U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
|_| TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ________
COMMISSION FILE NUMBER 0-22916
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PHC, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Massachusetts 04-2601571
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 Lake Street, Suite 102, Peabody MA 01960
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
978-536-2777
(ISSUER'S TELEPHONE
NUMBER)
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT) Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No____
APPLICABLE ONLY TO CORPORATE ISSUERS
Number of shares outstanding of each class of common equity, as of October 31,
2000
Class A Common Stock 7,494,602
Class B Common Stock 726,991
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(Check one):
Yes ______ No X
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<PAGE>
PHC, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - September 30, 2000 and June
30, 2000.
Condensed Consolidated Statements of Operations - Three months ended
September 30, 2000 and September 30, 1999.
Condensed Consolidated Statements of Cash Flows - Three months ended
September 30, 2000 and September 30, 1999.
Notes to Condensed Consolidated Financial Statements - September
30, 2000.
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 6. Exhibits
Signatures
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
PHC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPT. 30 JUNE 30
ASSETS 2000 2000
__________ _________
Current assets:
Cash & cash equivalents $ 92,196 $ 551,713
Accounts receivable, net of allowance
for bad debts of $2,729,026 at Sept. 30,
2000, $2,850,470 at June 30, 2000 5,935,199 6,286,490
Prepaid expenses 197,809 120,481
Other receivables and advances 160,061 148,554
Deferred income tax asset 459,280 459,280
Other receivables, related party 78,706 77,500
__________ __________
Total current assets 6,923,251 7,644,018
Accounts receivable, noncurrent 745,000 642,000
Other receivables, noncurrent, related party,
net of allowance for doubtful accounts of
$1,560,770 at Sept. 30, 2000 and $1,125,054 at
June 30, 2000 3,363,212 3,239,456
Other receivable 115,637 95,214
Property and equipment, net 1,355,212 1,327,630
Deferred income taxes 154,700 154,700
Deferred financing costs, net of amortization
of $97,646 at Sept. 30, 2000 and
$87,555 at June 30, 2000 36,463 46,554
Goodwill, net of accumulated amortization
of $322,796 at Sept. 30, 2000 and
$296,907 at June 30, 2000 2,608,208 2,630,265
__________ __________
Other assets 125,413 107,972
__________ __________
Total assets $15,427,096 $15,887,809
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,052,453 $ 1,717,362
Notes payable--related parties 200,000 200,000
Current maturities of long-term debt 1,658,880 1,622,239
Revolving credit note 1,530,299 1,555,149
Current portion of obligations under capital
leases 34,805 45,482
Accrued payroll, payroll taxes and benefits 346,817 416,111
Accrued expenses and other liabilities 1,011,636 1,798,400
Net current liabilities of discontinued
operations 1,784,934 1,884,234
__________ __________
Total current liabilities 8,619,824 9,238,977
__________ __________
Long-term debt 2,427,976 2,508,715
Obligations under capital leases 9,583 12,808
Convertible debentures 500,000 500,000
__________ __________
Total noncurrent liabilities 2,937,559 3,021,523
Total liabilities 11,557,383 12,260,500
__________ __________
Stockholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized, 165,000 and
136,000 shares issued and outstanding
Sept. 30, 2000 and June 30, 2000, Respectively 1,650 1,360
Class A common stock, $.01 par value;
20,000,000 shares authorized, 7,497,378
and 7,019,608 shares issued Sept. 30,
2000 and June 30, 2000, Respectively 74,974 70,196
Class B common stock, $.01 par value;
2,000,000 shares authorized, 726,991 issued and
outstanding Sept. 30, 2000 and June 30, 2000,
convertible into one share of Class A common
stock 7,270 7,270
Additional paid-in capital 18,572,028 17,895,162
Treasury stock, 2,776 shares at cost (12,122) (12,122)
Notes receivable, common stock (90,000) --
Accumulated deficit (14,684,087) (14,334,557)
____________ _____________
Total stockholders' equity 3,869,713 3,627,309
____________ _____________
Total liabilities and stockholders' equity $15,427,096 $15,887,809
____________ _____________
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
PHC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS Ended
SEPTEMBER 30
2000 1999
________________________
Revenues:
Patient care, net $4,711,932 $3,951,498
Management fees 345,111 265,404
Contract support services 179,977 165,907
Pharmaceutical studies 34,478 --
Website services 15,000 --
___________ ___________
Total revenue 5,286,498 4,382,809
___________ ___________
Operating expenses:
Patient care expenses 2,207,335 2,125,408
Cost of contract support services 162,001 111,906
Provision for doubtful accounts 826,910 388,191
Administrative and other operating expenses 2,012,353 1,762,564
___________ ___________
Total operating expenses 5,208,599 4,388,069
___________ ___________
Income (loss) from operations 77,899 (5,260)
___________ ___________
Other income (expense):
Interest income 7,900 96,441
Other income, net 15,956 39,835
Interest expense (278,372) (190,868)
___________ ___________
Total other expense, net (254,516) (54,592)
___________ ___________
Loss before provision for taxes (176,617) (59,852)
Provision for income taxes
-- 100
___________ ___________
Net loss (176,617) (59,952)
Dividends (172,913) (12,463)
___________ ___________
Loss applicable to common shareholders $ (349,530) $ (72,415)
=========== ============
Basic and diluted loss per common share $ (.04) $ (.01)
Basic and diluted weighted average number of
shares outstanding 7,938,029 6,337,364
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
PHC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30
2000 1999
__________________________
Cash flows from operating activities:
Net loss $ (176,617) $(59,952)
Adjustments to reconcile net loss to net cash
provided by used in) operating activities:
Depreciation and amortization 65,033 82,009
Compensatory stock options and stock and warrants
issued for obligations -- 22,876
Changes in:
Accounts receivable 91,399 400,432
Prepaid expenses and other current assets (77,328) (123,982)
Other assets (17,441) (23,035)
Accounts payable 335,091 (35,299)
Accrued expenses and other liabilities (558,558) (130,540)
Net liabilities of discontinued operations (99,300) (55,641)
__________ __________
Net cash (used in) provided by operating activities (437,721) 76,868
Cash flows from investing activities:
Acquisition of property and equipment (66,726) (27,965)
Website development costs (3,832) --
__________ __________
Net cash used in investing activities (70,558) (27,965)
__________ __________
Cash flows from financing activities:
Revolving debt, net (24,850) (240,778)
Proceeds from borrowings -- 146,301
Payments on debt (58,000) (270,891)
Deferred financing costs 10,091 5,677
Preferred stock dividends (31,913) (2,463)
Costs related to issuance of capital stock (6,566) (10,322)
Issuance of preferred stock at a discount 250,000 --
Notes receivable (90,000) --
__________ __________
Net cash used in financing activities 48,762 (372,476)
NET INCREASE (DECREASE) IN CASH (459,517) (323,573)
Beginning cash balance 551,713 381,170
__________ __________
ENDING CASH BALANCE $ 92,196 $ 57,597
=========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 246,148 $ 195,764
Income taxes 57,050 35,500
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of preferred stock to common stock $ 50,000 --
Preferred stock discount 90,000 --
Beneficial conversion feature of preferred
stock 51,000 --
Common stock issued in earnout 297,500 --
Issuance of preferred stock in lieu of cash
for dividends due -- 10,000
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE A - THE COMPANY
PHC, Inc. and its wholly owned subsidiaries (the "Company") is a national health
care company specializing in behavioral health services including the treatment
of substance abuse, which includes alcohol and drug dependency and related
disorders and the provision of psychiatric services. The Company also provides
management, administrative and online behavioral health services. The Company
primarily operates under three business segments:
(1) BEHAVIORAL HEALTH TREATMENT SERVICES, including two substance abuse
treatment facilities: Highland Ridge Hospital, located in Salt Lake City, Utah;
and Mount Regis Center, located in Salem, Virginia, and eight psychiatric
treatment locations which include Harbor Oaks Hospital, a 64-bed psychiatric
hospital located in New Baltimore, Michigan and seven outpatient behavioral
health locations (two in Las Vegas, Nevada operating as Harmony Healthcare, one
in Shawnee Mission, Kansas operating as Total Concept and four locations
operating as Pioneer Counseling Center in the Detroit, Michigan metropolitan
area);
(2) BEHAVIORAL HEALTH ADMINISTRATIVE SERVICES, including delivery of
management, administrative and help line services. PHC, Inc. provides management
and administrative services for its behavioral health treatment subsidiaries and
BSC-NY, Inc., a subsidiary of PHC, Inc., provides management services on behalf
of physician owned behavioral health practices in the greater New York City
metropolitan area. Pioneer Development and Support Services ("PDSS") provides
help line services primarily through contracts with major railroads. Pioneer
Pharmaceutical Research conducts studies of the effects of FDA approved
psychiatric pharmaceuticals on a controlled population through contracts with
major manufacturers of these pharmaceuticals; and
(3) BEHAVIORAL HEALTH ONLINE SERVICES, which includes
behavioral health education, training and products for the behavioral health
professional, through its website wellplace.com formerly known as
behavioralhealthonline.com.
In June, 1998 the Company's sub acute long-term care facility, Franvale
Nursing and Rehabilitation Center, in Braintree, Massachusetts was closed in a
state receivership action which was precipitated when the Company caused the
owner of the Franvale facility, Quality Care Centers of Massachusetts, Inc., to
institute a proceeding under Chapter 11 of the Federal Bankruptcy Code. The net
liabilities of this facility are shown as discontinued operations in the
accompanying financial statements. The liquidation of the liabilities of
Franvale may result in a non-cash financial statement gain. The recognition of
any gain has been deferred until final resolution of all contingent liabilities.
NOTE B - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-QSB and Item
310 of Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2001. The accompanying financial statements should be read
in conjunction with the June 30, 2000 consolidated financial statements and
footnotes thereto included in the Company's 10-KSB filed on September 29, 2000.
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<PAGE>
NOTE C - RECLASSIFICATIONS
Certain amounts have been reclassified to conform with the September 30,
2000 presentation.
NOTE D - RECEIVABLE DUE FROM UNRELATED PROFESSIONAL CORPORATION
On November 1, 1996, BSC-NY, Inc. ("BSC"), merged with Behavioral Stress
Centers, Inc., a provider of management and administrative services to
psychotherapy and psychological practices in the greater New York City
Metropolitan Area. In connection with the merger, the Company issued 150,000
shares of PHC, Inc. Class A common stock to the former owners of Behavioral
Stress Centers, Inc. New York currently prohibits the ownership of a
professional corporation by a corporation; therefore, in connection with the
merger, a physician owned entity was formed, Rubenfaer Physician Services, P.C.
formerly Shliselberg Physician Services, P.C. formerly Perlow Physicians, P.C.
("Rubenfaer"), to acquire the assets of the medical practices theretofore
serviced by Behavioral Stress Centers, Inc. The Company advanced Rubenfaer the
funds to acquire those assets and at September 30, 2000 Rubenfaer owed the
Company $4,923,982 which includes in addition to acquisition costs, management
fees of approximately $2,926,000 and interest on the advances of approximately
$576,570. During fiscal 1998 the Company established a reserve against this
receivable in the amount of $382,000. The Company has increased the reserve each
period to a current balance as of September 30, 2000 of $1,560,770. The reserve
for estimated uncollectible amounts is based on management's assessment of
Rubenfaer's ability to pay its debts. Such assessment includes an evaluation of
Rubenfaer's working capital, net assets, profitability and current and projected
cash flow. The reserve has been increased since June 30, 1998 to cover net
losses incurred by Rubenfaer. The carrying value of the company's receivable at
September 30, 2000 approximates the net assets of Rubenfaer. Based on
management's assessment of Rubenfaer's projected cash flow, collection of the
receivable is expected beyond the next twelve months. Accordingly, the
receivable is classified as a noncurrent asset in the accompanying balance
sheets.
NOTE E - BUSINESS SEGMENT INFORMATION
The Company's behavioral health treatment services have similar economic
characteristics, services, patients and clients. Accordingly, all behavioral
health treatment services are reported on an aggregate basis under one segment.
The Company's segments are more fully described in Note A above. Residual income
and expenses from closed facilities are included in the administrative services
segment. The following summarizes the Company's segment data:
<TABLE>
<S> <C> <C> <C> <C> <C>
BEHAVIORAL HEALTH
TREATMENT ADMINISTRATIVE ONLINE
SERVICES SERVICES SERVICES ELIMINATIONS TOTAL
________________________________________________________________
For the three months
ended september 30,
2000
Revenues - external
customers $4,711,932 $559,566 $15,000 $ -- $5,286,498
Revenues - intersegment -- 496,698 4,823 (501,521) --
Net income (loss) 731,772 (669,527) (238,862) -- (176,617)
Total Assets 9,288,080 27,943,780 96,415 (21,901,179) 15,427,096
For the three months
ended September 30,
1999
Revenues - external
customers $3,951,498 431,311 $ -- $ -- $4,382,809
Revenues - intersegment -- 438,000 -- (438,000) --
Net income (loss) 89,453 (90,350) (59,055) -- (59,952)
Total Assets 9,466,186 24,902,742 7,490 (20,205,193) 14,171,225
</TABLE>
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<PAGE>
NOTE F - NET LIABILITIES OF DISCONTINUED OPERATIONS
Net Liabilities of discontinued operations relates to the Franvale closure
in 1998 and consists of the following:
September 30, June 30,
2000 2000
______________________________
Debt forgiveness and reserve for
contingencies $ 2,641,537 $ 2,641,537
Less legal and other expenses
incurred to date 856,605 757,303
_____________ ____________
Net liabilities of discontinued
operations $ 1,784,934 $ 1,884,234
============= ==============
The recognition of gain, if any, has been deferred until final resolution of all
contingent liabilities related to the discontinued operations.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PHC, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net patient care revenue increased 19.2% to $4,711,932 for the three
months ended September 30, 2000 from $3,951,498 for the three months ended
September 30, 1999. This increase in revenue is due primarily to a 13% increase
in patient days for the period ended September 30, 2000 over the same period
last year. Marketing efforts have aided in increasing the census at all three in
patient facilities.
Income before interest, taxes, depreciation, amortization, dividends and
Behavioral Health Online was $398,857 for the three months ended September 30,
2000 compared to $271,910 for the three months ended September 30, 1999.
Two of the key indicators of profitability of inpatient facilities are
patient days, or census, and payor mix. Patient days is the product of the
number of patients times length of stay. Increases in the number of patient days
result in higher census, which coupled with a more favorable payor mix (more
patients with higher paying insurance contracts or paying privately) will
usually result in higher profitability. Therefore, patient census and payor mix
are monitored very closely.
Management fees increased by 30% to $345,111 for the three months ended
September 30, 2000 from $265,404 for the three months ended September 30, 1999.
This increase in revenue is due to increases in BSC-NY, Inc. related fees for
the management of Psychological and Psychotherapy practices in New York. These
management fees are expected to decline in the future since they are now based
on the expenses of BSC-NY, Inc. and there has been a decline in the expenses due
to changes in operations and personnel.
Contract support services revenue provided by PDSS increased 8.5% to
$179,977 for the three months ended September 30, 2000 from $165,907 for the
three months ended September 30, 1999. The cost of providing these services
increased 44.7% to $162,001 for the three months ended September 30, 2000 from
$111,906 for the three months ended September 30, 1999. This is due to a change
in contract rates and increased services provided. The company also booked its
first website revenue for banner advertising of $15,000 and pharmaceutical study
revenue of $34,478 for the three months ended September 30, 2000.
Administrative expenses increased 14.2% to $2,012,353 for the three months
ended September 30, 2000 from $1,762,564 for the three months ended September
30, 1999. This increase is primarily due to the increase in administrative
expenses of the website company which increased to $253,787 before management
fees for the three months ended September 30, 2000 from $59,055 before
management fees for the three months ended September 30, 1999. Rent expense
increased 26.0% to $201,912 for the three months ended September 30, 2000 from
$160,297 for the three months ended September 30, 1999. This increase is due to
the new space leased to accommodate Behavioral Health Online, Inc., a new lease
agreement for the corporate headquarters, expanded space at the Las Vegas
facility and contracted increases in other lease agreements. The company also
experienced a significant increase in employee lease administrative fees of 80%
to $31,246 for the three months ended September 30, 2000 from $17,277 for the
three months ended September 30, 1999 and one-time charges for employee
placement fees and relocation expenses of approximately $12,500 and $7,400,
respectively.
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<PAGE>
Website expenses include all costs relevant to the development and the
operations of the Wellplace.com website. These expenses are expected to continue
to increase while the site is in development stages. We are currently pursuing
equity financing for the site development. The revenue of the website will
include only commissions on the sale of products and services. A corresponding
liability will be recorded at the time of the sale for the cost of the product
or service due to the provider. This is necessary since the full amount of the
sale will be charged to the end user and processed by Wellplace.com.
Patient care expenses also increased by 3.9% to $2,207,335 for the three
months ended September 30, 2000 from $2,125,408 for the three months ended
September 30, 1999. These increases in expenses are due primarily to the 13%
increase in patient days as noted above with the primary increases in expenses
directly related to patient census such as payroll, consultants, food, laundry
and pharmacy.
Bad debt expense increased 113% to $826,910 for the three months ended
September 30, 2000 from $388,191 for the three months ended September 30, 1999.
This is due primarily to an increase in the reserve for the amount due from the
professional corporation.
Interest expense increased 45.8% to $278,372 for the three months ended
September 30, 2000 from $190,868 for the three months ended September 30, 1999.
This increase is due to an increase of approximately $1,300,000 of long-term
debt and maximum utilization of the accounts receivable revolving credit.
Preferred stock dividends increased to $172,913 for the quarter ended
September 30, 2000 from $12,463 for the quarter ended September 30, 1999. The
increase in dividends is due primarily to the issuance of additional series C
preferred stock per agreement, which carried with it a discount of $90,000,
which is recorded as additional dividends. Since the series C convertible
preferred stock became eligible for conversion during this quarter, the company
also recorded the 3% discount of $51,000 available upon conversion as additional
dividend. This preferred stock also carries a dividend rate of 8% per year,
which accounts for the additional dividends recorded during the three months
ended September 30, 2000.
We continue to view receivables most conservatively by maintaining the
ratio of reserves for bad debt to receivables at approximately 29% on an
accounts receivable balance, which decreased 3.6% to $6,680,199 at September 30,
2000 from $6,928,490 at June 30, 2000. The reserve for bad debt is based on the
current age of accounts receivable and is expected to decrease as our more
aggressive collection practices decrease the number of days our patient
receivables remain unpaid. In addition to decreasing the number of days our
patient receivables remain outstanding, our more timely follow-up practice has
resulted in fewer accounts charged to bad debt due to untimely filing of claims
since errors on claims are identified and corrected in a more timely manner than
in prior years. The $745,000 shown as non-current patient accounts receivable is
presented at net realizable value. These amounts are due from individuals in
payment for treatment on which extended payment plans have been arranged and are
being met.
During the three months ended September 30, 2000 costs of $99,302 were
incurred related to discontinued operations. These costs represent additional
legal fees paid and accrued as a result of the ongoing Quality Care Centers of
Massachusetts litigation and investigation. When the bankruptcy proceedings of
that subsidiary have been finalized any remaining net liabilities of the
bankrupt subsidiary will result in increased equity in that amount.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
A significant factor in the liquidity and cash flow of the Company is the
timely collection of its accounts receivable. Net accounts receivable from
patient care decreased during the quarter ended September 30, 2000 by 3.6%,
approximately $248,000. The Company continues to closely monitor its accounts
receivable balances and is working to reduce amounts due consistent with growth
in revenues.
During the quarter ended September 30, 2000 the Company met its cash flow
needs through ongoing accounts receivable financing and through debt and equity
transactions as follows:
During the quarter ended September 30, 2000 the Company issued 34,000
shares of series C convertible preferred stock in exchange for $250,000. These
are the additional shares purchased as a part of the June 28, 2000 agreement.
These shares were purchased at a discount of $90,000, are convertible at a 3%
discount and earn 8% in annual dividends.
Also during the quarter ended September 30, 2000 the Company issued 62,955
shares of class A common stock upon the conversion of 5,000 shares of series C
convertible preferred stock.
In August 2000 the Company issued 414,815 shares of class A common stock
to the former owners of Behavioral Stress Centers in payment of the final
earn-out, which was included in accrued expenses as of June 30, 2000.
We utilize our accounts receivable funding facilities to the
maximum extent available to meet current cash needs and sustain existing
operations. Although our treatment facilities are operating at a profit,
expenses incurred by our non-revenue producing start-up Company, Behavioral
Health Online, Inc., cause negative cash flow from operations and create the
need for additional financing. We are currently aggressively pursuing financing
for our website operations to help relieve the strain on cash flow from our
behavioral health facilities. If financing for our website operations does not
become available in the near future or should our existing operations result in
unanticipated losses, we may be required to borrow funds on less favorable terms
than have been available in the past.
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<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibit List
Exhibit No. Description
* 4.38 Equity Purchase Warrant to purchase 1% equity in Behavioral Health
Online by and between PHC, Inc., and Heller Healthcare Finance dated
March 16, 1998.
27 Financial Data Schedule
99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995.
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<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
PHC, Inc.
Registrant
Date: November 14, 2000 /s/ Bruce A. Shear
Bruce A. Shear
President
Chief Executive Officer
Date: November 14, 2000 /s/ Paula C. Wurts
Paula C. Wurts
Controller
Treasurer
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<PAGE>
Exhibit 4.38
THIS EQUITY 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.
EQUITY PURCHASE WARRANT
To Purchase 1% Equity interest in
Behavioral Health Online, Inc.
THIS IS TO CERTIFY THAT Heller Healthcare Finance, Inc., 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 Behavioral
Health Online, Inc., a Massachusetts corporation (the "COMPANY"), the number of
shares representing 1% of the issued and outstanding Common Stock (as
hereinafter defined) of the Company immediately following such exercise but in
any event prior to a Qualified IPO (as hereinafter defined) (provided that no
adjustments shall be made due to such Qualified IPO), exercisable in whole but
not in part, at an aggregate purchase price (i.e. for all shares of Warrant
Stock) of $100 (the "WARRANT PRICE"), all on the terms and conditions and
pursuant to the provisions hereinafter set forth.
This Warrant is issued in connection with and as partial consideration for
the $500,000 term loan made by the Holder to the Company's affiliate PHC of
Michigan, Inc. (the "LOAN") as evidenced by that certain Secured Term Note dated
as of May 26, 2000 for Five Hundred Thousand Dollar ($500,000) from PHC of
Michigan, Inc. and the documents related thereto.
1. DEFINITIONS
As used in this Equity Purchase Warrant (this "WARRANT"), the following
terms shall have the respective meanings set forth below:
"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 Commonwealth of
Massachusetts.
"CLOSING DATE" is May 26, 2000.
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
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<PAGE>
"COMMON STOCK" shall mean (except where the context otherwise indicates)
the Common Stock, par value $.01 per share, of the Company as constituted on the
Closing Date, and any capital stock into which such Common 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.
"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 the earlier of (i) May 25, 2010, or (ii) the
date of the closing of, and receipt of funds from, a firm-commitment
underwritten initial public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale of Common Stock
for the account of the Corporation to the public with (x) an aggregate offering
price (before deduction of underwriters commissions and expenses) of not less
than Two Million Five Hundred Thousand Dollars ($2,500,000) ("QUALIFIED IPO").
"FUNDAMENTAL CORPORATE CHANGE" shall have the meaning set forth in
Section 4.1.
"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.
"OTHER PROPERTY" shall have the meaning set forth in Section 4.
"PERSON" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
limited liability company, 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).
"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.
"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.
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"TRANSFER" shall mean any disposition of any Warrant or Warrant Stock or
of any interest in either thereon, 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 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 (regardless of any prepayment of the Loan), Holder may exercise
this Warrant, on any Business Day, for all, but not part, of the number of
shares of Common Stock purchasable hereunder.
In order to exercise this Warrant in whole 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
13, (i) a written notice of Holder's election to exercise this Warrant, (ii)
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. 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. 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.
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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, such fraction shall
be adjusted to a full share of Common Stock.
2.4 CONTINUED VALIDITY
A holder of shares of Common Stock issued upon the exercise of this
Warrant (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 and 10 of this Warrant. The Company will, at the time of
exercise of this Warrant, 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.
2.5 COOPERATION
The Company shall assist and cooperate with any Holder required to make
any governmental filings or obtain any governmental approvals prior to or in
connection with any exercise of this Warrant, including, without limitation,
making any filings required to be made by the Company. The Holder shall
reimburse the Company for any reasonable costs and expenses incurred by the
Company (including without limitation, reasonable attorneys' fees) in connection
with the cooperation and assistance. Notwithstanding the foregoing, the costs
and expenses shall not include any fees or costs related to any federal or state
registration of this Warrant or the Warrant Shares or registered public offering
of the Company's securities.
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2.6 REGULATION
This Warrant may not be exercised by a Holder that qualifies as a
"subsidiary" of a "bank holding company" (as such terms are defined in Section
225.2 of Regulation Y issued by the Board of Governors of the Federal Reserve
System ("REGULATION Y") (a "BHC SUBSIDIARY") unless such Holder advises the
Company in writing that the exercise of the Warrant by such Holder complies with
Regulation Y and the Bank Holding Company Act of 1956, as amended ("BHCA").
3. TRANSFER, DIVISION AND COMBINATION
3.1 TRANSFER
Subject to compliance with Section 9, transfer of this Warrant and all
rights hereunder, in whole but not 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 13, 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 in the name of the assignee 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.
3.2 DIVISION AND COMBINATION
Subject to Section 9, this Warrant may be divided or combined with other
Warrants upon presentation thereof 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
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4.1 TRANSFER
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, 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 in writing 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, "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 shall similarly apply to successive
Fundamental Corporate Change.
4.2 RECAPITALIZATION
If at any time or from time to time there shall be a recapitalization of
the Common Stock (other than a subdivision, combination or merger or sale of
assets transaction provided for elsewhere in this Section 4) provision shall be
made so that the Holder of this Warrant shall thereafter be entitled to receive
upon exercise of this Warrant the number of shares of stock or other securities
or property of the Company or otherwise, to which a holder of the Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the Holder of this
Warrant after the recapitalization to the end that the provisions of this
Section 4 (including adjustment of the Exercise Price then in effect and the
number of shares purchasable upon exercise of this Warrant) shall be applicable
after that event and be as nearly equivalent as practicable.
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<PAGE>
5. NOTICES TO HOLDER
5.1 NOTICE OF ADJUSTMENTS
Whenever the shares for which this Warrant is exercisable shall be subject
to a Fundamental Corporate Change 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 describing the number and kind of any
other shares of stock or Other Property for which this Warrant is exercisable.
The Company shall promptly cause a signed copy of such certificate to be
delivered to the Holder in accordance with Section 16.2. The Company shall keep
at its office or agency designated pursuant to Section 13 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;
(d) 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,
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 16.2.
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<PAGE>
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) 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 (b)
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 result in an adjustment in the number
of shares of Common Stock for which this Warrant is exercisable, 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.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
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.
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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 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 REGISTRATION OF COMMON STOCK SHARES.
From and after the first public sale of shares of the Company's Common
Stock pursuant to an effective registration statement under the Securities Act,
after the expiration of any applicable underwriter lock-up period, the Holder
shall have the right to have the Warrant Stock registered for resale on a Form
S-3 Registration Statement in the event the Company is eligible to file a Form
S-3 (or any successor form).
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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 and the legend requirements of Section 9.1 shall
terminate as to any particular share of Warrant Stock or Restricted Common Stock
(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 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).
10. PREEMPTIVE PURCHASE RIGHTS
If at any time the Company grants, issues or sells any shares of Common
Stock or other securities or any options, warrants, or rights to purchase shares
of Common Stock, warrants, securities or other property pro rata to the record
holders of the Common Stock (the "SUBSCRIPTION RIGHTS"), then the Holder of this
Warrant shall be entitled to acquire, upon the terms applicable to the
Subscription Rights, the total number of Subscription Rights that the Holder
would have acquired if the Holder had exercised this Warrant immediately before
the record date for the grant, issuance or sale of the Subscription Rights, or
if no record date is determined, the date as of which the record holders of
Shares entitled to receive the Subscription Rights were determined.
11. 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.
12. 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.
13. 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.
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14. 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.
15. RIGHTS OF CO-SALE
(a) If at any time any stockholder of the Company who owns shares of
Common Stock constituting 10% or more of the Company's ownership interests
(computed on a fully diluted basis) (a "SIGNIFICANT SHAREHOLDER") proposes to
sell or otherwise transfer any shares of Common Stock to any person (a
"TRANSFER"), and the shares of Common Stock that are to be sold or otherwise
transferred constitute 10% or more of the Company's total ownership (computed on
a fully diluted basis), the Significant Shareholder proposing the Transfer
shall, before the Transfer, deliver written notice of the Transfer (a "TRANSFER
NOTICE") to the Holder. The Transfer Notice shall state that the Significant
Shareholder proposes to Transfer Shares, specify the number of shares of Common
Stock subject to the proposed Transfer, and state the terms (including purchase
price) of the proposed Transfer.
(b) The Significant Shareholder shall give the Holder the right to sell
Warrant Stock, on a proportional basis, in the transaction described in the
Transfer Notice on the same terms and conditions as the Significant Shareholder,
and the Significant Shareholder shall take all steps necessary to include the
shares of Warrant Stock in the Transfer. Within fifteen (15) days of delivery of
the Transfer Notice, the Holder may give written notice (the "CO-SALE NOTICE")
to the Significant Shareholder of its desire to sell, on a proportional basis,
the Holder's Warrant Stock in the transaction described in the Transfer Notice.
(c) If the Holder does not deliver a Co-Sale Notice in response to a
properly delivered Transfer Notice within the 15-day period, the Significant
Shareholder may proceed with the sale or other transfer, without any further
notice to the Company or the Holder pursuant to this Section 15; PROVIDED,
HOWEVER, that (i) the sale or other transfer is completed within ninety (90)
days on the terms set forth in the Transfer Notice, and (ii) Holder shall
continue to have the rights set forth in this Section 15 for all subsequent
sales of shares of Common Stock.
(d) The Holder shall not be required to have exercised this Warrant with
respect to Warrant Stock as a condition of giving a Co-Sale Notice with respect
to the Warrant Stock.
(e) Notwithstanding anything to the contrary in this Section 15, the right
of a co-sale (i) shall expire immediately upon a Qualified IPO, and (ii) shall
not be applicable to a Transfer to an affiliate of the Company.
16. MISCELLANEOUS
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16.1 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.
16.2 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:
Behavioral Health Online, Inc.
200 Lake Street, Suite 102
Peabody, MA 01960
Attention: Bruce A. Shear
(978) 536-2777
(978) 536-2677(fax)
with a copy to:
Arnold R. Westerman, Esquire
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, NW
Washington, DC 20036
(202) 857-6243
(202) 857-6395 (fax)
(b) if to the Holder, to:
Heller Healthcare Finance, Inc.
2 Wisconsin Circle, 4th floor
Chevy Chase, MD 20815
Attention: Steven M Curwin, Esq.
(301) 664-9827 (Phone)
(301) 664-9860 (Fax)
with a copy to:
Heller Healthcare Finance, Inc.
2 Wisconsin Circle, 4th Floor
Chevy Chase, MD 20815
Attention: Richard Dine
(301) 664-9877 (Phone)
(301) 664-9860 (fax)
The Company or the Holder may change the foregoing address by
notice given pursuant to this Section.
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<PAGE>
16.3 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.
16.4 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.
16.5 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.
16.6 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.
16.7 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.
16.8 GOVERNING LAW
This Warrant shall be governed by the laws of the Commonwealth of
Massachusetts, without regard to the provisions thereof relating to conflicts of
law.
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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 9, 2000
BEHAVIORAL HEALTH ONLINE.COM, INC.
By: /s/ Bruce A. Shear
Name: Bruce A. Shear
Title: Chief Executive Officer
Attest:
By: /S/ PAULA C. WURTS
Name: Paula C. Wurts
Title: Assistant Clerk
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<PAGE>
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 Behavioral
Health Online.com, 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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<PAGE>
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 Behavioral Health
Online.com, 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.
