrants to purchase 125,000 shares of
the Company's common stock, par value $.01 per share (the "Warrants", and
together with the Preferred Shares, the "Securities"). Pursuant to Article I of
the Securities Purchase Agreement, the Company and the Buyer are required to
deposit certain funds and other property (more particularly referred to in the
next succeeding paragraph) into escrow to facilitate consummation of the
transactions contemplated by the Securities Purchase Agreement. All capitalized
terms used and not defined herein have the respective meanings assigned to them
in the Securities Purchase Agreement.
In accordance with the terms and subject to the conditions specified in
these Escrow Instructions, Cadwalader, Wickersham & Taft, in its capacity as
escrow agent (the "Escrow Agent"), is hereby authorized and directed to accept
the delivery of and to hold in escrow the (i) certificate(s) evidencing the
Securities to be purchased by the Buyer under the Securities Purchase Agreement
and deposited by the Company into escrow hereunder (the "Escrowed Certificates")
and (ii) Purchase Price (the "Escrowed Funds", and together with the Escrowed
Certificates, the "Escrowed Property") deposited by the Buyer into escrow
hereunder, in each case in accordance with the following: 1. The Escrow Agent
shall, as promptly as practicable, notify the Company of its receipt from the
Buyer of the Escrowed Funds and notify the Buyer of its receipt from the Company
of the Escrowed Certificates. As promptly as practicable upon receipt of joint
written notice from the Company and the Buyer that the respective conditions
precedent to the purchase and sale of the Securities set forth in Articles VIII
and IX of the Securities Purchase Agreement have been satisfied (the "Release
Notice"), the Escrow Agent, after first deducting from the Escrowed Funds the
amount referred to in the next sentence of this paragraph 1, shall release the
Escrowed Funds to or upon the order of the Company and release the Escrowed
Certificates to the Buyer or its designee. After receipt by the Escrow Agent of
the Release Notice and prior to the release by the Escrow Agent of the Escrowed
Funds as described in the preceding sentence, the Escrow Agent shall deduct from
the Escrowed Funds (and remit to Cadwalader, Wickersham & Taft or its order) the
amount of the Buyer's legal fees and expenses described in Section IX.I.G. of
the Securities Purchase Agreement.
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If the Escrowed Certificates are not deposited by the Company with the
Escrow Agent within three days after the Company has received notice from the
Escrow Agent that the Buyer has deposited the Escrowed Funds hereunder, the
Escrow Agent promptly shall notify the Buyer thereof and the Buyer shall be
entitled to demand immediate payment to it of the Escrowed Funds. If the
Escrowed Funds are not deposited by the Buyer with the Escrow Agent within three
days after the Buyer has received notice from the Escrow Agent that the Company
has deposited the Escrowed Certificates hereunder, the Escrow Agent promptly
shall notify the Company thereof and the Company shall be entitled to demand the
immediate return to it of the Escrowed Certificates.
If at any time the Company or the Buyer notifies the Escrow Agent that the
conditions precedent to the obligations of the Company or the Buyer, as the case
may be, under the Securities Purchase Agreement have not been satisfied or
waived, then the Escrow Agent promptly shall return the Escrowed Funds to the
Buyer and shall return the Escrowed Certificates to the Company. The Escrow
Agent shall deposit all funds received hereunder in the Escrow Agent's attorney
escrow account at:
The Bank of New York
48 Wall Street
New York, NY 10038
ABA No.: 021000018
For the Account of: Cadwalader, Wickersham & Taft
Trust Account IOLA Fund
Account No.: 0902061070
If on or before June 30, 2000, the Escrow Agent has not received the
Release Notice directing the release to the Company of the Escrowed Funds and
the release to the Buyer of the Escrowed Certificates, the Escrow Agent shall
return the Escrowed Funds to the Buyer and return the Escrowed Certificates to
the Company and all arrangements contemplated by these Escrow Instructions shall
thereupon terminate without any further obligation of the parties hereto except
for the provisions of paragraph 8 hereof which shall survive any such
termination.
Notwithstanding any of the foregoing provisions of this paragraph 1, the
Escrow Agent shall release from escrow hereunder the Escrowed Property to the
parties, in the manner and to the extent set forth in a final judgment or order
of a court of competent jurisdiction, certified by the clerk of such court or
other appropriate official; provided that the Escrow Agent shall have received
from each party to whom the Escrowed Property is to be released (as provided in
such court judgment or order) an opinion of counsel, acceptable to the Escrow
Agent, to the effect that such judgment or order is final. For purposes of these
Escrow Instructions, any such judgment or order shall not be deemed to be final
until the time within which to take an appeal therefrom has expired and no
appeal has been taken, or until the entry of a judgment or order from which no
appeal may be taken.
2. The Escrow Agent shall not invest any of the Escrowed Funds.
3. The Escrow Agent shall be entitled to rely upon, and shall be fully
protected from all liability, loss, cost, damage or expense in acting or
omitting to act pursuant to, any instruction, order, judgment, certification,
affidavit, demand, notice, opinion, instrument or other writing delivered to it
hereunder without being required to determine the authenticity of such document,
the correctness of any fact stated therein, the propriety of the service thereof
or the capacity, identity or authority of any party purporting to sign or
deliver such document.
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4. The duties of the Escrow Agent are only as herein specifically provided,
and are purely ministerial in nature. The Escrow Agent shall neither be
responsible for or under, nor chargeable with any knowledge of, the terms and
conditions of any other agreement, instrument or document in connection
herewith, including, without limitation, the Securities Purchase Agreement, the
Certificate of Designation, the Warrants and the Registration Rights Agreement,
and shall be required to act in respect of the Escrowed Property only as
provided in these Escrow Instructions. These Escrow Instructions set forth all
the obligations of the Escrow Agent with respect to any and all matters
pertinent to the escrow contemplated hereunder and no additional obligations of
the Escrow Agent shall be implied from the terms hereof or any other agreement
or instrument. The Escrow Agent shall incur no liability in connection with the
discharge of its obligations hereunder or otherwise in connection therewith,
except such liability as may arise from the gross negligence or willful
misconduct of the Escrow Agent. In furtherance of and without limiting the
generality of the foregoing, the Escrow Agent shall incur no liability
whatsoever in respect of its selection in accordance with paragraph 2 hereof of
investments of the Escrowed Property, including, without limitation, any
liability for the rate or timing of the returns thereof resulting from
fluctuations in money market conditions or otherwise, or for prices resulting
from the need to liquidate an investment prior to maturity.
5. The Escrow Agent may consult with counsel of its choice, which may
include attorneys in the firm of Cadwalader, Wickersham & Taft, and shall not be
liable for any action taken or omitted to be taken by the Escrow Agent in
accordance with the advice of such counsel.
6. The Escrow Agent shall not be bound by any modification, cancellation or
rescission of these Escrow Instructions unless in writing and signed by the
Escrow Agent.
7. The Escrow Agent is acting as a stakeholder only with respect to the
Escrowed Property. If any dispute arises as to whether the Escrow Agent is
obligated to deliver the Escrowed Property or as to whom the Escrowed Property
is to be delivered or the amount or timing thereof, the Escrow Agent shall not
be required to make any delivery, but in such event the Escrow Agent may hold
the Escrowed Property until receipt by the Escrow Agent of instructions in
writing, signed by all parties which have, or claim to have, an interest in the
Escrowed Property, directing the disposition of the Escrowed Property, or in the
absence of such authorization, the Escrow Agent may hold the Escrowed Property
until receipt of a certified copy of a final judgment of a court of competent
jurisdiction providing for the disposition of the Escrowed Property. The Escrow
Agent may require, as a condition to the disposition of the Escrowed Property
pursuant to written instructions, indemnification and/or opinions of counsel, in
form and substance satisfactory to the Escrow Agent, from each party providing
such instructions. If such written instructions, indemnification and opinions
are not received, or proceedings for such determination are not commenced,
within 30 days after receipt by the Escrow Agent of notice of any such dispute
and diligently continued, or if the Escrow Agent is uncertain as to which party
or parties are entitled to the Escrowed Property, the Escrow Agent may either
(i) hold the Escrowed Property until receipt of (x) such written instructions
and indemnification or (y) a certified copy of a final judgment of a court of
competent jurisdiction providing for the disposition of the Escrowed Property,
or (ii) deposit the Escrowed Property in the registry of a court of competent
jurisdiction; provided, however, that notwithstanding the foregoing, the Escrow
Agent may, but shall not be required to, institute legal proceedings of any
kind.
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8. The Company and the Buyer, jointly and severally, agree to reimburse the
Escrow Agent on demand for, and to indemnify and hold harmless the Escrow Agent
from, against and with respect to, any and all loss, liability, damage, claim or
expense (including, without limitation, attorneys' fees and costs) that the
Escrow Agent may suffer or incur in connection with agreeing to these Escrow
Instructions and the performance of its obligations hereunder or otherwise in
connection therewith, except to the extent such loss, liability, damage, claim
or expense arises from the gross negligence or willful misconduct of the Escrow
Agent. Without in any way limiting the foregoing, the Escrow Agent shall be
reimbursed for the cost of all legal fees and costs incurred by it in acting as
the Escrow Agent hereunder (which may include fees and costs of legal services
provided by attorneys in the firm of Cadwalader, Wickersham & Taft), based on
the normal hourly rates in effect at the time services are rendered. The Escrow
Agent shall have the right at any time and from time from time to charge, and
reimburse itself from, the Escrowed Property for all amounts to which it is
entitled pursuant these Escrow Instructions.
9. The Escrow Agent and any successor escrow agent may at any time resign
as such by delivering the Escrowed Property to either (i) any successor escrow
agent designated in writing by all the parties hereto (other than the Escrow
Agent), or (ii) any court having competent jurisdiction. Upon its resignation
and delivery of the Escrowed Property as set forth in this paragraph 10, the
Escrow Agent shall be discharged of, and from, any and all further obligations
arising in connection with the escrow contemplated by these Escrow Instructions.
10. If the Escrow Agent requires any further instruments or instructions to
effectuate these Escrow Instructions or obligations in respect hereof, the
necessary parties hereto shall join in furnishing the same.
11. The Escrow Agent shall have the right to represent any party hereto in
any dispute between the parties hereto with respect to the Escrowed Property or
otherwise.
12. These Escrow Instructions shall inure to the benefit of, and be binding
upon, the parties hereto and their respective successors and assigns. Nothing
contained herein, express or implied, shall give to anyone, other than the
parties hereto and their respective permitted successors and assigns, any
benefit, or any legal or equitable right, remedy or claim, under or in respect
of this Agreement or the escrow contemplated hereby.
13. All notices and other communications hereunder shall be in writing and
shall be deemed to have been given when delivered by hand or upon receipt when
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) if to the Company, to:
PHC, Inc.
200 Lake Street, Suite 102
Peabody, MA 01960
Attention: Bruce Shear
(978) 536-2777
(978) 536-2677 (fax)
with a copy to:
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Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, N.W.
Washington, DC 20036-5339
Attention: Arnold R. Westerman
(202) 857-6000
(202) 857-6395 (fax)
(b) if to the Buyer, to:
The Shaar Fund Ltd.,
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
(c) if to the Escrow Agent, to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
14. These Escrow Instructions shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without regard to
the conflicts of law doctrine of such state. All actions against the Escrow
Agent arising under or relating to this Agreement shall be brought against the
Escrow Agent exclusively in the appropriate court in the County of New York,
State of New York. Each of the parties hereto agrees to submit to personal
jurisdiction and to waive any objection as to venue in the County of New York,
State of New York. Service of process on any party hereto in any action arising
out of or relating to this Agreement shall be effective if mailed to such party
as set forth in the immediately preceding paragraph.
15. TO THE FULL EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR
IN CONNECTION WITH THESE ESCROW INSTRUCTIONS, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE ESCROW AGENT ENTERING INTO THIS
AGREEMENT.
16. These Escrow Instructions may be executed in counterparts, each of
which shall constitute an integral original part of one and the same original
instrument.
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17. All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine or neuter, singular or plural, as the identity of the
parties hereto taken within context may require.
18. The rights of the Escrow Agent contained herein, including, without
limitation, the right to indemnification, shall survive the resignation of the
Escrow Agent and the termination of the escrow contemplated hereunder.
[SIGNATURE PAGE FOLLOWS.]
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If the foregoing correctly sets forth the understanding among you, the
Company and the Buyer, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
PHC, Inc.
By: Name: /s/ Bruce A. Shear
Title: President
The Shaar Fund Ltd.
By: Intercaribbean Services (the sole
director of The Shaar Fund)
By: ___________________________________
Name:
Title:
By: CITA Investments (a sub-advisor to
Shaar Advisors Services, N.V., the
Advisor to The Shaar Fund)
By: Name: /s/ Uri Wolfson
Title:
Accepted as of the date first above written:
Cadwalader, Wickersham & Taft
By: /s/ Dennis J. Block
Partner
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Exhibit 10.75
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement, dated as of June 28, 2000 (this
"Agreement"), by and between PHC, Inc., a Massachusetts corporation, with
principal executive offices located at 200 Lake Street, Suite 102, Peabody, MA
01960 (the "Company"), and The Shaar Fund Ltd. ("Buyer").
Whereas, Buyer desires to purchase from the Company, and the Company
desires to issue and sell to Buyer, upon the terms and subject to the conditions
of this Agreement, (i) an aggregate of 170,000 shares of the Company's Series C
8% Convertible Preferred Stock, par value $.01 per share (collectively, the
"Preferred Shares"), and (ii) Common Stock Purchase Warrants in the form
attached hereto as Exhibit A to purchase 125,000 shares of Common Stock (as
defined below) (collectively, the "Warrants");
Whereas, upon the terms and subject to the designations, preferences and
rights set forth in the Company's Certificate of Designation of Series C 8%
Convertible Preferred Stock in the form attached hereto as Exhibit B (the
"Certificate of Designation"), the Preferred Shares are convertible into shares
of the Company's class A common stock, par value $.01 per share (the "Common
Stock"); and
Whereas, the Warrants, upon the terms and subject to the conditions
specified in the Warrants, will be exercisable for a period of three years;
Now, Therefore, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
I. Purchase and Sale of Preferred Shares and Warrants
A. Transaction. Buyer hereby agrees to purchase from the Company, and the
Company has offered and hereby agrees to issue and sell to Buyer in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "Securities Act"), the Preferred
Shares and the Warrants.
B. Purchase Price; Form of Payment. The aggregate purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
$1,250,000 (the "Purchase Price"). The closing of the purchase shall occur as
following: (i) Buyer shall purchase 136,000 Preferred Shares (the "First Closing
Preferred Shares") and the Warrants for a purchase price of $1,000,000 (the
"First Closing Purchase Price") on the Closing Date (the "First Closing") and
(ii) Buyer shall purchase 34,000 Preferred Shares (the "Second Closing Preferred
Shares") for a purchase price of $250,000 (the "Second Closing Purchase Price")
on the Effective Date (as defined in the Registration Rights Agreement) (the
"Second Closing"). Simultaneously with the execution of this Agreement, Buyer
shall pay the First Closing Purchase Price by wire transfer of immediately
available funds to the escrow agent (the "Escrow Agent") identified in those
certain Escrow Instructions of even date herewith, a copy of which is attached
hereto as Exhibit C (the "Escrow Instructions"). Simultaneously with the
execution of this Agreement, the Company shall deliver one or more duly
authorized, issued and executed certificates (I/N/O Buyer or, if the Company
otherwise has been notified, I/N/O Buyer's nominee) evidencing the First Closing
Preferred Shares and the Warrants which Buyer is purchasing, to the Escrow Agent
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or its designated depository. By executing and delivering this Agreement, Buyer
and the Company each hereby agree to observe the terms and conditions of the
Escrow Instructions, all of which are incorporated herein by reference as if
fully set forth herein.
C. Method of Payment. Payment into escrow of the First Closing Purchase
Price shall be made as set forth in the Escrow Instructions.
II. Buyer's Representations and Warranties
Buyer represents and warrants to and covenants and agrees with the Company
as follows:
A. Buyer is purchasing the Preferred Shares, the Warrants, the Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares"), the Common Stock,
if any, issuable in payment of dividends on the Preferred Shares (the "Dividend
Shares"), and the Common Stock issuable upon conversion or redemption of the
Preferred Shares (the "Conversion Shares" and, collectively with the Preferred
Shares, the Warrants, the Warrant Shares and the Dividend Shares, the
"Securities") for its own account, for investment purposes only and not with a
view towards or in connection with the public sale or distribution thereof in
violation of the Securities Act.
B. Buyer is (i) an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act, (ii) experienced in making investments of
the kind contemplated by this Agreement, (iii) capable, by reason of its
business and financial experience, of evaluating the relative merits and risks
of an investment in the Securities, and (iv) able to afford the loss of its
investment in the Securities.
C. Buyer understands that the Securities are being offered and sold by the
Company in reliance on an exemption from the registration requirements of the
Securities Act and equivalent state securities and "blue sky" laws, and that the
Company is relying upon the accuracy of, and Buyer's compliance with, Buyer's
representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer to
purchase the Securities;
D. Buyer understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the "Commission") or any
state securities commission.
E. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.
F. Neither Buyer nor its affiliates nor any person acting on its or their
behalf shall enter into, prior to the Closing or at any other time while any of
the Preferred Shares remain outstanding, any put option, short position or other
similar instrument or position with respect to the Common Stock and neither
Buyer nor any of its affiliates nor any person acting on its or their behalf
will use at any time shares of Common Stock acquired pursuant to this Agreement
to settle any put option, short position or other similar instrument or position
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<PAGE>
that may have been entered into prior to the execution of this Agreement;
provided, however, that nothing in this Section II.F. shall operate to forbid
Buyer or any of its affiliates or any person acting on its or their behalf from
selling, or entering into any other transaction with respect to, the Common
Stock contemporaneously with or following such date and time as the person or
persons in whose name or names the Common Stock delivered at conversion of
Preferred Shares, as provided in the Certificate of Designation, shall be
issuable shall be deemed to have become the holder or holders of record of the
Common Shares represented thereby and all voting and other rights associated
with the beneficial ownership of such Common Shares shall have vested with such
person or persons.
III. The Company's Representations
The Company represents and warrants to Buyer that:
A. Capitalization.
1. The authorized capital stock of the Company consists solely of: (x)
20,000,000 shares of Common Stock, of which 7,009,779 shares are issued and
outstanding on the date hereof; (y) 2,000,000 shares of class B common stock, of
which 727,170 shares are issued and outstanding on the date hereof; and (z)
1,000,000 shares of preferred stock, of which 813 shares are issued and
outstanding on the date hereof. As of the date hereof, the Company has
outstanding stock options to purchase 680,875 shares of Common Stock and
warrants outstanding to purchase 3,096,543 shares of Common Stock. The exercise
price for each of such outstanding options and warrants is accurately set forth
on Schedule III.A.1. hereto.
2. The Conversion Shares, the Dividend Shares and the Warrant Shares have
been duly and validly authorized and reserved for issuance by the Company, and
when issued by the Company upon conversion of, or in lieu of cash dividends on,
the Preferred Shares and on exercise of the Warrants will be duly and validly
issued, fully paid and nonassessable and will not subject the holder thereof to
personal liability by reason of being such holder.
3. Except as disclosed on Schedule III.A.3. hereto, there are no
preemptive, subscription, "call", right of first refusal or other similar rights
to acquire any capital stock of the Company or any of its Subsidiaries or other
voting securities of the Company that have been issued or granted to any person
and no other obligations of the Company or any of its Subsidiaries to issue,
grant, extend or enter into any security, option, warrant, "call," right,
commitment, agreement, arrangement or undertaking with respect to any of their
respective capital stock.
4. Schedule III.A.4. hereto lists all the subsidiaries of the Company (the
"Subsidiaries"). Except as disclosed on Schedule III.A.4. hereto, the Company
does not own or control, directly or indirectly, any interest in any other
corporation, partnership, limited liability company, unincorporated business
organization, association, trust or other business entity.
5. The Company has delivered to Buyer complete and correct copies of the
Certificate of Incorporation and the By-Laws of each of the Company and the
Subsidiaries, in each case as amended to the date of this Agreement. Except as
set forth on Schedule III.A.5., the Company has delivered to Buyer true and
complete copies of all minutes of the Board of Directors of the Company (the
"Board of Directors") since May, 1997.
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<PAGE>
B. Organization; Reporting Company Status.
1. Each of the Company and the Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the state or
jurisdiction in which it is incorporated and is duly qualified as a foreign
corporation in all jurisdictions in which the failure so to qualify would
reasonably be expected to have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results of
operations of the Company and the Subsidiaries taken as a whole or on the
consummation of any of the transactions contemplated by this Agreement (a
"Material Adverse Effect").
2. The Company has registered the Common Stock pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Common
Stock is listed and traded on the Nasdaq SmallCap Market ("Nasdaq") and the
Company has not received any notice regarding, and to its knowledge there is no
threat of, the termination or discontinuance of the eligibility of the Common
Stock for such listing.
C. Authorization. The Company (i) has duly and validly authorized and
reserved for issuance 3,000,000 shares of Common Stock, which is a number
sufficient for the conversion of and the payment of dividends (in lieu of cash
payments) on the 170,000 Preferred Shares and the exercise of the Warrants in
full, and (ii) at all times from and after the date hereof shall have a
sufficient number of shares of Common Stock duly and validly authorized and
reserved for issuance to satisfy the conversion of Preferred Shares, the payment
of dividends (in lieu of cash payments) on the Preferred Shares and the exercise
of the Warrants in full. The Company understands and acknowledges the
potentially dilutive effect on the Common Stock of the issuance of the Preferred
Shares and of the Conversion Shares, the Dividend Shares and the Warrant Shares
upon the conversion of, and payment of dividends on, the Preferred Shares and
the exercise of the Warrants, respectively. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Shares and Warrant Shares upon exercise of the Warrants in accordance with this
Agreement, the Certificate of Designation and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company and notwithstanding
the commencement of any case under 11 U.S.C. (subsection)101 et seq. (the
"Bankruptcy Code"). In the event the Company is a debtor under the Bankruptcy
Code, the Company hereby waives to the fullest extent permitted any rights to
relief it may have under 11 U.S.C. (subsection)362 in respect of the conversion
of the Preferred Shares and the exercise of the Warrants. The Company agrees,
without cost or expense to Buyer, to take or consent to any and all action
necessary to effectuate relief under 11 U.S.C. (subsection)362. Schedule III.C.
hereto sets forth (i) all issuances and sales by the Company since June 30, 1999
of its capital stock, and other securities convertible into or exercisable or
exchangeable for capital stock of the Company, (ii) the amount of such
securities sold, including the amount of any underlying shares of capital stock,
(iii) the purchaser thereof, (iv) the amount paid therefor, and (v) the material
terms of all outstanding capital stock of the Company (other than the Common
Stock).
D. Authority; Validity and Enforceability. The Company has the requisite
corporate power and authority to file, and perform its obligations under, the
Certificate of Designation and to enter into the Documents (as hereinafter
defined) and to perform all of its obligations hereunder and thereunder
(including the issuance, sale and delivery to Buyer of the Securities). The
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execution, delivery and performance by the Company of the Documents and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the filing of the Certificate of Designation
with the Massachusetts Secretary of State's office, the issuance of the
Preferred Shares and the Warrants and the issuance and reservation for issuance
of the Conversion Shares, the Dividend Shares and the Warrant Shares) have been
duly and validly authorized by all necessary corporate action on the part of the
Company. Each of the Documents has been duly and validly executed and delivered
by the Company and the Certificate of Designation has been duly filed with the
Massachusetts Secretary of State's office by the Company, and each Document
constitutes a valid and binding obligation of the Company enforceable against it
in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and except as rights to indemnity and
contribution may be limited by federal or state securities laws or the public
policy underlying such laws. The Securities have been duly and validly
authorized for issuance by the Company and, when executed and delivered by the
Company, will be valid and binding obligations of the Company enforceable
against it in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally. For purposes of this
Agreement, the term "Documents" means (i) this Agreement; (ii) the Registration
Rights Agreement of even date herewith between the Company and Buyer, a copy of
which is annexed hereto as Exhibit D (the "Registration Rights Agreement");
(iii) the Certificate of Designation; (iv) the Warrants; and (v) the Escrow
Instructions.
E. Validity of Issuance of the Securities. The Preferred Shares and the
Warrants as of the applicable closing, and the Conversion Shares, the Dividend
Shares and the Warrant Shares upon their issuance in accordance with the
Certificate of Designation and the Warrants, respectively, will be validly
issued and outstanding, fully paid and nonassessable, and not subject to any
preemptive rights, rights of first refusal, tag-along rights, drag-along rights
or other similar rights.
F. Non-contravention. Except as set forth on Schedule III.F., the execution
and delivery by the Company of the Documents, the issuance of the Securities,
and the consummation by the Company of the other transactions contemplated
hereby and thereby, including, without limitation, the filing of the Certificate
of Designation with the Massachusetts Secretary of State's office, do not, and
compliance with the provisions of this Agreement and other Documents will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or result in the creation of any Lien (as defined in Section III.V.) upon
any of the properties or assets of the Company or any of its Subsidiaries under,
or result in the termination of, or require that any consent be obtained or any
notice be given with respect to, (i) the Certificate of Incorporation or By-Laws
of the Company or the comparable charter or organizational documents of any of
its Subsidiaries, (ii) any material loan or credit agreement, note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or permit
applicable to the Company or any of its Subsidiaries or their respective
properties or assets, or (iii) any Law (as defined in Section III.N.) applicable
to, or any judgment, decree or order of any court or government body having
jurisdiction over, the Company or any of its Subsidiaries or any of their
respective properties or assets.
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G. Approvals. No authorization, approval or consent of any court or public
or governmental authority is required to be obtained by the Company for the
issuance and sale of the Preferred Shares or the Warrants (or the Conversion
Shares, the Dividend Shares or Warrant Shares) to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents as have been
obtained by the Company prior to the date hereof.
H. Commission Filings. The Company has properly and timely filed with the
Commission all reports, proxy statements, forms and other documents required to
be filed with the Commission under the Securities Act and the Exchange Act since
May 31, 1997 (the "Commission Filings"). As of their respective dates, as
amended as of the date hereof, (i) the Commission Filings complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the Commission
promulgated thereunder applicable to such Commission Filings, and (ii) none of
the Commission Filings contained at the time of its filing, as amended as of the
date hereof, 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. The financial statements of the Company included in the
Commission Filings, as of the dates of such documents, as amended as of the date
hereof, were true and complete in all material respects and complied with
applicable accounting requirements and the published rules and regulations of
the Commission with respect thereto, were prepared in accordance with generally
accepted accounting principles in the United States ("GAAP") (except in the case
of unaudited statements permitted by Form 10-Q under the Exchange Act) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly presented the consolidated financial position of
the Company and its Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments that
in the aggregate are not material and to any other adjustment described
therein).
I. Absence of Certain Changes. Since the Balance Sheet Date (as defined in
Section III.M.), there has not occurred any change, event or development in the
business, financial condition, prospects or results of operations of the Company
and the Subsidiaries, there has not existed any condition having or reasonably
likely to have a Material Adverse Effect, and the Company and the Subsidiaries
have conducted their respective businesses only in the ordinary course.
J. Full Disclosure. Except as disclosed in Schedule III.J., there is no
fact known to the Company (other than general economic or industry conditions
known to the public generally) that has not been fully disclosed in writing to
Buyer that (i) reasonably could be expected to have a Material Adverse Effect or
(ii) reasonably could be expected to materially and adversely affect the ability
of the Company to perform its obligations pursuant to the Documents.
K. Absence of Litigation. Except as set forth on Schedule III.K., there are
(i) no material suits, actions or proceedings pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries, (ii) no
material complaints, lawsuits, charges or other proceedings pending or, to the
knowledge of the Company, threatened in any forum by or on behalf of any present
or former employee of the Company or any of its Subsidiaries, any applicant for
employment or classes of the foregoing alleging breach of any express or implied
contract of employment, any applicable law governing employment or the
termination thereof or other discriminatory, wrongful or tortious conduct in
connection with the employment relationship, and (iii) no judgments, decrees,
injunctions or orders of any court or other governmental entity or arbitrator
outstanding against the Company or any Subsidiary.
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L. Absence of Events of Default. Except as set forth in Schedule III.L., no
material "Event of Default" (as defined in any agreement or instrument to which
the Company is a party) and no event which, with notice, lapse of time or both,
would constitute an Event of Default (as so defined), has occurred and is
continuing.
M. Financial Statements; No Undisclosed Liabilities. The Company has
delivered to Buyer true and complete copies of the (i) audited balance sheet of
the Company and the Subsidiaries as at June 30, 1999, 1998 and 1997,
respectively, in each case as amended through the date hereof, and the related
audited statements of income, changes in stockholders' equity and cash flows for
the three fiscal years ended June 30, 1999, 1998 and 1997 including the related
notes and schedules thereto, in each case as amended through the date hereof and
(ii) unaudited balance sheets of the Company and the Subsidiaries and the
statements of income, changes in stockholders' equity and cash flows as at the
end of and for each fiscal quarter ended since June 30, 1999 including the
related notes and schedules thereto, all certified by the chief financial
officer of the Company and as amended through the date hereof (collectively, the
"Financial Statements"), and all management letters, if any, from the Company's
independent auditors relating to the dates and periods covered by the Financial
Statements. Each of the Financial Statements is complete and correct in all
material respects, has been prepared in accordance with GAAP (subject, in the
case of the interim Financial Statements, to normal year end adjustments and the
absence of footnotes), and fairly presents the financial position, results of
operations and cash flows of the Company as at the dates and for the periods
indicated. For purposes hereof, the audited balance sheet of the Company as at
June 30, 1999 is hereinafter referred to as the "Balance Sheet" and June 30,
1999 is hereinafter referred to as the "Balance Sheet Date". The Company has no
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due), which was not fully
reflected in, reserved against or otherwise described in the Balance Sheet or
the notes thereto or incurred in the ordinary course of business consistent with
the Company's past practices since the Balance Sheet Date.
N. Compliance with Laws; Permits. Each of the Company and its Subsidiaries
is in compliance with all laws, rules, regulations, codes, ordinances and
statutes (collectively, "Laws") applicable to it or to the conduct of its
business. The Company possesses all material permits, approvals, authorizations,
licenses, certificates and consents from all public and governmental authorities
which are necessary to conduct its business.
O. Related Party Transactions. Except as set forth on Schedule III.O.
hereto, neither the Company nor any of its officers, directors or "Affiliates"
(as such term is defined in Rule 12b-2 under the Exchange Act) nor any family
member of any officer, director or Affiliate of the Company has borrowed (during
the one year period prior to the date hereof) any moneys from or has outstanding
any indebtedness or other similar obligations to the Company or any of the
Subsidiaries. Except as set forth on Schedule III.O. hereto, neither the Company
nor any of its officers, directors or Affiliates nor any family member of any
officer, director or Affiliate of the Company (i) owns any direct or indirect
interest constituting more than a 1% equity (or similar profit participation)
interest in, or controls or is a director, officer, partner, member or employee
of, or consultant or lender to or borrower from, or has the right to participate
in the profits of, any person or entity which is (x) a competitor, supplier,
customer, landlord, tenant, creditor or debtor of the Company or any Subsidiary,
(y) engaged in a business related to the business of the Company or any
Subsidiary, or (z) a participant in any transaction to which the Company or any
Subsidiary is a party or (ii) is a party to any contract, agreement, commitment
or other arrangement with the Company or any Subsidiary.
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P. Insurance. Each of the Company and the Subsidiaries maintains property
and casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate and consistent with industry standards and
the Company's historical claims experience. None of the Company or the
Subsidiaries has received notice from, and none of them has knowledge of any
threat by, any insurer (that has issued any insurance policy to the Company or
any Subsidiary) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Q. Securities Law Matters. Assuming the accuracy of the representations and
warranties of Buyer set forth in Article II hereof, the offer and sale by the
Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state securities and "blue sky" laws. Other than pursuant to
an effective registration statement under the Securities Act, the Company has
not issued, offered or sold the Preferred Shares or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Preferred Shares or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common Stock or any such
other securities) within the one-year period next preceding the date hereof,
except as disclosed on Schedule III.Q. hereto, and the Company shall not
directly or indirectly take, and shall not permit any of its directors, officers
or Affiliates directly or indirectly to take, any action (including, without
limitation, any offering or sale to any person or entity of the Preferred Shares
or shares of Common Stock) which will make unavailable the exemption from
Securities Act registration being relied upon by the Company for the offer and
sale to Buyer of the Preferred Shares and the Warrants (and the Conversion
Shares, the Dividend Shares and the Warrant Shares) as contemplated by this
Agreement. No form of general solicitation or advertising has been used or
authorized by the Company or any of its officers, directors or Affiliates in
connection with the offer or sale of the Preferred Shares and the Warrants (and
the Conversion Shares, the Dividend Shares and the Warrant Shares) as
contemplated by this Agreement or any other agreement to which the Company is a
party.
R. Environmental Matters.
Except as set forth on Schedule III.R. hereto:
1. The Company, the Subsidiaries and their respective operations are in
compliance with all applicable Environmental Laws and all permits (including
terms, conditions, and limitations therein) issued pursuant to Environmental
Laws or otherwise;
2. Each of the Company and the Subsidiaries has all permits, licenses,
waivers, exceptions, and exemptions required under all applicable Environmental
Laws necessary to operate its business;
3. None of the Company or the Subsidiaries is the subject of any
outstanding written order of or agreement with any governmental authority or
person respecting (i) Environmental Laws or permits, (ii)Remedial Action or
(iii) any Release or threatened Release of Hazardous Materials;
4. None of the Company or the Subsidiaries has received any written
communication alleging that it may be in violation of any Environmental Law or
any permit issued pursuant to any Environmental Law, or may have any liability
under any Environmental Law;
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5. None of the Company or the Subsidiaries has any liability, contingent or
otherwise, in connection with any presence, treatment, storage, disposal or
Release of any Hazardous Materials whether on property owned or operated by the
Company or any Subsidiary or property of third parties, and none of the Company
or the Subsidiaries has transported, or arranged for transportation of, any
Hazardous Materials for treatment or disposal on any property;
6. There are no investigations of the business, operations, or currently or
previously owned, operated or leased property of the Company or any Subsidiary
pending or threatened which could lead to the imposition of any case or
liability pursuant to any Environmental Law;
7. There is not located at any of the properties owned or operated by the
Company or any Subsidiary any (A) underground storage tanks, (B)
asbestos-containing material or (C) equipment containing polychlorinated
biphenyls;
8. Each of the Company and the Subsidiaries has provided to Buyer all
environmentally related assessments, audits, studies, reports, analyses, and
results of investigations that have been performed with respect to the currently
or previously owned, leased or operated properties or activities of the Company
and such Subsidiaries;
9. There are no liens arising under or pursuant to any Environmental Law on
any real property owned, operated, or leased by the Company or any Subsidiary,
and no action of any governmental authority has been taken or, to the knowledge
of the Company, is in process of being taken which could subject any of such
properties to such liens, and none of the Company or the Subsidiaries has been
or is expected to be required to place any notice or restriction relating to the
presence of Hazardous Material at any real property owned, operated, or leased
by it in any deed to such property;
10. Neither the Company nor any of the Subsidiaries owns, operates, or
leases any hazardous waste generation, treatment, storage, or disposal facility,
as such terms are used pursuant to the RCRA and related or analogous state,
local, or foreign law. None of the properties owned, operated, or leased by the
Company, any of the Subsidiaries or any predecessor thereof are now, or were in
the past, used in any part as a dump, landfill, or disposal site, and neither
the Company, any of the Subsidiaries nor any predecessor of any of them has
filled any wetlands;
11. The purchase that is the subject of this Agreement will not require any
governmental approvals under Environmental Laws, including those that are
triggered by sales or transfers of businesses or real property, including, as
examples and without limitation, the New Jersey Industrial Site Recovery Act,
N.J. Stat. 13:1K-7 et seq., and the Connecticut Transfer of Establishments Act,
Conn. Gen. Stat.(subsection)22a-134 et seq.;
12. There is no currently existing requirement or requirement to be imposed
in the future by any Environmental Law or Environmental Permit which could
result in the incurrence of a cost that could be reasonably expected to have a
Material Adverse Effect; and
13. Each of the Company and each of the Subsidiaries has disclosed to Buyer
all other acts or conditions that could result in any costs or liabilities under
Environmental Laws.
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For purposes of this Section III.R.:
"Environmental Law" means any foreign, federal, state or local statute,
regulation, ordinance, or common law as now or hereafter in effect in any way
relating to the protection of human health, safety or welfare or the environment
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act ("RCRA"), the Clean Water Act, the Clean
Air Act, the Toxic Substances Control Act, the Federal Insecticide, Fungicide,
and Rodenticide Act and the Occupational Safety and Health Act, and the
regulations promulgated pursuant to any of them;
"Hazardous Material" means any substance that is listed, classified or
regulated pursuant to any Environmental Law, including petroleum, gasoline, and
any other petroleum product, by-product, fraction or derivative, asbestos or
asbestos-containing material, lead-containing paint, water, or plumbing,
polychlorinated biphenyls, radioactive materials and radon;
"Release" means any placement, release, spill, filtration, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, migration,
or leaching to, through, or under the indoor or outdoor environment, or into,
through, under, or out of any property; and
"Remedial Action" means any action to (x) clean up, remove, remediate,
treat or in any other way address any Hazardous Material; (y) prevent or contain
the Release of any Hazardous Material; or (z) perform studies and investigations
or post-remedial monitoring and care in relation to (x) or (y) above.
S. Labor Matters. Neither the Company nor any of the Subsidiaries is party
to any labor or collective bargaining agreement, and there are no labor or
collective bargaining agreements which pertain to any employees of the Company
or any Subsidiary. No employees of the Company or any of the Subsidiaries are
represented by any labor organization and none of such employees has made a
pending demand for recognition, and there are no representation proceedings or
petitions seeking a representation proceeding presently pending or, to the
Company's knowledge, threatened to be brought or filed, with the National Labor
Relations Board or other labor relations tribunal. There is no organizing
activity involving the Company or any Subsidiary pending or to the Company's
knowledge, threatened by any labor organization or group of employees of the
Company or any of the Subsidiaries. There are no (i) strikes, work stoppages,
slowdowns, lockouts or arbitrations or (ii) material grievances or other labor
disputes pending or, to the knowledge of the Company, threatened against or
involving the Company or any of the Subsidiaries. There are no unfair labor
practice charges, grievances or complaints pending or, to the knowledge of the
Company, threatened by or on behalf of any employee or group of employees of the
Company or any of the Subsidiaries.
T. ERISA Matters. All Plans maintained by the Company or any of its
Subsidiaries and ERISA Affiliates are listed in Schedule III.T. and copies of
all documentation relating to such Plans (including, but not limited to, copies
of written Plans, written descriptions of oral Plans, summary plan descriptions,
trust agreements, the three most recent annual returns, employee communications
and IRS determination letters) have been delivered to or made available for
review by the Buyer. Each Plan has at all times been maintained and administered
in all material respects in accordance with its terms and the requirements of
applicable law, including ERISA and the Code, and each Plan intended to qualify
under section 401(a) of the Code has at all times since its adoption been so
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qualified, and each trust which forms a part of any such plan has at all times
since its adoption been tax-exempt under section 501(a) of the Code. The Company
and each of its Subsidiaries and ERISA Affiliates are in compliance in all
material respects with all provisions of ERISA applicable to it. No Reportable
Event has occurred, been waived or exists as to which the Company or any of its
Subsidiaries and ERISA Affiliates was required to file a report with the PBGC,
and the present value of all liabilities under each Pension Plan (based on those
assumptions used to fund such Plans) listed in Schedule III.T. did not, as of
the most recent annual valuation date applicable thereto, exceed the value of
the assets of such Pension Plan. None of the Company, its Subsidiaries and ERISA
Affiliates has incurred, or reasonably expects to incur, any Withdrawal
Liability with respect to any Multi-employer Plan that could result in a
Material Adverse Effect. None of the Company, its Subsidiaries and ERISA
Affiliates has received any notification that any Multi-employer Plan is in
reorganization or has been terminated within the meaning of Title IV of ERISA,
and no Multi-employer Plan is reasonably expected to be in reorganization or
termination where such reorganization or termination has resulted or could
reasonably be expected to result in increases to the contributions required to
be made to such Plan or otherwise. No direct, contingent or secondary liability
has been incurred or is expected to be incurred by the Company or any of its
Subsidiaries under Title IV of ERISA to any party with respect to any Plan, or
with respect to any other Plan presently or heretofore maintained or contributed
to by any ERISA Affiliate. Neither the Company nor any of its Subsidiaries and
ERISA Affiliates has incurred any liability for any tax imposed under sections
4971 through 4980B of the Code or civil liability under section 502(i) or (l) of
ERISA. No suit, action or other litigation or any other claim which could
reasonably be expected to result in a material liability or expense to the
Company or any of its Subsidiaries or ERISA Affiliates (excluding claims for
benefits incurred in the ordinary course of plan activities) has been brought
or, to the knowledge of the Company, threatened against or with respect to any
Plan and there are no facts or circumstances known to the Company or any of its
Subsidiaries or ERISA Affiliates that could reasonably be expected to give rise
to any such suit, action or other litigation. All contributions to Plans that
were required to be made under such Plans have been made, and all benefits
accrued under any unfunded Plan have been paid, accrued or otherwise adequately
reserved in accordance with GAAP, all of which accruals under unfunded Plans are
as disclosed in Schedule III.T., and the Company, its Subsidiaries and ERISA
Affiliates have each performed all material obligations required to be performed
under all Plans. The execution, delivery and performance of this Agreement and
the other Documents and the consummation of the transactions contemplated hereby
and thereby (including, without limitation, the offer, issue and sale by the
Company, and the purchase by the Buyer, of the Preferred Shares, the Conversion
Shares, the Warrants, the Warrant Shares and Dividend Shares) will not involve
any "prohibited transaction" within the meaning of ERISA or the Code with
respect to any Plan.
As used in this Agreement:
"Code" means the Internal Revenue Code of 1986, as amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, or any
successor statute, together with the regulations thereunder, as the same may be
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that was, is or hereafter may become, a member of a group of which the Company
is a member and which is treated as a single employer under section 414 of the
Code.
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"Multi-employer Plan" means a multi-employer plan as defined in section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than one
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of section
414 of the Code) is making or accruing an obligation to make contributions, or
has within any of the preceding six plan years made or accrued an obligation to
make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Pension Plan" means any pension plan (other than a Multi-employer Plan)
subject to the provision of Title IV of ERISA or section 412 of the Code that is
maintained for employees of the Company or any of its Subsidiaries, or any ERISA
Affiliate.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of section 3(3) of ERISA, including
any Pension Plan.
"Reportable Event" means any reportable event as defined in section 4043(b)
of ERISA or the regulations issued thereunder with respect to a Plan.
"Withdrawal Liability" means liability to a Multi-employer Plan as a result
of a complete or partial withdrawal from such Multi-employer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
U. Tax Matters.
1. The Company has filed all material Tax Returns which it is required to
file under applicable Laws; all such Tax Returns are true and accurate in all
material respects and have been prepared in compliance with all applicable Laws;
the Company has paid all Taxes due and owing by it (whether or not such Taxes
are required to be shown on a Tax Return) and has withheld and paid over to the
appropriate taxing authorities all Taxes which it is required to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
parties; and since the Balance Sheet Date, the charges, accruals and reserves
for Taxes with respect to the Company (including any provisions for deferred
income taxes) reflected on the books of the Company are adequate to cover any
Tax liabilities of the Company if its current tax year were treated as ending on
the date hereof.
2. No claim has been made by a taxing authority in a jurisdiction where the
Company does not file tax returns that the Company is or may be subject to
taxation by such jurisdiction. There are no foreign, federal, state or local tax
audits or administrative or judicial proceedings pending or being conducted with
respect to the Company; no information related to Tax matters has been requested
by any foreign, federal, state or local taxing authority; and, except as
disclosed above, no written notice indicating an intent to open an audit or
other review has been received by the Company from any foreign, federal, state
or local taxing authority. There are no material unresolved questions or claims
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concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to section 7121 of the Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; or (B) has not agreed to or is required to make any adjustments
pursuant to section 481(a) of the Code or any similar provision of state, local
or foreign law by reason of a change in accounting method initiated by the
Company or any of its subsidiaries or has any knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of section 897(c)(2) of the Code during the
applicable period specified in section 897(c)(1)(A)(ii) of the Code.
3. The Company has not made an election under section 341(f) of the Code.
The Company is not liable for the Taxes of another person that is not a
subsidiary of the Company under (A) Treas. Reg. Section 1.1502-6 (or comparable
provisions of state, local or foreign law), (B) as a transferee or successor,
(C) by contract or indemnity or (D) otherwise. The Company is not a party to any
tax sharing agreement. The Company has not made any payments, is not obligated
to make payments and is not a party to an agreement that could obligate it to
make any payments that would not be deductible under section 280G of the Code.
As used in this Agreement:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect to
Taxes, including any schedules attached thereto and including any amendment
thereof.
V. Property. Except as set forth on Schedule III.V., each of the Company
and the Subsidiaries has good and marketable title to all of its assets and
properties material to the conduct of its business, free and clear of any liens,
pledges, security interests, claims, encumbrances or other restrictions of any
kind (collectively, "Liens"). With respect to any assets or properties it
leases, each of the Company and its Subsidiaries holds a valid and subsisting
leasehold interest therein, free and clear of any Liens, is in compliance, in
all material respects, with the terms of the applicable lease, and enjoys
peaceful and undisturbed possession under such lease. All of the assets and
properties of the Company and its Subsidiaries that are material to the conduct
of business as presently conducted or as proposed to be conducted by it are in
good operating condition and repair. The inventory of each of the Company and
its Subsidiaries is in good and marketable condition, does not include any
material quantity of items which are obsolete, damaged or slow moving, and is
salable (or may be leased) in the normal course of business as currently
conducted by it.
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W. Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted
including, but not limited to, those described on Schedule III.W. hereto. Except
as set forth on Schedule III.W, the Company has all right, title and interest in
all of the Intangibles, free and clear of any and all Liens. The Company is not
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. Except as disclosed on Schedule III.W. hereto, (i) no claims
have been asserted by any individual, partnership, corporation, unincorporated
organization or association, limited liability company, trust or other entity
(collectively, a "Person") contesting the validity, enforceability, use or
ownership of any Intangibles, and the Company has no knowledge of any basis for
such claim, and (ii) neither the Company nor the Subsidiaries has any knowledge
of infringement or misappropriation of the Intangibles by any third party.
X. Contracts. All contracts, agreements, notes, instruments, franchises,
leases, licenses, commitments, arrangements or understandings, written or oral
(collectively, "Contracts") which are material to the business and operations of
the Company and the Subsidiaries are in full force and effect and constitute
legal, valid and binding obligations of the Company and the Subsidiaries and, to
the best knowledge of the Company, the other parties thereto; the Company and
the Subsidiaries and, to the best knowledge of the Company, each other party
thereto, have performed in all material respects all obligations required to be
performed by them under the Contracts, and no material violation or default
exists in respect thereof, nor any event that with notice or lapse of time, or
both, would constitute a default thereof, on the part of the Company and the
Subsidiaries or, to the best knowledge of the Company, any other party thereto;
none of the Contracts is currently being renegotiated; and the validity,
effectiveness and continuation of all Contracts will not be materially adversely
affected by the transactions contemplated by this Agreement.
Y. Registration Rights. Except as set forth on Schedule III.Y., no Person
has, and as of the Closing (as defined in Article VII), no Person shall have,
any demand, "piggy-back" or other rights to cause the Company to file any
registration statement under the Securities Act, relating to any of its
securities or to participate in any such registration statement.
Z. Dividends. The timely payment of dividends on the Preferred Shares as
specified in the Certificate of Designation is not prohibited by the Certificate
of Incorporation or By-Laws of the Company or any agreement, Contract, document
or other undertaking to which the Company or any of the Subsidiaries is a party.
AA. Investment Company Act. Neither the Company nor any of the Subsidiaries
is an "investment company" within the meaning of the Investment Company Act of
1940, as amended (the "Investment Company Act"), nor is the Company nor any of
the Subsidiaries directly or indirectly controlled by or acting on behalf of any
Person which is an "investment company" within the meaning of the Investment
Company Act.
BB. Business Plan. Any business information of the Company previously
submitted to Buyer in any form, including the projections contained therein, was
prepared by the senior management of the Company in good faith and is based on
assumptions that the Company believes are reasonable. The Company is not aware
of any fact or condition that could reasonably be expected to result in the
Company not achieving the results described in such business plan.
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CC. Year 2000 Compliance. The Company has reviewed its products, business
and operations that could be adversely affected by the risk that computer
applications used by the Company and the Subsidiaries may be unable to
recognize, and properly perform date-sensitive functions involving, dates prior
to and after December 31, 1999 (the "Year 2000 Problem"). The Company believes
its internal information and business systems will be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000. In
addition, the Company has surveyed those vendors, suppliers and other third
parties (collectively, the "Outside Parties") with which the Company or any of
the Subsidiaries do business and whose failure to adequately address the Year
2000 Problem could reasonably be expected to adversely affect the business and
operations of the Company or any of the Subsidiaries. Based upon the
aforementioned internal review and surveys of the Outside Parties as of the date
of this Agreement, the Year 2000 Problem has not resulted in, and is not
reasonably expected to have, a Material Adverse Effect.
DD. Internal Controls and Procedures. The Company maintains accurate books
and records and internal accounting controls that provide reasonable assurance
that (i) all transactions to which the Company or each of the Subsidiaries is a
party or by which its properties are bound are executed with management's
authorization; (ii) the reported accountability of the Company's and the
Subsidiaries' assets is compared with existing assets at regular intervals;
(iii) access to the Company's and the Subsidiaries' assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
any of the Company and the Subsidiaries is a party or by which its properties
are bound are recorded as necessary to permit preparation of the financial
statements of the Company in accordance with GAAP.
EE. Payments and Contributions. Neither the Company nor any of its
Subsidiaries nor any of their respective directors, officers or, to their
respective knowledge, other employees has (i) used any company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to political activity; (ii) made any direct or indirect
unlawful payment of company funds to any foreign or domestic government official
or employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person with
respect to Company matters.
FF. No Misrepresentation. No representation or warranty of the Company
contained in this Agreement or any of the other Documents, any schedule, annex
or exhibit hereto or thereto or any agreement, instrument or certificate
furnished by the Company to Buyer pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
GG. Finder's Fee. There is no finder's fee, brokerage commission or like
payment in connection with the transactions contemplated by this Agreement for
which Buyer is liable or responsible.
IV. Certain Covenants and Acknowledgments
A. Restrictive Legend. Buyer acknowledges and agrees that, upon issuance
pursuant to this Agreement, the Securities (including any Dividends Shares,
Conversion Shares or the Warrant Shares) shall have endorsed thereon a legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the Preferred Shares, the Warrant Shares and the Conversion
Shares until such legend has been removed):
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"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OR SUCH OTHER LAWS."
B. Filings. The Company shall make all necessary Commission Filings and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to Buyer as required by all applicable Laws, and shall
provide a copy thereof to Buyer promptly after such filing.
C. Reporting Status. So long as Buyer beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed by it
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
D. Use of Proceeds. The Company shall use the proceeds from the sale of the
Securities (net of amounts paid by the Company for Buyer's out-of-pocket costs
and expenses, whether or not accounted for or incurred in connection with the
transactions contemplated by this Agreement (including the fees and
disbursements of Buyer's legal counsel), and finder's fees in connection with
such sale) solely for general corporate and working capital purposes.
E. Listing. Except to the extent the Company lists its Common Stock on The
New York Stock Exchange, Nasdaq National Market or The American Stock Exchange,
the Company shall use its best efforts to maintain its listing of the Common
Stock on Nasdaq. If the Common Stock is delisted from Nasdaq, the Company will
use its best efforts to list the Common Stock on the most liquid national
securities exchange or quotation system that the Common Stock is qualified to be
listed on.
F. Reserved Conversion Shares. The Company at all times from and after the
date hereof shall have such number of shares of Common Stock duly and validly
authorized and reserved for issuance as shall be sufficient for the conversion
in full of, and the payment of dividends on, the Preferred Shares and the
exercise in full of the Warrants.
G. Right of First Refusal. If, during the period commencing on the date
hereof and ending the earlier of (i) the third anniversary of the Closing Date
and (ii) the date all the Preferred Shares are either redeemed or converted into
Common Stock (the "Right of First Refusal Period"), the Company should propose
(the "Proposal") to issue Common Stock or securities convertible into Common
Stock at a price less than the Current Market Price (as defined in the
Certificate of Designation), or debt at less than par value or having an
effective annual interest rate in excess of 9.9% (each a "Right of First Refusal
Security" and collectively, the "Right of First Refusal Securities"), in each
case on the date of issuance the Company shall be obligated to offer such Right
of First Refusal Securities to Buyer on the terms set forth in the Proposal (the
"Offer") and Buyer shall have the right, but not the obligation, to accept such
Offer on such terms provided however, that notwithstanding the foregoing, the
Company shall be permitted to issue Right of First Refusal Securities as payment
for goods and services without having to provide such Right of First Refusal to
Buyer. The Company shall provide written notice to Buyer of any Proposal,
setting forth in full the terms and conditions thereof, and Buyer shall then
have 5 business days to accept or reject the Offer in writing. If the Company
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issues any Right of First Refusal Securities during the Right of First Refusal
Period but fails to: (i) notify Buyer of the Proposal, (ii) offer Buyer the
opportunity to complete the transaction as set forth in the Proposal, or (iii)
enter into and consummate an agreement to issue such Right of First Refusal
Securities to Buyer on the terms and conditions set forth in the Proposal, after
Buyer has accepted the Offer, then the Company shall pay to Buyer, as liquidated
damages, an amount equal to 10% of the amount paid to the Company for the Right
of First Refusal Securities. The foregoing Right of First Refusal is and shall
be senior in right to any other right of first refusal issued by the Company to
any other Person. Notwithstanding the foregoing, the Right of First Refusal
granted pursuant to this paragraph shall not be applicable to any debt financing
by Heller Financial or any of its Affiliates.
H. Information. Each of the parties hereto acknowledges and agrees that
Buyer shall not be provided with, nor be given access to, any material
non-public information relating to the Company or any of the Subsidiaries.
I. Exemption from Investment Company Act. The Company shall conduct its
business, and shall cause the Subsidiaries to conduct their businesses, in such
a manner that neither the Company nor any Subsidiary shall become an "investment
company" within the meaning of the Investment Company Act.
J. Accounting and Reserves. The Company shall maintain a standard and
uniform system of accounting and shall keep proper books and records and
accounts in which full, true and correct entries shall be made of its
transactions, all in accordance with GAAP applied on a consistent basis through
all periods, and shall set aside on such books for each fiscal year all such
reserves for depreciation, obsolescence, amortization, bad debts and other
purposes in connection with its operations as are required by such principles so
applied.
K. Transactions with Affiliates. Neither the Company nor any of its
Subsidiaries shall, directly or indirectly, enter into any transaction or
agreement with any stockholder, officer, director or Affiliate of the Company or
family member of any officer, director or Affiliate of the Company, unless the
transaction or agreement is (i) reviewed and approved by a majority of
Disinterested Directors (as defined below) and (ii) on terms no less favorable
to the Company or the applicable Subsidiary than those obtainable from a
non-affiliated person. A "Disinterested Director" shall mean a director of the
Company who is not and has not been an officer or employee of the Company and
who is not a member of the family of, controlled by or under common control
with, any such officer or employee.
L. Certain Restrictions. So long as any Preferred Shares are outstanding,
no dividends shall be declared or paid or set apart for payment nor shall any
other distribution be declared or made upon Junior Securities (as defined in the
Certificate of Designation), nor shall any Junior Securities be redeemed,
purchased or otherwise acquired (other than a redemption, purchase or other
acquisition of shares of Common Stock made for purposes of an employee incentive
or benefit plan (including a stock option plan) of the Company or any
Subsidiary, for any consideration by the Company, directly or indirectly, nor
shall any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any such stock.
V. Transfer Agent Instructions
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A. The Company undertakes and agrees that no instruction other than the
instructions referred to in this Article V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement shall be given to its
transfer agent for the Common Stock and that the Conversion Shares, the Dividend
Shares and the Warrant Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement and applicable law. Nothing
contained in this Section V.A. shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of such
Common Stock. If, at any time, Buyer provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of the resale
by Buyer of such Common Stock is not required under the Securities Act and that
the removal of restrictive legends is permitted under applicable law, the
Company shall permit the transfer of such Common Stock and promptly instruct the
Company's transfer agent to issue one or more certificates for Common Stock
without any restrictive legends endorsed thereon.
B. Buyer shall have the right to convert the Preferred Shares by
telecopying an executed and completed Notice of Conversion (as defined in the
Certificate of Designation) to the Company. Each date on which a Notice of
Conversion is telecopied to and received by the Company in accordance with the
provisions hereof shall be deemed a Conversion Date (as defined in the
Certificate of Designation). The Company shall transmit the certificates
evidencing the shares of Common Stock issuable upon conversion of any Preferred
Shares (together with certificates evidencing any Preferred Shares not being so
converted) to Buyer via express courier, by electronic transfer or otherwise,
within five business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date"). Within 30 days after Buyer delivers the Notice
of Conversion to the Company, Buyer shall deliver to the Company a certificate
or certificates evidencing the Preferred Shares being converted. Buyer agrees to
indemnify the Company for any losses the Company may have as a result of Buyer
not delivering Preferred Shares which Buyer has converted into Common Shares.
C. Buyer shall have the right to purchase shares of Common Stock pursuant
to exercise of the Warrants in accordance with its applicable terms of the
Warrants. The last date that the Company may deliver shares of Common Stock
issuable upon any exercise of Warrants is referred to herein as the "Warrant
Delivery Date."
D. The Company understands that a delay in the issuance of the shares of
Common Stock issuable in lieu of cash dividends on the Preferred Shares or upon
the conversion of the Preferred Shares or exercise of the Warrants beyond the
applicable Dividend Payment Due Date (as defined in the Certificate of
Designation), Delivery Date or Warrant Delivery Date could result in economic
loss to Buyer. As compensation to Buyer for such loss (and not as a penalty),
the Company agrees to pay to Buyer for late issuance of Common Stock issuable in
lieu of cash dividends on the Preferred Shares or upon conversion of the
Preferred Shares or exercise of the Warrants in accordance with the following
schedule (where "No. Business Days" is defined as the number of business days
beyond five days from the Dividend Payment Due Date, the Delivery Date or the
Warrant Delivery Date, as applicable):
Compensation For Each 10 Shares
of Preferred Shares Not Converted
Timely or 500 Shares of Common
Stock Issuable In Payment of
Dividends or Upon Exercise of
No. Business Days Warrants Not Issued Timely
------------------ ---------------------------------
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1 $ 25
2 50
3 75
4 100
5 125
6 150
7 175
8 200
9 225
10 250
more than 10 $250 + $100 for each Business
Day Late beyond 10 days
The Company shall pay to Buyer the compensation described above by the
transfer of immediately available funds upon Buyer's demand. Nothing herein
shall limit Buyer's right to pursue actual damages for the Company's failure to
issue and deliver Common Stock to Buyer. In addition to any other remedies which
may be available to Buyer, in the event the Company fails for any reason to
deliver such shares of Common Stock within five business days after the relevant
Dividend Payment Due Date, Delivery Date or Warrant Delivery Date, as
applicable, Buyer shall be entitled to rescind the relevant Notice of Conversion
or exercise of Warrants by delivering a notice to such effect to the Company
whereupon the Company and Buyer shall each be restored to their respective
original positions immediately prior to delivery of such Notice of Conversion on
delivery.
VI. Delivery Instructions
The Securities shall be delivered by the Company to the Escrow Agent
pursuant to Section I.B. hereof on a "delivery-against-payment basis" at the
Closing.
VII. Closing Date
The date and time (the "Closing Date") of the issuance and sale of the
First Closing Preferred Shares and the Warrants (the "Closing") shall be the
date hereof or such other date as shall be mutually agreed upon in writing. The
issuance and sale of the Securities shall occur at the applicable closing at the
offices of the Escrow Agent. Notwithstanding anything to the contrary contained
herein, the Escrow Agent shall not be authorized to release to the Company the
Purchase Price or to Buyer the certificate(s) (I/N/O Buyer or I/N/O Buyer's
nominee) evidencing the Securities being purchased by Buyer unless the
applicable conditions set forth in Articles VIII and IX hereof have been
satisfied. VIII. Conditions to the Company's Obligations
I. Buyer understands that the Company's obligation to sell the Securities
on the Closing Date to Buyer pursuant to this Agreement is conditioned upon:
A. Delivery by Buyer to the Escrow Agent of the First Closing Purchase
Price;
B. The accuracy on the Closing Date of the representations and warranties
of Buyer contained in this Agreement as if made on the Closing Date (except for
representations and warranties which, by their express terms, speak as of and
relate to a specified date, in which case such accuracy shall be measured as of
such specified date) and the performance by Buyer in all material respects on or
before the Closing Date of all covenants and agreements of Buyer required to be
performed by it pursuant to this Agreement on or before the Closing Date; and
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C. There shall not be in effect any Law or order, ruling, judgment or writ
of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
II. Buyer understands that the Company's obligation to sell the Securities
on the date of the Second Closing (the "Second Closing Date") to Buyer pursuant
to this Agreement is conditioned upon:
A. Delivery by Buyer to the Escrow Agent of the Second Closing Purchase
Price;
B. The accuracy on the Second Closing Date of the representations and
warranties of Buyer contained in this Agreement as if made on the Second Closing
Date (except for representations and warranties which, by their express terms,
speak as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by Buyer in all material
respects on or before the Second Closing Date of all covenants and agreements of
Buyer required to be performed by it pursuant to this Agreement on or before the
Second Closing Date; and
C. There shall not be in effect any Law or order, ruling, judgment or writ
of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
IX. Conditions to Buyer's Obligations
I. The Company understands that Buyer's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company to Buyer of evidence that the Certificate of
Designation has been filed and is effective;
B. Delivery by the Company to the Escrow Agent of one or more certificates
(I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities to be purchased
by Buyer pursuant to this Agreement;
C. The accuracy on the Closing Date of the representations and warranties
of the Company contained in this Agreement as if made on the Closing Date
(except for representations and warranties which, by their express terms, speak
as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by the Company in all
respects on or before the Closing Date of all covenants and agreements of the
Company required to be performed by it pursuant to this Agreement on or before
the Closing Date, all of which shall be confirmed to Buyer by delivery of the
certificate of the chief executive officer of the Company to that effect;
D. Buyer having received an opinion of counsel for the Company, dated the
Closing Date, in form, scope and substance reasonably satisfactory to Buyer as
to the matters set forth in Annex A;
E. There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock on Nasdaq, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof; F. There not having occurred any event or
development, and there being in existence no condition, having or which
reasonably and foreseeably could have a Material Adverse Effect;
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G. The Company shall have delivered to Buyer (as provided in the Escrow
Instructions) reimbursement of Buyer's out-of-pocket costs and expenses, whether
or not accounted for or incurred in connection with the transactions
contemplated by this Agreement (including the fees and disbursements of Buyer's
legal counsel), of $50,000;
H. There shall not be in effect any Law, order, ruling, judgment or writ of
any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement;
I. Delivery by the Company of irrevocable instructions to the Company's
transfer agent to reserve 3,000,000 shares of Common Stock for issuance of the
Conversion Shares and the Warrant Shares;
J. The Company shall have obtained all consents, approvals or waivers from
governmental authorities and third persons necessary for the execution, delivery
and performance of the Documents and the transactions contemplated thereby, all
without material cost to the Company; and
K. Buyer shall have received such additional documents, certificates,
payment, assignments, transfers and other delivers, as it or its legal counsel
may reasonably request and as are customary to effect a closing of the matters
herein contemplated.
II. The Company understands that Buyer's obligation to purchase the Second
Closing Preferred Shares on the Second Closing Date pursuant to this Agreement
is conditioned upon:
A. Delivery by the Company to Buyer of evidence that the Certificate of
Designation has been filed and is effective;
B. Delivery by the Company to the Escrow Agent of one or more certificates
(I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities to be purchased
by Buyer at the Second Closing pursuant to this Agreement;
C. The accuracy on the Second Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Second
Closing Date (except for representations and warranties which, by their express
terms, speak as of and relate to a specified date, in which case such accuracy
shall be measured as of such specified date) and the performance by the Company
in all respects on or before the Second Closing Date of all covenants and
agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Second Closing Date, all of which shall be confirmed
to Buyer by delivery of the certificate of the chief executive officer of the
Company to that effect;
D. There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock on Nasdaq, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof;
E. There not having occurred any event or development, and there being in
existence no condition, having or which reasonably and foreseeably could have a
Material Adverse Effect;
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F. There shall not be in effect any Law, order, ruling, judgment or writ of
any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement;
G. The Company shall have obtained all consents, approvals or waivers from
governmental authorities and third persons necessary for the execution, delivery
and performance of the Documents and the transactions contemplated thereby, all
without material cost to the Company; and
H. Buyer shall have received such additional documents, certificates,
payment, assignments, transfers and other delivers, as it or its legal counsel
may reasonably request and as are customary to effect a closing of the matters
herein contemplated.
X. Termination
A. Termination by Mutual Written Consent. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned, for any reason and at
any time prior to the Closing Date, by the mutual written consent of the Company
and Buyer.
B. Termination by the Company or Buyer. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned by action of the
Company or Buyer if (i) the Closing shall not have occurred at or prior to 5:00
p.m., New York City time, on June 30, 2000 (the "Latest Closing Date");
provided, however, that the right to terminate this Agreement pursuant to this
Section X.B. shall not be available to any party whose failure to fulfill any of
its obligations under this Agreement has been the cause of or has resulted in
the failure of the Closing to occur at or before such time and date; provided,
further, however, that if the Closing shall not have occurred on or prior to the
Latest Closing Date, the Closing may only occur after the Latest Closing Date
with the written consent of Buyer.
C. Termination by Buyer. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply with any of its
covenants or agreements contained in this Agreement, (ii) there shall have been
a breach by the Company of any representation or warranty made by it in this
Agreement, (iii) there shall have occurred any event or development, or there
shall be in existence any condition, having or reasonably likely to have a
Material Adverse Effect or (iv) the Company shall have failed to satisfy the
conditions provided in Article IX hereof.
D. Termination by the Company. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) Buyer shall have failed to comply with any of
its covenants or agreements contained in this Agreement or (ii) there shall have
been a breach by Buyer of any representation or warranty made by it in this
Agreement.
E. Effect of Termination. In the event of the termination of this Agreement
pursuant to this Article X, this Agreement shall thereafter become void and have
no effect, and no party hereto shall have any liability or obligation to any
other party hereto in respect of this Agreement, except that the provisions of
Article XI, this Section X.E and Section X.F shall survive any such termination;
provided, however, that no party shall be released from any liability hereunder
if this Agreement is terminated and the transactions contemplated hereby
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abandoned by reason of (i) willful failure of such party to perform its
obligations hereunder or (ii) any misrepresentation made by such party of any
matter set forth herein.
F. Fees and Expenses of Termination. If this Agreement is terminated for
any reason, the Company shall promptly reimburse Buyer for all of Buyer's
out-of-pocket costs and expenses incurred in connection with the transactions
contemplated by this Agreement and the other Documents (including, without
limitation, the fees and disbursements of Buyer's legal counsel).
XI. Survival; Indemnification
A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement shall survive the Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. The Company hereby agrees to indemnify and hold harmless Buyer, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Buyer Indemnitees") from and against any and all losses,
claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses") and agrees to reimburse Buyer Indemnitees for all out
of-pocket expenses (including the fees and expenses of legal counsel), in each
case promptly as incurred by Buyer Indemnitees and to the extent arising out of
or in connection with:
1. any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement or the other
Documents, or the annexes, schedules or exhibits hereto or thereto or any
instrument, agreement or certificate entered into or delivered by the Company
pursuant to this Agreement or the other Documents;
2. any failure by the Company to perform in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Agreement
or the other Documents or any instrument, certificate or agreement entered into
or delivered by the Company pursuant to this Agreement or the other Documents;
3. the purchase of the Preferred Shares and the Warrants, the conversion of
the Preferred Shares and the exercise of the Warrants and the consummation of
the transactions contemplated by this Agreement and the other Documents, the use
of any of the proceeds of the Purchase Price by the Company, the purchase or
ownership of any or all of the Securities, the performance by the parties hereto
of their respective obligations hereunder and under the Documents or any claim,
litigation, investigation, proceedings or governmental action relating to any of
the foregoing, whether or not Buyer is a party thereto; or
4. resales of the Common Shares by Buyer in the manner and as contemplated
by this Agreement and the Registration Rights Agreement.
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C. Buyer hereby agrees to indemnify and hold harmless the Company, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees") from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel) in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
1. any misrepresentation, omission of fact or breach of any of Buyer's
representations or warranties contained in this Agreement or the other
Documents, or the annexes, schedules or exhibits hereto or thereto or any
instrument, agreement or certificate entered into or delivered by Buyer pursuant
to this Agreement or the other Documents; or
2. any failure by Buyer to perform in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Agreement
or the other Documents or any instrument, certificate or agreement entered into
or delivered by Buyer pursuant to this Agreement or the other Documents.
D. Promptly after receipt by either party hereto seeking indemnification
pursuant to this Article XI (an "Indemnified Party") of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Article XI is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission so to notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights or defenses by reason of such failure. In connection with any
Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
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E. In the event one party hereunder should have a claim for indemnification
that does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
XII. Governing Law
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York, without regard to the conflicts of law principles
of such state.
XIII. Submission to Jurisdiction
Each of the parties hereto consents to the exclusive jurisdiction of the
federal courts whose districts encompass any part of the City of New York in
connection with any dispute arising under this Agreement and the other
Documents. Each party hereto hereby irrevocably and unconditionally waives, to
the fullest extent it may effectively do so, any defense of an inconvenient
forum or improper venue to the maintenance of such action or proceeding in any
such court and any right of jurisdiction on account of its place of residence or
domicile. Each party hereto irrevocably and unconditionally consents to the
service of any and all process in any such action or proceeding in such courts
by the mailing of copies of such process by certified or registered airmail at
its address specified in Article XIX. Each party hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
XIV. Waiver of Jury Trial
TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH PARTY HERETO (i)
CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (ii) ACKNOWLEDGES THAT
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.
XV. Counterparts; Execution
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all the counterparts shall
together constitute one and the same instrument. A facsimile transmission of
this signed Agreement shall be legal and binding on all parties hereto.
XVI. Headings
The headings of this Agreement are for convenience of reference and shall
not form part of, or affect the interpretation of, this Agreement.
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XVII. Severability
In the event any one or more of the provisions contained in this Agreement
or in the other Documents should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein or therein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
XVIII. Entire Agreement; Remedies, Amendments and Waivers
This Agreement and the Documents constitute the entire agreement among the
parties pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by all parties. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
XIX. Notices
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
A. if to the Company, to:
PHC, Inc.
200 Lake Street, Suite 102
Peabody, MA 01960
Attention: Bruce Shear
(978) 536-2777
(978) 536-2677 (fax)
with a copy to:
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, N.W.
Washington, DC 20036-5339
Attention: Arnold R. Westerman
(202) 857-6000
(202) 857-6395 (fax)
B. if to Buyer, to:
The Shaar Fund Ltd.
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
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with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
C. if to the Escrow Agent, to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
The Company, Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Article XIX.
XX. Confidentiality
Each of the Company and Buyer agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-B under the Securities Act and the Exchange Act).
XXI. Assignment
This Agreement shall not be assignable by either of the parties hereto
prior to the Closing without the prior written consent of the other party, and
any attempted assignment contrary to the provisions hereby shall be null and
void; provided, however, that Buyer may assign its rights and obligations
hereunder, in whole or in part, to any Affiliate of Buyer in compliance with and
pursuant to applicable Laws.
[SIGNATURE PAGE FOLLOWS.]
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In Witness Whereof, the parties hereto have duly executed and delivered
this Agreement on the date first above written.
PHC, Inc.
By: Name: /s/ Bruce A. Shear
Title: President
The Shaar Fund Ltd.
By: Intercaribbean Services (the
sole director of The Shaar Fund)
By: _____________________________
Name:
Title:
By: CITA Investments (a sub-advisor
to Shaar Advisors Services, N.V.,
the Advisor to The Shaar Fund)
By: Name: /s/ Uri Wolfson
Title:
<PAGE>
EXHIBIT A
COMMON STOCK PURCHASE WARRANTS
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CERTIFICATE OF DESIGNATION
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EXHIBIT C
ESCROW INSTRUCTIONS
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EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
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SCHEDULE III.A.1.
EXERCISE PRICES OF OPTIONS AND WARRANTS
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SCHEDULE III.A.3.
PREEMPTIVE, SUBSCRIPTION, "CALL," RIGHT OF FIRST REFUSAL OR SIMILAR RIGHTS
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SCHEDULE III.A.4.
SUBSIDIARIES
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SCHEDULE III.A.5.
MINUTES
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SCHEDULE III.C.
ISSUANCES AND SALES OF SECURITY
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SCHEDULE III.F.
CONTRAVENTION
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SCHEDULE III.J.
FULL DISCLOSURE
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SCHEDULE III.K.
LITIGATION
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SCHEDULE III.L.
EVENTS OF DEFAULT
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SCHEDULE III.O.
RELATED PARTY TRANSACTIONS
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SECURITIES LAW MATTERS
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SCHEDULE III.R.
ENVIRONMENTAL MATTERS
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SCHEDULE III.T.
ERISA MATTERS
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SCHEDULE III.V.
PROPERTY
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SCHEDULE III.W.
INTELLECTUAL PROPERTY
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SCHEDULE III.Y.
REGISTRATION RIGHTS
474476.8
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ANNEX A
FORM OF OPINION
(Outside Counsel)
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Massachusetts, is
duly qualified to do business as a foreign corporation and is in good standing
in all jurisdictions where the Company owns or leases properties or conducts
business, except for jurisdictions in which the failure to so qualify would not
have a Material Adverse Effect, and has all requisite corporate power and
authority to own its properties and conduct its business as described in the
Commission Filings.
2. The authorized capital stock of the Company consists of 20,000,000
shares of class A Common Stock, par value $.01 per share (the "Common Stock"),
2,000,000 shares of class B Common Stock, and 1,000,000 shares of Preferred
Stock, par value $.01 per share.
3. When delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Documents, the
Securities will be duly authorized and validly issued, fully paid and
nonassessable.
4. The Company has the requisite corporate power and authority to enter
into the Documents and to sell and deliver the Securities as described in the
Documents; each of the Documents has been duly and validly authorized by all
necessary corporate action by the Company; each of the Documents has been duly
and validly executed and delivered by and on behalf of the Company, and is valid
and binding agreement of the Company, enforceable in accordance with its terms,
except as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other laws affecting creditors rights generally.
5. When issued, the Preferred Shares and the Warrants shall be duly
authorized, validly issued, fully paid and nonassessable, and free and clear of
all encumbrances and restrictions, except for restrictions on transfer imposed
by applicable securities laws. The Conversion Shares and Warrant Shares issuable
upon conversion or exercise, respectively, of the Preferred Shares and the
Warrants, respectively, will be duly authorized, validly issued, fully paid and
nonassessable, and free and clear of all encumbrances and restrictions, except
for restrictions on transfer imposed by applicable securities laws.
6. Based on Buyer's representations contained in this Agreement, the offer
and sale of the Preferred Shares and the Warrants are exempt from the
registration requirements of the Securities Act. 7. Neither the Company nor any
of its subsidiaries is, or will be after the consummation of the transactions
contemplated by this Agreement and the other Documents and the use of the
proceeds from the sale of the Securities, an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended.
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FORM OF OPINION
(Inside Counsel)
8. Except as set forth on the Schedules to the Securities Purchase
Agreement, the execution and delivery by the Company of the Documents, the
issuance of the Securities, and the consummation by the Company of the other
transactions contemplated thereby, including, without limitation, the filing of
the Certificate of Designation with the Massachusetts Secretary of State's
office, do not, and compliance with the provisions of the Documents will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of the Company or any of its Subsidiaries under, or result in the
termination of, or require that any consent be obtained or any notice be given
with respect to, (i) the Certificate of Incorporation or By-Laws of the Company
or the comparable charter or organizational documents of any of its
Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease, contract or other agreement, instrument or permit known to us
and applicable to the Company or any of its Subsidiaries or their respective
properties or assets, or (iii) any Law applicable to, or, to the best of our
knowledge, any judgment, decree or order of any court or government body having
jurisdiction over, the Company or any of its Subsidiaries or any of their
respective properties or assets. To the best of our knowledge, no consent,
approval, authorization, order, registration, filing, qualification, license or
permit of or with any court or any public, governmental or regulatory agency or
body having jurisdiction over the Company or any of its properties or assets is
required for the execution, delivery and performance by the Company of the
Documents or the consummation by the Company of the transactions contemplated
thereby.
9. To the best of our knowledge, other than as described in the Commission
Filings, there are no outstanding options, warrants or other securities
exercisable or convertible into Common Stock of the Company.
10. There is no action, suit, claim, inquiry or investigation pending or,
to the best of our knowledge, threatened by or before any court or public or
governmental authority which, if determined adversely to the Company, would have
a Material Adverse Effect.
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Exhibit 4.36
THIS COMMON STOCK PURCHASE 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 COMMON STOCK PURCHASE WARRANT.
Number of Shares of Common Stock: 125,000
Warrant No. 1
COMMON STOCK PURCHASE WARRANT
To Purchase Common Stock of
PHC, Inc.
This Is To Certify That The Shaar Fund Ltd., or registered assigns, is
entitled, at any time from the Closing Date (as hereinafter defined) to the
Expiration Date (as hereinafter defined), to purchase from PHC, Inc., a
Massachusetts corporation (the "Company"), 125,000 shares of Common Stock (as
hereinafter defined and subject to adjustment as provided herein), in whole or
in part, including fractional parts, at a purchase price per share equal to
$3.00. subject to adjustment as provided herein, all on the terms and conditions
and pursuant to the provisions hereinafter set forth.
1. Definitions
As used in this Common Stock Purchase Warrant (this "Warrant"), the
following terms shall have the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the Closing Date, other than Warrant Stock.
"Book Value" shall mean, in respect of any share of Common Stock on any
date herein specified, the consolidated book value of the Company as of the last
day of any month immediately preceding such date, divided by the number of Fully
Diluted Outstanding shares of Common Stock as determined in accordance with GAAP
(assuming the payment of the exercise prices for such shares) by BDO Seidman,
LLP or any other firm of independent certified public accountants of recognized
national standing selected by the Company and reasonably acceptable to the
Holder.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Closing Date" shall have the meaning set forth in the Securities Purchase
Agreement.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the class A Common Stock, par value $.01 per share, of the Company as
constituted on the Closing Date, and any capital stock into which such Common
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Stock may thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the occurrence of a specified date or a
specified event.
"Current Market Price" shall mean on any date of determination the closing
bid price of a Common Share on such day as reported on Nasdaq; provided, if such
security bid is not listed or admitted to trading on Nasdaq, as reported on the
principal national security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system, the
closing bid price of such security on the over-the-counter market on the day in
question as reported by Bloomberg LP, or a similar generally accepted reporting
service, as the case may be.
"Current Warrant Price" shall mean, in respect of a share of Common Stock
at any date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant on such date, as set forth in the first
paragraph hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean June 28, 2003.
"Fully Diluted Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all shares of Common Stock Outstanding at such date and all shares of Common
Stock issuable in respect of this Warrant, outstanding on such date, and other
options or warrants to purchase, or securities convertible into, shares of
Common Stock outstanding on such date which would be deemed outstanding in
accordance with GAAP for purposes of determining Book Value or net income per
share.
"Fundamental Corporate Change" shall have the meaning set forth in Section
4.4.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant or Warrant Stock
set forth herein is registered on the books of the Company maintained for such
purpose.
"Market Price" per Common Share means the average of the closing bid prices
of the Common Shares as reported on the Nasdaq SmallCap Market ("Nasdaq") for
the five trading days immediately preceding the Closing Date.
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"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company or any subsidiary thereof, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of a date even herewith between the Company and The Shaar
Fund Ltd., as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which are, or
which upon their issuance on their exercise of this Warrant would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith between the Company and The Shaar
Fund Ltd., as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock or of
any interest in either thereof, which would constitute a sale thereof within the
meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrant Price" shall mean an amount equal to (i) the number of shares of
Common Stock being purchased upon exercise of this Warrant pursuant to Section
2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
"Warrants" shall mean this Warrant and all warrants issued upon transfer,
division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.
2. Exercise of Warrant
2.1 Manner of Exercise
From and after the Closing Date and until 5:00 p.m., New York time, on the
Expiration Date, Holder may exercise this Warrant, on any Business Day, for all
or any part of the number of shares of Common Stock purchasable hereunder.
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In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 200 Lake Street, Suite 102,
Peabody, MA 01960, or at the office or agency designated by the Company pursuant
to Section 12, (i) a written notice of Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased, (ii) to the extent such exercise is not being effected through a
Cashless Exercise, payment of the Warrant Price in cash or wire transfer or
cashier's check drawn on a United States bank and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription form appearing at
the end of this Warrant as Exhibit A, duly executed by Holder or its agent or
attorney. Upon receipt of the items referred to in clauses (i), (ii) and (iii)
above, the Company shall, as promptly as practicable, and in any event within
five Business Days thereafter, execute or cause to be executed and deliver or
cause to be delivered to Holder a certificate or certificates representing the
aggregate number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter provided.
The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as Holder shall request in the
notice and shall be registered in the name of Holder or, subject to Section 9,
such other name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder or any other Person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the notice, together with the cash or check or
checks and this Warrant, is received by the Company as described above and all
taxes required to be paid by Holder, if any, pursuant to Section 2.2 prior to
the issuance of such shares have been paid. If this Warrant shall have been
exercised in part, the Company shall, at the time of delivery of the certificate
or certificates representing Warrant Stock, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant, or, at the request of Holder, appropriate
notation may be made on this Warrant and the same returned to Holder.
Notwithstanding any provision herein to the contrary, the Company shall not be
required to register shares in the name of any Person who acquired this Warrant
(or part hereof) or any Warrant Stock otherwise than in accordance with this
Warrant.
Simultaneously with the exercise of this Warrant, payment in full of the
Warrant Price shall be made, at the option of the Holder, (i) by payment of the
Warrant Price in cash or by wire transfer or cashier's check drawn on a United
States bank, (ii) through a net exercise without payment of the Warrant Price in
cash by providing notice to the Company of the Holder's election to receive a
number of shares of Common Stock in a Cashless Exercise equal to the product of
(1) the number of shares for which such Warrant is exercisable with payment in
cash of the Warrant Price as of the date of exercise and (2) the Cashless
Exercise Ratio or (iii) by any combination of clauses (i) and (ii). For purposes
of this Agreement, the "Cashless Exercise Ratio" shall equal a fraction, the
numerator of which is the excess of the Current Market Price per share of the
Common Stock on the date of exercise over the Current Warrant Price as of the
date of exercise, and the denominator of which is the Current Market Price per
share of the Common Stock on the date of exercise. An exercise of a Warrant in
accordance with clause (ii) above is herein called a "Cashless Exercise."
Following a Cashless Exercise, this Warrant shall be canceled in all respects
with regard to (a) the number of shares of Common Stock issued in accordance
with the Cashless Exercise plus (b) the number of shares used as consideration
for the Cashless Exercise.
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2.2 Payment of Taxes and Charges
All shares of Common Stock issuable upon the exercise of this Warrant
pursuant to the terms hereof shall be validly issued, fully paid and
nonassessable, freely tradable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issuance or delivery thereof,
unless such tax or charge is imposed by law upon Holder, in which case such
taxes or charges shall be paid by Holder. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issuance of any certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of Holder, and in such
case the Company shall not be required to issue or deliver any stock certificate
until such tax or other charge has been paid or it has been established to the
satisfaction of the Company that no such tax or other charge is due.
2.3 Fractional Shares
The Company shall not be required to issue a fractional share of Common
Stock upon exercise of any Warrant. As to any fraction of a share which Holder
would otherwise be entitled to purchase upon such exercise, the Company shall
pay a cash adjustment in respect of such final fraction in an amount equal to
the same fraction of the Market Price per share of Common Stock as of the
Closing Date.
2.4 Continued Validity
A holder of shares of Common Stock issued upon the exercise of this
Warrant, in whole or in part (other than a holder who acquires such shares after
the same have been publicly sold pursuant to a Registration Statement under the
Securities Act or sold pursuant to Rule 144 thereunder) shall continue to be
entitled with respect to such shares to all rights to which it would have been
entitled as Holder under Sections 9, 10 and 14 of this Warrant. The Company
will, at the time of exercise of this Warrant, in whole or in part, upon the
request of Holder, acknowledge in writing, in form reasonably satisfactory to
Holder, its continuing obligation to afford Holder all such rights; provided,
however, that if Holder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford to Holder all such
rights.
3. Transfer, Division and Combination
3.1 Transfer
Subject to compliance with Section 9, transfer of this Warrant and all
rights hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company referred to in Section 2.1 or the office or
agency designated by the Company pursuant to Section 12, together with a written
assignment of this Warrant substantially in the form of Exhibit B hereto duly
executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new warrant issued.
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3.2 Division and Combination
Subject to Section 9, this Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office or agency of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued, signed by Holder or its agent or
attorney. Subject to compliance with Sections 3.1 and 9, as to any transfer
which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to
be divided or combined in accordance with such notice.
3.3 Expenses
The Company shall prepare, issue and deliver at its own expense (other than
transfer taxes) the new Warrants or Warrants under this Section 3.
3.4 Maintenance of Books
The Company agrees to maintain, at its aforesaid office or agency, books
for the registration and the registration of transfer of the Warrants.
4. Adjustments
The number of shares of Common Stock for which this Warrant is exercisable,
or the price at which such shares may be purchased upon exercise of this
Warrant, shall be subject to adjustment from time to time as set forth in this
Section 4. The Company shall give Holder notice of any event described below
which requires an adjustment pursuant to this Section 4 at the time of such
event.
4.1 Stock Dividends, Subdivisions and Combinations
If at any time the Company shall:
(a) take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Common Stock;
(b) subdivide its outstanding shares of Common Stock into a larger number
of shares of Common Stock; or
(c) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock;
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2 Certain Other Distributions
If at any time the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive any dividend or other
distribution of:
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(a) cash;
(b) any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock); or
(c) any warrants or other rights to subscribe for or purchase any evidences of
its indebtedness, any shares of its stock or any other securities or property of
any nature whatsoever (other than cash, Convertible Securities or Additional
Shares of Common Stock);
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the 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) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.
4.3 Other Provisions Applicable to Adjustments under this Section
The following provisions shall be applicable to the making of adjustments
of the number of shares of Common Stock for which this Warrant is exercisable
and the Current Warrant Price provided for in this Section 4:
(a) When Adjustments to be Made. The adjustments required by this Section 4
shall be made whenever and as often as any specified event requiring an
adjustment shall occur. For the purpose of any adjustment, any specified event
shall be deemed to have occurred at the close of business on the date of its
occurrence.
(b) Fractional Interests. In computing adjustments under this Section 4,
fractional interests in Common Stock shall be taken into account to the nearest
1/10th of a share.
(c) When Adjustment not Required. If the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(d) Challenge to Good Faith Determination. Whenever the Board of Directors of
the Company shall be required to make a determination in good faith of the fair
value of any item under this Section 4, such determination may be challenged in
good faith by the Holder, and any dispute shall be resolved by an investment
banking firm of recognized national standing selected by the Company and
acceptable to Holder.
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4.4 Reorganization, Reclassification, Merger, Consolidation or Disposition of
Assets
In case the Company shall reorganize its capital, reclassify its capital
stock, consolidate or merge with or into another Person (where the Company is
not the survivor or where there is a change in or distribution with respect to
the Common Stock of the Company), or sell, convey, transfer or otherwise dispose
of all or substantially all its property, assets or business to another Person,
or effectuate a transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed of (each, a "Fundamental
Corporate Change") and, pursuant to the terms of such Fundamental Corporate
Change, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of the Warrant, such number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property as is receivable upon or as a result of such Fundamental
Corporate Change by a holder of the number of shares of Common Stock for which
this Warrant is exercisable immediately prior to such Fundamental Corporate
Change. In case of any such Fundamental Corporate Change, the successor or
acquiring corporation (if other than the Company) shall expressly assume the due
and punctual observance and performance of each and every covenant and condition
of this Warrant to be performed and observed by the Company and all the
obligations and liabilities hereunder, subject to such modifications as may be
deemed appropriate (as determined by resolution of the Board of Directors of the
Company) in order to provide for adjustments of shares of Common Stock for which
this Warrant is exercisable which shall be as nearly equivalent as practicable
to the adjustments provided for in this Section 4. For purposes of this Section
4.4, "common stock of the successor or acquiring corporation" shall include
stock of such corporation of any class which is not preferred as to dividends or
assets over any other class of stock of such corporation and which is not
subject to redemption and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions of this
Section 4.4 shall similarly apply to successive Fundamental Corporate Change.
4.5 Other Action Affecting Common Stock
In case at any time or from time to time the Company shall take any action
in respect of its Common Stock, other than any action described in this Section
4, which would have a materially adverse effect upon the rights of Holder, the
number of shares of Common Stock and/or the purchase price thereof shall be
adjusted in such manner as may be equitable in the circumstances, as determined
in good faith by the Board of Directors of the Company.
4.6 Certain Limitations
Notwithstanding anything herein to the contrary, the Company agrees not to
enter into any transaction which, by reason of any adjustment hereunder, would
cause the Current Warrant Price to be less than the par value per share of
Common Stock.
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5. Notices to Holder
5.1 Notice of Adjustments
Whenever the number of shares of Common Stock for which this Warrant is
exercisable, or whenever the price at which a share of such Common Stock may be
purchased upon exercise of the Warrants, shall be adjusted pursuant to Section
4, the Company shall forthwith prepare a certificate to be executed by the chief
financial officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors of the
Company determined the fair value of any evidences of indebtedness, shares of
stock, other securities or property or warrants or other subscription or
purchase rights referred to in Section 4.2), specifying the number of shares of
Common Stock for which this Warrant is exercisable and (if such adjustment was
made pursuant to Section 4.4 or 4.5) describing the number and kind of any other
shares of stock or Other Property for which this Warrant is exercisable, and any
change in the purchase price or prices thereof, after giving effect to such
adjustment or change. The Company shall promptly cause a signed copy of such
certificate to be delivered to the Holder in accordance with Section 14.2. The
Company shall keep at its office or agency designated pursuant to Section 12
copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by the Holder or any
prospective purchaser of a Warrant designated by Holder.
5.2 Notice of Corporate Action
If at any time:
(a) the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or other distribution, or any
right to subscribe for or purchase any evidences of its indebtedness, any shares
of stock of any class or any other securities or property, or to receive any
other right; or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation; or
(c) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 30 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
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dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
6. No Impairment
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issuance or sale of
securities or other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the period
this Warrant is outstanding acknowledge in writing, in form satisfactory to
Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.
7. Reservation and Authorization of Common Stock
From and after the Closing Date, the Company shall at all times reserve and
keep available for issuance upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
which shall be so issuable, when issued upon exercise of any Warrant and payment
therefor in accordance with the terms of such Warrant, shall be duly and validly
issued and fully paid and nonassessable and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the number
of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
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8. Taking of Record; Stock and Warrant Transfer Books
In the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of record of such holders, the Company will in each case
take such a record and will take such record as of the close of business on a
Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
9. Restrictions on Transferability
The Warrants and the Warrant Stock shall not be transferred, hypothecated
or assigned before satisfaction of the conditions specified in this Section 9,
which conditions are intended to ensure compliance with the provisions of the
Securities Act with respect to the Transfer of any Warrant or any Warrant Stock.
Holder, by acceptance of this Warrant, agrees to be bound by the provisions of
this Section 9.
9.1 Restrictive Legend
(a) Holder, by accepting this Warrant and any Warrant Stock agrees that this
Warrant and the Warrant Stock issuable upon exercise hereof may not be assigned
or otherwise transferred unless and until (i) the Company has received an
opinion of counsel for Holder that such securities may be sold pursuant to an
exemption from registration under the Securities Act or (ii) a registration
statement relating to such securities has been filed by the Company and declared
effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear a legend
as follows until such securities have been sold pursuant to an effective
registration statement under the Securities Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS
OF ANY STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND SUCH LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
(b) Except as otherwise provided in this Section 9, the Warrant shall be stamped
or otherwise imprinted with a legend in substantially the following form:
"THIS COMMON STOCK PURCHASE 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 COMMON
STOCK PURCHASE WARRANT."
9.2 Notice of Proposed Transfers
Prior to any Transfer or attempted Transfer of any Warrants or any shares
of Restricted Common Stock, the Holder shall give ten days' prior written notice
(a "Transfer Notice") to the Company of Holder's intention to effect such
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Transfer, describing the manner and circumstances of the proposed Transfer, and
obtain from counsel to Holder who shall be reasonably satisfactory to the
Company, an opinion that the proposed Transfer of such Warrants or such
Restricted Common Stock may be effected without registration under the
Securities Act. After receipt of the Transfer Notice and opinion, the Company
shall, within five days thereof, notify the Holder as to whether such opinion is
reasonably satisfactory and, if so, such holder shall thereupon be entitled to
Transfer such Warrants or such Restricted Common Stock, in accordance with the
terms of the Transfer Notice. Each certificate, if any, evidencing such shares
of Restricted Common Stock issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(a), and the Warrant issued upon such Transfer
shall bear the restrictive legend set forth in Section 9.1(b), unless in the
opinion of such counsel such legend is not required in order to ensure
compliance with the Securities Act. Holder shall not be entitled to Transfer
such Warrants or such Restricted Common Stock until receipt of notice from the
Company under this Section 9.2 that such opinion is reasonably satisfactory.
9.3 Required Registration
Pursuant to the terms and conditions set forth in Registration Rights
Agreement, the Company shall prepare and file with the Commission not later than
the 60th day after the Closing Date, a Registration Statement relating to the
offer and sale of the Common Stock issuable upon exercise of the Warrants and
shall use its best efforts to cause the Commission to declare such Registration
Statement effective under the Securities Act as promptly as practicable but no
later than 150 days after the Closing Date.
9.4 Termination of Restrictions
Notwithstanding the foregoing provisions of Section 9, the restrictions
imposed by this Section upon the transferability of the Warrant Stock and the
Restricted Common Stock (or Common Stock issuable upon the exercise of the
Warrants) and the legend requirements of Section 9.1 shall terminate as to any
particular share of Warrant Stock or Restricted Common Stock (or Common Stock
issuable upon the exercise of the Warrants) (i) when and so long as such
security shall have been effectively registered under the Securities Act and
disposed of pursuant thereto or (ii) when the Company shall have received an
opinion of counsel reasonably satisfactory to it that such shares may be
transferred without registration thereof under the Securities Act. Whenever the
restrictions imposed by Section 9 shall terminate as to this Warrant, as
hereinabove provided, the Holder hereof shall be entitled to receive from the
Company upon written request of the Holder, at the expense of the Company, a new
Warrant bearing the following legend in place of the restrictive legend set
forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT CONTAINED
IN SECTION 9 HEREOF TERMINATED ON __________, _____, AND ARE OF NO
FURTHER FORCE AND EFFECT.
All Warrants issued upon registration of transfer, division or combination
of, or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(a).
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9.5 Listing on Securities Exchange
If the Company shall list any shares of Common Stock on any securities
exchange or quotation system, it will, at its expense, list thereon, maintain
and, when necessary, increase such listing of, all shares of Common Stock issued
or, to the extent permissible under the applicable securities exchange rules,
issuable upon the exercise of this Warrant so long as any shares of Common Stock
shall be so listed during any such Exercise Period.
10. Supplying Information
The Company shall cooperate with Holder in supplying such information as
may be reasonably necessary for Holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.
11. Loss or Mutilation
Upon receipt by the Company from Holder of evidence reasonably satisfactory
to it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant and indemnity reasonably satisfactory to it (it being understood that
the written agreement of the Holder shall be sufficient indemnity), and in case
of mutilation upon surrender and cancellation hereof, the Company will execute
and deliver in lieu hereof a new Warrant of like tenor to Holder; provided, in
the case of mutilation no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation.
12. Office of the Company
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. Limitation of Liability
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
14. Miscellaneous
14.1 Nonwaiver and Expenses
No course of dealing or any delay or failure to exercise any right
hereunder on the part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder's rights, powers or remedies. If the Company fails to
make, when due, any payments provided for hereunder, or fails to comply with any
other provision of this Warrant, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, without
limitation, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.
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14.2 Notice Generally
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
(a) if to the Company, to:
PHC, Inc.
200 Lake Street, Suite 102
Peabody, MA 01960
Attention: Bruce Shear
(978) 536-2777
(978) 536-2677 (fax)
with a copy to:
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, N.W.
Washington, DC 20036-5339
Attention: Arnold R. Westerman
(202) 857-6000
(202) 857-6395 (fax)
(b) if to the Holder, to:
The Shaar Fund Ltd.,
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3 Indemnification
The Company agrees to indemnify and hold harmless Holder from and against
any liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, attorneys' fees, expenses and disbursements of any kind
which may be imposed upon, incurred by or asserted against Holder in any manner
relating to or arising out of any failure by the Company to perform or observe
in any material respect any of its covenants, agreements, undertakings or
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obligations set forth in this Warrant; provided, however, that the Company will
not be liable hereunder to the extent that any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses or disbursements are found in a final nonappealable judgment by a court
to have resulted from Holder's gross negligence, bad faith or willful misconduct
in its capacity as a stockholder or warrantholder of the Company.
14.4 Remedies
Holder in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under Section 9 of this Warrant. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of Section 9 of this Warrant and hereby agrees to waive
the defense in any action for specific performance that a remedy at law would be
adequate.
14.5 Successors and Assigns
Subject to the provisions of Sections 3.1 and 9, this Warrant and the
rights evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and, with respect to Section 9 hereof, holders
of Warrant Stock, and shall be enforceable by any such Holder or holder of
Warrant Stock.
14.6 Amendment
This Warrant and all other Warrants may be modified or amended or the
provisions hereof waived with the written consent of the Company and Holder.
14.7 Severability
Wherever possible, each provision of this Warrant shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable
law, such provision shall only be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Warrant.
14.8 Headings
The headings used in this Warrant are for the convenience of reference only
and shall not, for any purpose, be deemed a part of this Warrant.
14.9 Governing Law
This Warrant shall be governed by the laws of the State of New York,
without regard to the provisions thereof relating to conflicts of law.
[SIGNATURE PAGE FOLLOWS.]
CWT\NYLIB1\474478.2
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<PAGE>
In Witness Whereof, the Company has caused this Warrant to be duly executed
and its corporate seal to be impressed hereon and attested by its Secretary or
an Assistant Secretary.
Dated: June 28, 2000
PHC, Inc.
By: Name: /s/ Bruce A. Shear
Title: President
Attest:
By: Name: /s/ Paula C. Wurts
Title: Chief Financial Officer
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EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of __________ shares of Common Stock of PHC, Inc. and
herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant and requests that certificates for the
shares of Common Stock hereby purchased (and any securities or other property
issuable upon such exercise) be issued in the name of and delivered to
whose address is
and, if such shares of Common Stock shall not include all of the shares of
Common Stock issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the shares of Common Stock issuable hereunder
be delivered to the undersigned.
------------------------------------------------------------------------------
(Name of Registered Owner)
------------------------------------------------------------------------------
(Signature of Registered Owner)
------------------------------------------------------------------------------
(Street Address)
------------------------------------------------------------------------------
(City) (State) (Zip Code)
Notice: The signature on this
subscription must correspond with the
name as written upon the face of the
within Warrant in every particular,
without alteration or enlargement or any
change whatsoever.
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EXHIBIT B
ASSIGNMENT FORM
For Value Received the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
No. of Shares of
Name and Address of Assignee Common Stock
and does hereby irrevocably constitute and appoint
attorney-in-fact to register such transfer on the books of PHC, Inc. maintained
for the purpose, with full power of substitution in the premises.
Dated:
------------------------------------------------------------------------------
(Print Name)
------------------------------------------------------------------------------
(Signature)
------------------------------------------------------------------------------
(Print Name of Witness)
------------------------------------------------------------------------------
(Witness's Signature)
Notice: The signature on this assignment
must correspond with the name as written
upon the face of the within Warrant in
every particular, without alteration or
enlargement or any change whatsoever.
