10.37
SUBSCRIPTION AGREEMENT
Sandor Capital Master Fund, L.P.
2828 Routh Street, Suite 500
Dallas, TX 75201
Gentlemen:
The purpose of this Subscription Agreement is to memorialize your binding
agreement to subscribe for and purchase from PHC, Inc., a Massachusetts
corporation (the "Company"), the number, as set forth below, of shares of a
series of preferred stock to be designated by the Board of Directors of the
Company (the "Preferred Stock"), such shares having the rights as designated in
the Certificate of Designations (as defined below), on the following terms and
conditions.
Section 1. Shares
In exchange for the sale to you of [526,316] shares of the Preferred Stock
(the "Shares") you will pay to the Company the sum of $1,500,000 ("Purchase
Price"). Upon execution and delivery of this Subscription Agreement by the
undersigned, as consideration for the undersigned binding obligations hereunder
the Company will pay $10,000 to the undersigned, which payment will be
non-refundable, for any reason, including the rejection or revocation of this
subscription pursuant to Section 2 below. The Shares will be entitled to the
rights as described herein and in the Certificate of Designation as adopted by
the Company's Board of Directors attached as Exhibit A ("Certificate of
Designation").
THE SHARES ACQUIRED PURSUANT TO THIS SUBSCRIPTION
AGREEMENT ARE BEING ACQUIRED IN A TRANSACTION NOT INVOLVING
ANY PUBLIC OFFERING AND, ACCORDINGLY, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SHARES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
Section 2. Acceptance and Rejection of Subscriptions
The undersigned hereby agrees to purchase the Shares set forth in Section
1. The subscription offer shall not entitle the undersigned to purchase any of
the Shares unless and until it has been accepted in writing by the Company
separate and apart from this Subscription Agreement (the "Acceptance Notice").
The undersigned understands that this Subscription Agreement may not be
terminated or withdrawn by the undersigned and that closing on this subscription
shall take place as soon as the undersigned deposits by wire transfer payment of
the Purchase Price with Arent Fox PLLC (the "Escrow Agent"). The undersigned
understands that the Company may accept or reject this subscription offer in
whole or in part in its sole discretion at any time. Notwithstanding the
foregoing, in the event the Company successfully refinances or replaces with
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alternate financing, the promissory note held by GE Healthcare Finance, such
that the Company's auditors inform the Company that such auditors are able to
issue an audit report in connection with the Company's financial statements for
the fiscal year ended June 30, 2004, that is not qualified as to the Company's
ability to continue as a going concern (the "Unqualified Report Event"), (A) the
Company may in its sole discretion reject this subscription offer and shall not
be obligated whatsoever to (i) proceed with the Closing (as defined below) as
described in Section 2 of this Subscription Agreement, or (ii) accept this
subscription offer, and shall not incur any legal obligations, directly or
indirectly, to the undersigned in connection with the transaction contemplated
herein, and (B) if the Company has not issued the Acceptance Notice prior to
November 1, 2004, the undersigned may upon written notice to the Company,
withdraw this subscription and neither the undersigned nor the Company (i) will
be obligated to proceed with the Closing, or (ii) incur any legal obligations,
directly or indirectly, to other party in connection with the transaction
contemplated herein . If this subscription offer or any part hereof is rejected
for any reason or withdrawn in connection with occurrence of an Unqualified
Report Event as set forth in clause (B) above, the Purchase Price will be
refunded promptly, without interest or deduction, and the undersigned shall have
no rights, interests, or title to the Shares. If the Company accepts this
subscription offer, at the Closing, the Company, or its duly appointed
representative or agent, shall file the Certificate of Designation with the
Massachusetts Secretary of State, Corporations Division, in accordance with the
laws of such state.
Section 3. Closing; Issuance of Interests
Closing on this subscription shall take place at the Company's offices at
the time specified in the Acceptance Notice issued by the Company (the
"Closing"), upon the deposit by the undersigned of payment of the Purchase Price
by wire transfer with the Escrow Agent. The Shares shall not be deemed issued
to, or owned by, the undersigned until Closing and tender to the Company of
immediately available funds by wire transfer in payment of the Purchase Price.
Section 4. Subscriber's Representations and Warranties
(a) The undersigned represents, warrants and agrees with the Company that:
(i) The undersigned has reviewed, a draft copy of the Company's
10-KSB Annual Report for the year ending June 30, 2004, dated
____, 2004, as well as copies of the Company's 10-KSB Annual
Report for the year ending June 30, 2003, 10-QSB Quarterly report
for the quarter ended March 31, 2004, annual report to the
stockholders, proxy statements, current reports and other
reports, and registration statements, which include a description
of the Company's business, operations, risk factors, litigation
and other matters, and acknowledges that the undersigned was
provided with the opportunity to meet with and ask questions of
and receive answers from representatives of the Company
concerning the business, operations and prospects of the Company
and its financial position and to obtain any additional
information which the undersigned deemed necessary in connection
with making an investment decision regarding this subscription.
The undersigned acknowledges that it has read and understands the
material provided to him or her and the risks associated with an
investment in the Shares. The undersigned acknowledges that an
investment in the Shares involves a high degree of risk.
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(ii) The undersigned is able to bear the substantial economic risks of
an investment in the Shares, including the risk that the entire
investment could be lost, has no need for liquidity in such
investment, and could afford a complete loss of such investment.
(iii) The undersigned is:
(A) an organization which is (l) an institutional investor as
defined in Securities Act Rule 501(a)(1), (2) a private
business development company defined in Section 202(a)(22)
of the Investment Advisers Act of 1940, or (3) a
corporation, business trust or partnership, not formed for
the specific purpose of acquiring the securities offered,
with total assets in excess of $5,000,000 or a trust with
total assets exceeding $5,000,000, not formed for the
purpose of acquiring the securities offered, whose purchases
are directed by a sophisticated person as defined in Rule
506(b)(2)(ii); or
(B) an entity in which all of the equity owners are Accredited
Investors as such term is defined in Securities Act Rule
501(a).
(iv) The undersigned has such knowledge and experience in financial
and business matters that the undersigned is capable of
evaluating the merits and risks of the investment in the Shares.
(v) The undersigned is purchasing the Securities for the
undersigned's own account for investment and not with a view to,
or for sale in connection with, any distribution, and does not
have any present plan to sell or otherwise dispose of the Shares;
the undersigned will not sell, transfer or otherwise dispose of
the Shares, or any interest therein, except in accordance with
the Securities Act and the applicable rules and regulations
promulgated hereunder, as then in force, and any applicable law,
rule or regulation of any state or other jurisdiction ("State
Laws").
(b) The undersigned further understands and agrees that:
(i) The Shares have not been registered under the Securities Act or
the State Laws and, consequently, the Shares must be held
indefinitely unless subsequently registered thereunder or an
exemption from such registration is available.
(ii) The Securities have not been registered under the Securities Act
on the basis that the issuance thereof is exempt under Section
3(b) or 4(2) of the Securities Act and by Rule 505 or 506 of
Regulation D ("Regulation D") under the Securities Act and that
the Company's reliance on such exemption is predicated in part on
the undersigned's representations and warranties as set forth in
this Subscription Agreement. The Shares have not been registered
under certain State Laws in reliance on specific exemptions from
registration thereunder and no securities administrator or any
state or the Federal government has made any finding or
determination relating to the fairness for investment of the
Shares and no securities administrator or the Federal government
has recommended or endorsed the offering of the Shares.
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(iii)The Company is relying on the undersigned's representations,
warranties, understandings and agreements set forth in this
Subscription Agreement in consummating the transactions
contemplated herein.
(c) The undersigned, if executing this Subscription Agreement in
a representative or fiduciary capacity, has full power and
authority to execute and deliver this Subscription Agreement
in such capacity and on behalf of the subscribing
individual, partnership, limited liability company, trust,
estate, corporation or other entity for whom the undersigned
is executing this Subscription Agreement, and such
individual, partnership, limited liability company, trust,
estate, corporation or other entity has full right and power
to perform pursuant to this Subscription Agreement. The
undersigned will, upon request, furnish to the Company a
true and correct copy of, (i) if the undersigned is a trust,
the trust agreement, (ii) if the undersigned is a
corporation, the Articles of Incorporation and Bylaws and a
copy (certified by the secretary or other authorized
officer) of appropriate corporate resolutions authorizing
the specific investment, and (iii) if the undersigned is a
partnership or limited liability company, the partnership or
limited liability company agreement.
(d) If the undersigned is a partnership or a limited liability
company, the person who has signed on behalf of the
partnership or limited liability company identified as the
investor is authorized to so sign; if the undersigned is a
trust, the trustee (or co-trustee) of the trust is
authorized by the trust agreement; and if the undersigned is
a corporation, the corporate officer so signing is
authorized to sign on behalf of the corporation.
(e) If the undersigned is purchasing the Shares subscribed for
herein in a representative or fiduciary capacity, the above
representations and warranties shall be deemed to have been
made on behalf of the person or persons for whom the
undersigned is so purchasing.
(f) All representations and warranties set forth above or in any
other written statement or document delivered by the
undersigned in connection with the transactions contemplated
hereby shall be true and correct in all respects on and as
of the date of this offering as if made on and as of the
date of the Closing and shall survive such closing.
(g) The undersigned understands the meanings and legal
consequences of the representations and warranties contained
in this Section 4 and agrees to indemnify and hold harmless
the Company from and against any and all loss, damage or
liability due to or arising out of a breach of any
representation or warranty of the undersigned contained in
this Subscription Agreement. Notwithstanding any of the
representations, warranties, acknowledgements or agreements
made herein by the undersigned, the undersigned does not
thereby or in any other manner waive any rights granted to
the undersigned under Federal or state securities laws.
Section 5. Registration Rights
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The undersigned shall be entitled to the registration rights set forth in
Exhibit B attached hereto.
Section 6. Irrevocability
The undersigned hereby acknowledges and agrees that, except as required by
law, this subscription offer is irrevocable and that the undersigned is not
entitled to cancel, terminate or revoke this Subscription Agreement or any
agreements of the undersigned.
Section 7. Binding Effect
This Subscription Agreement, including Exhibits A and B hereto, which are
hereby incorporated by reference, shall be binding upon and inure to the benefit
of the theCompany and its successor's and assigns, and the undersigned and the
undersigned's successors but shall not be assignable by the undersigned without
the prior written consent of the Company, which consent may be withheld by the
Company for any reason.
Section 8. Applicable Law
This Subscription Agreement and all rights hereunder shall be governed by,
and interpreted in accordance with, the laws of the State of Massachusetts
without reference to any conflict of laws.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement with the intent of being legally bound hereby, on this day of
September, 2004.
SANDOR CAPITAL MASTER FUND, L.P.
By: /s/ John S Lemek 27-0013809
_____________________________ ______________________________
Name: John S. Lemak Taxpayer ID
Its: General Partner
2828 Routh Street, Suite 500
Dallas, TX 75201
ACCEPTANCE
The foregoing offer, subject to the terms and conditions of the
Subscription Agreement, including without limitation, the Company's rejection
rights pursuant to Section 2 as contained therein, is hereby accepted
this 20th day of September, 2004.
PHC, Inc.
By: /s/ Bruce A. Shear
Title: President
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Exh10_37
EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATION
OF
SERIES _____ CONVERTIBLE PREFERRED STOCK
OF
PHC, Inc.
____________________________________________________________
Pursuant to Section 25 of the
Business Corporation Law of the Commonwealth of Massachusetts
____________________________________________________________
PHC, Inc., a corporation organized and existing under the Business
Corporation Law of the Commonwealth of Massachusetts (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation on September __, 2004 pursuant to authority of the Board of
Directors as required by Section 25 of the Business Corporation Law of the
Commonwealth of Massachusetts ("MBCL"):
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, and hereby states the designation and
number of shares, and fixes the relative rights, preferences, privileges, powers
and restrictions thereof as follows:
Series ____ 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) "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.
(b) "Closing" has the meaning set forth in the Subscription Agreement.
(c) "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.
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(d) "Common Shares" or "Common Stock" means shares of Class A common
stock, par value $.01 per share, of the Corporation.
(e) "Common Stock Issued at Conversion", when used with reference to the
securities issuable upon conversion of the Series ___ Preferred Stock,
means all Common Shares now or hereafter Outstanding and securities of
any other class or series into which the Series ___ Preferred Stock
hereafter shall have been changed or substituted, whether now or
hereafter created and however designated.
(f) "Conversion Date" means any day on which all or any portion of shares
of the Series ___ Preferred Stock is converted in accordance with the
provisions hereof.
(g) "Conversion Price" means the price for the conversion of shares of
Series ___ Preferred Stock into Common Shares as set forth in Section
6.1.
(h) "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.
(i) "Dividend Period" means the quarterly 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.
(j) "Dividend Payment Due Date" means January 31, April 30, July 31 and
October 31 of each year commencing on October 31, 2004.
(k) "Dividend Rate" means [8]% per annum, computed on the basis of a
360-day year.
(l) "Holder" means the Investors who have executed and delivered the
Subscription Agreement, any successor thereto, or any Person or
Persons to whom the Series ___ Preferred Stock is subsequently
transferred in accordance with the provisions hereof.
(m) "Issue Date" means, as to any share of Series ___ Preferred Stock, the
date of issuance of such share.
(n) "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 which are issuable at
or below the Conversion Price; 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.
(o) "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
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government or political subdivision or any agency or instrumentality
thereof.
(p) "SEC" means the United States Securities and Exchange Commission.
(q) "Subscription Agreement" means that certain Subscription Agreement
dated as of September __, 2004 between the Corporation and the Persons
identified in such agreement.
(r) "Series ____ Preferred Shares" or "Series ___ Preferred Stock" means
the shares of Series ___ Convertible Preferred Stock of the
Corporation or such other convertible preferred stock of the
Corporation as may be exchanged therefor.
(s) "Stated Value" has the meaning set forth in Article 2.
(t) "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.
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 526,316 shares of
Preferred Stock, shall be Series ____ Convertible Preferred Stock (the "Series
___ Preferred Stock") and the stated value shall be $3.36 per share (the "Stated
Value").
ARTICLE 3
Rank
Except as otherwise provided herein, the Series ___ Preferred Stock shall
rank pari passu to the Common Stock. Series ___ Preferred Stock shall rank
senior only to the Common Stock (the "Common Stock"), with respect to dividends
and conversion rights.
ARTICLE 4
Dividends
(a) 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 ___ Preferred Stock on and as of each Dividend
Payment Due Date with respect to each Dividend Period. Dividends on
the Series ___ 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
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Subsidiaries, and whether or not there shall be funds legally
available for the payment thereof.
(i) Each dividend shall be payable in equal quarterly amounts on each
Dividend Payment Due Date, commencing October 31, 2004, to the
Holders of record of shares of the Series ___ 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.
(ii) 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 Conversion Price,
assuming for this purpose, that the applicable Dividend Payment
Date is the applicable Conversion Date; provided, however, that
if no funds are legally available for the payment of cash
dividends on the Series ___ 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 ___ Preferred Stock.
(c) So long as any shares of the Series ___ Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart
for payment or other distribution declared or made upon any of
the Common Stock, nor shall any Common Stock 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 Common Stock, unless in
each case (i) the full cumulative dividends required to be paid
in cash on all outstanding shares of the Series ___ Preferred
Stock shall have been paid or set apart for payment for all past
Dividend Periods with respect to the Series ___ 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 ___ 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 ___
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 D Preferred Shares, immediately prior
to such dividend or distribution.
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ARTICLE 5
Liquidation; 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 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 ___ Preferred Stock, subject to this Article 5, shall possess the
same liquidation rights as the Common Stock.
(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 ___
Preferred Stock shall 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 ___ Preferred Stock may be
converted at the Conversion Price immediately prior to such Fundamental
Corporate Change. 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.
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ARTICLE 6
Conversion of Preferred Stock
Section 6.1 Conversion; Conversion Price
At the option of the Corporation, provided that it has an adequate number
of authorized shares of Common Stock available or reserved for conversion, the
shares of Series ___ 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 a Conversion Price, equal to the Stated Value divided by
three (3), for each share of Common Stock. 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
Conversion Price.
The number of shares of Common Stock due upon conversion of Series ___
Preferred Stock shall be (i) the number of shares of Series ___ 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 Conversion Price.
Section 6.2 Exercise of Conversion Privilege
(a) Conversion of the Series. If it elects to exercise its conversion
rights pursuant to Section 6.1, 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. The Holder shall deliver the
shares of Series ___ Preferred Stock to the Corporation by express
courier within 30 days following the Conversion Date. Upon surrender
for conversion, the Series ___ Preferred Stock shall be accompanied by
a proper assignment thereof to the Corporation or be endorsed in
blank. As promptly as practicable after the Corporation's receipt of
the shares to be converted, the Corporation shall (i) issue the Common
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. No cash payment aggregating less than $1.00 shall be
required to be given unless specifically requested by the Holder.
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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 ___ Preferred Stock. Instead of
any fractional Common Shares which otherwise would be issuable upon conversion
of the Series ___ Preferred Stock, the Corporation shall pay a cash adjustment
in respect of such fraction in an amount equal to the same fraction.
ARTICLE 7
Voting Rights
The Holders of the Series ___ Preferred Stock shall be entitled to the
number of votes equal to the number of whole shares of Common Stock in which all
shares of Series ___ Preferred Stock held by such Holders and then convertible
in accordance with Section 6, at each meeting of shareholders of the Corporation
(and written action of shareholders in lieu of meetings) with respect to any and
all matters presented to the shareholders of the Corporation. Except as
otherwise provided herein, or as required by law, Holders of the Series __
Preferred Stock shall vote together with the Common Stock as a single class on
all actions to be taken by the shareholders of the Corporation.
Notwithstanding the above, the Corporation shall provide each Holder of
Series ___ 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 ___
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 ___ 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 ___ Preferred Stock (except as otherwise may be required under the MBCL)
shall constitute the approval of such action by the class. Holders of the Series
___ 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.
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ARTICLE 8
Miscellaneous
Section 8.1 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 ___ 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 ___ Preferred Stock,
the Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated shares of Series ___ Preferred Stock, new shares of
Series ___ Preferred Stock of like tenor. The Series ___ Preferred Stock shall
be held and owned upon the express condition that the provisions of this Section
8.1 are exclusive with respect to the replacement of mutilated, destroyed, lost
or stolen shares of Series ___ 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 8.2 Who Deemed Absolute Owner
The Corporation may deem the Person in whose name the Series ___ 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 ___ Preferred Stock for the
purpose of receiving payment of dividends on the Series ___ Preferred Stock, for
the conversion of the Series ___ 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 ___ Preferred Stock to the extent of the
sum or sums so paid or the conversion so made.
Section 8.3 Register
The Corporation shall keep at its principal office a register in which the
Corporation shall provide for the registration of the Series ___ Preferred
Stock. Upon any transfer of the Series ___ Preferred Stock in accordance with
the provisions hereof, the Corporation shall register such transfer on the
register of Series ___ Preferred Stock.
Section 8.4 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 ___ Preferred Stock.
Section 8.5 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.
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Section 8.6 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]
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its duly authorized officers on September ___, 2004.
PHC, INC.
By: _______________________
Name:
Title:
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EXHIBIT B
REGISTRATION RIGHTS
This Exhibit B sets out the registration rights referenced in Section 5 of the
Subscription Agreement to which it is attached.
(a) Request for Demand Registration. At any time after the Closing, the
undersigned may make a written request to the Company to register, under the
Securities Act (other than pursuant to a registration statement on Form S-4 or
S-8 or any successor thereto) and under the securities or "blue sky" laws of any
jurisdiction designated by the undersigned (a "Demand Registration"), the number
of shares of Common Stock Issued at Conversion, as defined in the Certificate of
Designation, stated in such request ("Registrable Securities"); provided,
however, that the Company shall not be obligated to effect more than one (1)
Demand Registration pursuant to this Section 5 or to effect any Demand
Registration for Registrable Securities having an aggregate offering price of
less than $1,000,000. If at the time of any request to register Registrable
Securities pursuant to this Section 5(a), the Company is engaged in, or has
fixed plans to engage in within 30 days of the time of such request, a
registered public offering or is engaged in any other activity which, in the
good faith determination of the Board of Directors of the Company, would be
adversely affected by the requested registration to the material detriment of
the Company, then the Company may at its option direct that such request be
delayed for a reasonable period not in excess of three months from the effective
date of such offering or the date of completion of such other material activity,
as the case may be, such right to delay a request to be exercised by the Company
not more than once in any one-year period. In addition, the Company shall not be
required to effect any registration within 90 days after the effective date of
any other registration statement of the Company. The request for a Demand
Registration by the undersigned shall state the amount of the Registrable
Securities proposed to be sold and the intended method of disposition thereof.
Upon a request for a Demand Registration, the Company shall promptly take such
steps as are necessary or appropriate to prepare for the registration of the
Registrable Securities to be registered.
(b) Effective Demand Registration. The Company shall use its best efforts to
cause any such Demand Registration to become and remain effective as soon as
practicable, but in any event not later than 120 days after it receives a
request under Section 5(a) hereof. A registration shall not constitute a Demand
Registration until it has become effective and remains continuously effective
for the lesser of (i) the period during which all Registrable Securities
registered in the Demand Registration are sold and (ii) 120 days; provided,
however, that a registration shall not constitute a Demand Registration if (x)
after such Demand Registration has become effective, such registration or the
related offer, sale or distribution of Registrable Securities hereunder is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court for any reason not attributable to
the undersigned and such interference is not thereafter eliminated, (y) the
conditions to closing specified in the underwriting agreement, if any, entered
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into in connection with such Demand Registration are not satisfied or waived,
other than by reason of a failure by the undersigned or (z) if the request for
such Demand Registration is withdrawn by the undersigned and the undersigned
reimburses the Company for any expenses incurred in relation thereto.
(c) Underwriting Procedures. If the undersigned so elects, the offering of such
Registrable Securities pursuant to such Demand Registration shall be in the form
of a firm commitment underwritten offering and the managing underwriter or
underwriters selected for such offering shall be the Approved Underwriter (as
hereinafter defined) selected in accordance with Section 5(d). In connection
with any Demand Registration under this Section 5 involving an underwriting,
none of the Registrable Securities held by the undersigned shall be included in
such underwriting unless the undersigned accepts the terms of the underwriting
as agreed upon by the Company, and the Approved Underwriter, and then only in
such quantity as will not, in the opinion of the Approved Underwriter,
jeopardize the success of such offering. If the Approved Underwriter advises the
Company in writing that in its opinion the aggregate amount of such Registrable
Securities requested to be included in such offering is sufficiently large to
have a material adverse effect on the success of such offering, then the Company
shall include in such registration only the aggregate amount of Registrable
Securities that in the opinion of the Approved Underwriter may be sold without
any such material adverse effect and shall reduce the amount of Registrable
Securities to be included in such registration; provided, however, that if the
number of Registrable Securities to be included in a Demand Registration is
reduced by the Approved Underwriter, then the undersigned shall be entitled to
retain a Demand Registration with respect to such number of Registrable
Securities excluded by the Approved Underwriter, provided that such Initiating
Holder may not initiate such Demand Registration within nine months of the
effective date of the Registration Statement with respect to the Demand
Registration in which the Approved Underwriter excluded such Registrable
Securities.
(d) Selection of Underwriters. If any Demand Registration of Registrable
Securities is in the form of an underwritten offering, the Company shall select
and obtain an investment banking firm of national reputation to act as the
managing underwriter of the offering with the consent of the undersigned (the
"Approved Underwriter"); provided, however, such consent shall not be
unreasonably withheld.
(e) Incidental or "Piggy-Back" Registration. At any time after the Closing, if
the Company proposes to file a registration statement under the Securities Act
with respect to an offering by the Company for its own account (other than a
registration statement on Form S-4 or S-8 or any successor thereto), then the
Company shall give written notice of such proposed filing to the undersigned at
least 30 days before the anticipated filing date, and such notice shall describe
the proposed registration and distribution and offer the undersigned the
opportunity to register the number of Shares the undersigned may request (an
"Incidental Registration"). The Company shall, and shall use its reasonable
efforts (within ten days of the notice provided for in the preceding sentence)
to cause the managing underwriter or underwriters of a proposed underwritten
offering (the "Company Underwriter") to permit the undersigned to participate in
the Incidental Registration to include all or a portion of the Shares in such
offering on the same terms and conditions as the securities of the Company
included therein. In connection with any Incidental Registration under this
Section 5(e) involving an underwriting, the Company shall not be required to
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include any Shares in such underwriting unless the undersigned accepts the terms
of the underwriting as reasonably agreed upon between the Company and the
Company Underwriter, and then only in such quantity as will not, in the opinion
of the Company Underwriter, jeopardize the success of the offering by the
Company. If in the written opinion of the Company Underwriter the registration
of all or part of the Shares requested by the undersigned would materially
adversely affect such offering, then the Company shall be required to include in
such Incidental Registration, to the extent of the amount that the Company
Underwriter believes may be sold without causing such adverse effect, first, all
of the securities to be offered for the account of the Company; second, any
securities of third parties with contractual rights requiring such priority,
third, the Shares to be offered for the account of the undersigned pursuant to
this Section 5(e), pro rata based on the amount recommended by the Company
Underwriter; and forth, any other securities requested to be included in such
underwriting.
(f) Expenses of Registration. All expenses, except the Selling Expenses (as
defined herein) incurred in connection with any registration, qualification or
compliance pursuant to Section 5 hereof shall be borne by the Company. All any
and all underwriting discounts and selling commissions incurred in connection
with any registrations hereunder ("Selling Expenses"), shall be borne by the
holders of the securities so registered pro rata on the basis of the number of
shares so registered.
(g) Indemnification. In connection with any registration statement in which the
undersigned is participating pursuant to Section 5 hereof, the undersigned shall
furnish to the Company in writing such information as the Company may reasonably
request or as may be required by law for use in connection with any such
registration statement or prospectus and the undersigned agrees to indemnify and
hold harmless, to the fullest extent permitted by law, the Company, any
underwriter retained by the Company and their respective directors, officers,
employees, advisors and agents and each Person who controls the Company or such
underwriter (within the meaning of the applicable securities laws) from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any untrue, or
allegedly untrue, statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or notification or offering
circular (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same are caused by or contained in any information concerning the
undersigned furnished in writing to the Company by the undersigned expressly for
use therein; provided, however, that the total amount to be indemnified by the
undersigned pursuant to this Section 5(g) shall be limited to the net proceeds
received by the undersigned in the offering to which the registration statement
or prospectus relates.
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