PHC, INC.
200 Lake Street
Suite 102
Peabody, Massachusetts 01960
November 10, 2005
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
PHC, Inc., which will be held on Tuesday, December 20, 2005, at 2:00 PM, at the
corporate offices of PHC, Inc., 200 Lake Street, Suite 102, Peabody,
Massachusetts 01960.
The following Notice of Annual Meeting of Stockholders and Proxy Statement
describes the items to be considered by the stockholders and contains certain
information about PHC, Inc.'s officers and directors.
Please sign and return the enclosed proxy card as soon as possible in the
envelope provided so that your shares can be voted at the meeting in accordance
with your instructions. Even if you plan to attend the meeting, we urge you to
sign and promptly return the enclosed proxy. You can revoke it at any time prior
to the meeting, or vote your shares personally if you attend the meeting. We
look forward to seeing you.
Sincerely,
Bruce A. Shear
President
-- 1 --
PHC, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 20, 2005
The Annual Meeting of Stockholders of PHC, Inc. (the "Company") will be
held at our corporate offices at 200 Lake Street, Suite 102, Peabody,
Massachusetts, on Tuesday, December 20, 2005, at 2:00 PM, for the following
purposes:
1. To elect five directors (two to be elected by the holders of the Company's
Class A Common Stock and three to be elected by the holders of the
Company's Class B Common Stock) to hold office until the annual meeting
next following their election and until their successors are duly elected
and qualified;
2. To consider and vote upon a new employee stock purchase plan to replace the
current plan, which expired on October 18, 2005. If approved the new plan
will provide 500,000 shares of Class A Common Stock available for issuance
under the plan;
3. To consider and vote upon a proposed amendment to the 2004 Non-Employee
Director Stock Option Plan to increase the annual grant of options to
non-employee directors as outlined in section 4(b) of the plan from 10,000
options to 20,000 options; and,
4. To transact such other business as may properly come before the meeting or
any adjournment thereof.
The Board of Directors has fixed the close of business on October 21, 2005
as the record date for determination of stockholders entitled to notice of, and
to vote at the annual meeting and at any adjournment thereof.
All stockholders are cordially invited to attend the meeting.
By order of the Board of Directors
Paula C. Wurts, Assistant Clerk
Peabody, Massachusetts
November 10, 2005
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
-- 2 --
PHC, INC.
200 Lake Street
Suite 102
Peabody, Massachusetts 01960
(978) 536-2777
PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of PHC, Inc. (the "Company") for use at the
Annual Meeting of Stockholders to be held at the corporate offices of the
Company at 200 Lake Street, Suite 102, Peabody, Massachusetts on December 20,
2005 at 2:00 PM (Boston time), and at any adjournment of that meeting (the
"Annual Meeting"). Each proxy will be voted in accordance with the instructions
specified, and if no instruction is specified, the proxy will be voted in favor
of the proposals set forth in the Notice of Annual Meeting. A stockholder may
revoke any proxy at any time before it is exercised by filing a later dated
proxy or written notice of revocation with Paula C. Wurts, Assistant Clerk of
the Company, or by voting in person at the Annual Meeting.
The Company's Annual Report on Form 10-K for the year ended June 30, 2005
is being mailed to stockholders together with this Proxy Statement. The Company
will furnish any exhibit to the Company's Annual Report on Form 10-K upon the
payment of a processing fee of ten cents per page plus mailing costs. The date
of mailing of this Proxy Statement is expected to be on or about November 15,
2005.
The Board of Directors has fixed October 21, 2005 as the record date for
the determination of stockholders entitled to vote at the Annual Meeting (the
"Record Date"). On that date, there were outstanding and entitled to vote
17,369,201 shares of Class A Common Stock and 776,991 shares of Class B Common
Stock of the Company (the shares of Class A Common Stock and Class B Common
Stock are referred to collectively herein as the "Shares"). Each share of Class
A Common Stock is entitled to one vote and each share of Class B Common Stock is
entitled to five votes. The holders of the Company's Class A Common Stock are
entitled to elect two members of the Company's Board of Directors (the "Class A
Directors") and holders of the Company's Class B Common Stock are entitled to
elect all the remaining members of the Company's Board of Directors (the "Class
B Directors"). Holders of Class A Common Stock will receive proxy cards, which
will be different from those received by the holders of Class B Common Stock.
The proxy cards received by the holders of Class A Common Stock will contain a
proposal relating to the election of the two members of the Board of Directors
to be elected by the holders of the Class A Common Stock, in addition to any
other proposals to be voted upon during the General Session. Holders of Class B
Common Stock will receive proxy cards, which will contain a proposal relating to
the election of the three members of the Board of Directors to be elected by the
holders of the Class B Common Stock, in addition to any other proposals to be
voted upon during the General Session. Except for the election of directors, the
holders of Class A Common Stock and Class B Common Stock vote as one class.
The Annual Meeting will be composed of three related but separate sessions:
(i) a special session of the holders of Class A Common Stock, during which
session only holders of Class A Common Stock are entitled to vote, for the
separate election by such holders of two directors, and no other business may
properly come before the meeting; (ii) a special session of the holders of Class
B Common Stock, during which session only holders of Class B Common Stock are
entitled to vote, for the separate election by such holders of three directors,
and no other business may properly come before the meeting; and (iii) a general
session of the holders of the Class A Common Stock and the Class B Common Stock
to transact such other business as may properly come before the meeting or any
adjournment thereof "General Session"). The presence in person or by proxy of
holders of shares of Class A Common Stock and Class B Common Stock outstanding
as of the Record Date which, combined, have the right to cast a majority of the
votes which may be cast with respect to matters arising during the General
Session will constitute a quorum for the conduct of business at the General
Session. The presence in person or by proxy of holders of shares of Class A
Common Stock and Class B Common Stock outstanding as of the Record Date which
have the right to cast a majority of the votes which may be cast with respect to
matters arising during the Class A Session and the Class B Session,
respectively, will constitute a quorum for purposes of the Class A Session and
the Class B Session, respectively.
-- 3 --
The affirmative vote of the holders of a plurality of the shares of each of
Class A Common Stock and Class B Common Stock represented at the meeting is
required for the election of the Class A Directors and the Class B Directors,
respectively. Approval of each of the other matters that is before the meeting
will require the affirmative vote of the holders of a majority of the shares
represented at the meeting and voting thereon. No votes may be taken at the
meeting, other than a vote to adjourn, unless the appropriate quorum (as set
forth in the preceding paragraph) has been constituted. Shares voted to abstain
or to withhold as to a particular matter, or as to which a nominee (such as a
broker holding shares in street name for a beneficial owner) has no voting
authority in respect of a particular matter, shall be deemed represented for
quorum purposes. Such shares, however, shall not be deemed to be voting on such
matters, and therefore will not be the equivalent of negative votes as to such
matters. Votes will be tabulated by the Company's transfer agent subject to the
supervision of persons designated by the Board of Directors as inspectors.
-- 4 --
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of shares of the Company's Class A Common Stock and Class B Common Stock (the
only classes of voting capital stock of the Company currently outstanding) as of
October 21, 2005, by (i) each person known by the Company to beneficially own
more than 5% of any class of the Company's voting securities, (ii) each director
of the Company, (iii) the Company's Chief Executive Officer, (iv) each of the
Company's two most highly compensated executive officers other than its Chief
Executive Officer who were serving as officers of the Company at the end of the
2004 fiscal year and whose salary and bonus for the 2005 fiscal year exceeded
$100,000 and (v) all directors and officers of the Company as a group (the
individuals specified in subsections (iii) and (iv) hereof collectively are
referred to herein as the "Named Executive Officers"). Unless otherwise
indicated below, to the knowledge of the Company, all persons listed below have
sole voting and investment power with respect to their shares of Common Stock,
except to the extent authority is shared by spouses under applicable law. In
preparing the following table, the Company has relied on the information
furnished by the persons listed below:
Amount and
Nature of Percent
Name and Address Beneficial of
Title of Class of Beneficial Owner Owner (12) Class
_______________________________________________________________________________
Class A Common Stock Bruce A. Shear 649,495(1) 3.7%
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Robert H. Boswell 248,719(2) 1.4%
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Paula C. Wurts 197,349(3) 1.1%
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Howard W. Phillips 173,750(4) *
P. O. Box 2047
East Hampton, NY 11937
Gerald M. Perlow 143,125(5) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Donald E. Robar 134,127(6) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
William F. Grieco 137,750(7) *
115 Marlborough Street
Boston, MA 02116
David E. Dangerfield 50,000(8) *
5965 South 900 East
Salt Lake City, UT 84121
All Directors and Officers 1,734,315(9) 9.5%
as a Group (8 persons)
-- 5 --
Amount and
Nature of Percent
Name and Address Beneficial of
Title of Class of Beneficial Owner Owner (12) Class
_______________________________________________________________________________
Class A Common Stock Marathon Capital Mgmt, LLC 1,153,800 6.7%
(continued) P. O. Box 771
Hunt Valley, MD 21030
Class B Common Stock Bruce A. Shear 721,259(11) 92.8%
(10) c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
All Directors and Officers 721,259 92.8%
as a Group (8 persons)
* Less than 1%
1. Includes 209,500 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of $.30
to $2.68 per share.
2. Includes 116,000 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options at an exercise price range of $.30 to
$2.73 per share.
3. Includes 116,000 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of $.30
to $2.73 per share.
4. Includes 108,500 shares issuable pursuant to currently exercisable stock
options having an exercise price range of $.22 to $1.48 per share.
5. Includes 97,000 shares issuable pursuant to currently exercisable stock
options or stock options which will become exercisable within sixty days,
having an exercise price range of $.22 to $6.63 per share.
6. Includes 100,500 shares issuable pursuant to currently exercisable stock
options or stock options which will become exercisable within sixty days,
having an exercise price range of $.22 to $6.63 per share.
7. Includes 96,000 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of $.22
to $3.50 per share.
8. Includes 50,000 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of $
.55 to $1.48 per share.
9. Includes an aggregate of 893,500 shares issuable pursuant to currently
exercisable stock options. Of those options, 5,500 have an exercise price
of $6.63 per share, 6,000 have an exercise price of $3.50 per share, 10,000
have an exercise price of $2.73, 22,500 have an exercise price of $2.68,
15,000 have an exercise price of $2.38 per share, 6,000 have an exercise
price of $2.06 per share, 50,000 have an exercise price of $1.48, 50,000
have an exercise price of $1.41, 15,000 have an exercise price of $1.37,
50,000 have an exercise price of $1.33 per share, 15,000 have an exercise
price of $1.21, 6,000 have an exercise price of $1.03 per share, 6,000 have
an exercise price of $.81 per share, 140,000 have an exercise price of $.75
per share, 50,000 have an exercise price of $.74 per share, 15,000 have an
exercise price of $.69 per share, 138,000 have an exercise price of $.55
per share, 15,000 have an exercise price of $.45 per share, 40,000 have an
exercise price of $.35 per share, 230,500 have an exercise price of $.30
per share and 8,000 have an exercise price of $.22 per share.
10. Each share of Class B Common Stock is convertible into one share of Class A
Common Stock automatically upon any sale or transfer or at any time at the
option of the holder.
11. Includes 56,369 shares of Class B Common Stock pledged to Steven J. Shear
of 2 Addison Avenue, Lynn, Massachusetts 01902, Bruce A. Shear's brother,
to secure the purchase price obligation of Bruce A. Shear in connection
with his purchase of his brother's stock in the Company in December 1988.
In the absence of any default under this obligation, Bruce A. Shear retains
full voting power with respect to these shares.
12. "Amount and Nature of Beneficial Ownership". Each share of Class A Common
Stock is entitled to one vote per share and each share of Class B Common
Stock is entitled to five votes per share on all matters on which
stockholders may vote (except that the holders of the Class A Common Stock
are entitled to elect two members of the Company's Board of Directors and
-- 6 --
holders of the Class B Common Stock are entitled to elect all the remaining
members of the Company's Board of Directors).
By virtue of the fact that Mr. Shear owns 92% of the class B shares and the
class B stockholders have the right to elect all of the directors except the two
directors elected by the class A stockholders, Mr. Shear has the right to elect
the majority of the members of the Board of directors and may be deemed to be in
control of the Company.
Based on the number of shares listed under the column headed "Amount and
Nature of Beneficial Ownership," the following persons or groups held the
following percentages of voting rights for all shares of common stock combined
as of October 21, 2005:
Bruce A. Shear ........................................19.83%
All Directors and Officers as a Group
(8 persons).........................................24.12%
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ELECTION OF DIRECTORS
The members of the Board of Directors elected at the Annual Meeting will be
classified into two classes of directors. Two directors will be elected by the
holders of the Company's Class A Common Stock and the balance of the directors
will be elected by the holders of the Company's Class B Common Stock. The terms
of the present directors expire at the Annual Meeting or when the successors are
chosen and qualified, if later. The Board of Directors has fixed at five the
number of directors to be elected at the Annual Meeting.
The nominees for Class A Directors for election at the Annual Meeting are
Donald E. Robar and Howard Phillips. The nominees for Class B Directors for
election at the Annual Meeting are Bruce A. Shear, William F. Grieco and David
E. Dangerfield. The proxy for holders of Class A Common Stock will be voted to
elect as Class A Directors the two nominees (Donald E. Robar and Howard
Phillips), unless authority to vote for the election of directors is withheld by
marking the proxy to that effect or the proxy is marked with the names of
directors as to whom authority to vote is withheld. The proxy for holders of
Class B Common Stock will be voted to elect as Class B Directors the three
nominees (Bruce A. Shear, William F. Grieco and David E. Dangerfield), unless
authority to vote for the election of directors is withheld by marking the proxy
to that effect. Donald E. Robar, Howard W. Phillips, Bruce A. Shear, William F.
Grieco and David E. Dangerfield are presently directors of the Company and have
consented to serve if reelected.
Name Age Position
________________________________________________________________________________
Bruce A. Shear 50 Director, President and Chief Executive
Officer
Donald E. Robar (1)(2) (3) 68 Director
Howard W. Phillips 75 Director
William F. Grieco (1)(2) (3) 51 Director
David E. Dangerfield (1) (3) 64 Director
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Nominating/Governance Committee
All of the directors hold office until the annual meeting of stockholders
next following their election, or until their successors are elected and
qualified. The Compensation Committee reviews and sets executive compensation.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board. There are no family relationships among any of the
directors or officers of the Company.
Information with respect to the business experience and affiliations of the
directors and officers of the Company is set forth below.
BRUCE A. SHEAR has been President, Chief Executive Officer and a Director
of the Company since 1980 and Treasurer of the Company from September 1993 until
February 1996. From 1976 to 1980, he served as Vice President, Financial
Affairs, of the Company. Mr. Shear has served on the Board of Governors of the
Federation of American Health Systems for over fifteen years. Mr. Shear received
an M.B.A. from Suffolk University in 1980 and a B.S. in Accounting and Finance
from Marquette University in 1976. Since November 2003, Mr. Shear has been a
member of the board of directors of Vaso Active Pharmaceuticals, Inc., a public
company marketing and selling over-the-counter pharmaceutical products that
incorporate Vaso's transdermal drug delivery technology.
DONALD E. ROBAR has served as a Director of the Company since 1985 and as
the Treasurer from February 1996 until April 2000. He served as the Clerk of the
Company from 1992 to 1996. Dr. Robar has been a professor of Psychology at
Colby-Sawyer College in New London, New Hampshire from 1967 to 1997 and is now
Professor Emeritus. Dr. Robar received an Ed.D. (Counseling) from the University
of Massachusetts in 1978, an M.A.in Clinical Psychology from Boston College in
1968 and a B.A. from the University of Massachusetts in 1960.
-- 8 --
HOWARD W. PHILLIPS has served as a Director of the Company since August 27,
1996 and has been employed by the Company as a public relations specialist since
August 1, 1995. From 1982 until October 31, 1995, Mr. Phillips was the Director
of Corporate Finance for D.H. Blair Investment Corp. From 1969 until 1981, Mr.
Phillips was associated with Oppenheimer & Co. where he was a partner and
Director of Corporate Finance.
WILLIAM F. GRIECO has served as a Director of the Company since February
18, 1997. Mr. Grieco has been a Managing Director of Arcadia Strategies, LLC, a
legal and business consulting organization servicing science and technology
companies, since 1999. From 2001 to 2002, he also served as Senior Vice
President and General Counsel of IDX Systems Corporation, a healthcare
information technology Company. From 1995 to 1999 he was Senior Vice President
and General Counsel for Fresenius Medical Care North America. Prior to that, Mr.
Grieco was a partner at Choate, Hall & Stewartt, a general service law firm. Mr.
Grieco received a BS from Boston College in 1975, an MS in Health Policy and
Management from Harvard University in 1978 and a JD from Boston College Law
School in 1981.
DAVID E. DANGERFIELD has served as a Director of the Company since December
2001. Since 1977, he has served as the Chief Executive Officer for Valley Mental
Health in Salt Lake City, Utah. Since 1974, Mr. Dangerfield has been a partner
for Professional Training Associates (PTA). In 1989, he became a consultant
across the nation for managed mental health care and the enhancement of mental
health delivery services. David Dangerfield serves as a Board member of the
Mental Health Risk Retention Group and Utah Alliance for the Mentally Ill, an
advocacy organization of family and friends of the mentally ill, which are
privately held corporations, and the Utah Hospital Association, which is a state
organization. Mr. Dangerfield graduated from the University of Utah in 1972 with
a Doctorate of Social Work after receiving his Masters of Social Work from the
University in 1967.
THE BOARD RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR.
NON-DIRECTOR EXECUTIVE OFFICERS
Name Age Position
________________________________________________________________________________
Robert H. Boswell 57 Senior Vice President
Paula C. Wurts 56 Controller, Treasurer and Assistant
Clerk
Information with respect to the business experience and affiliations of the
non-director executive officers of the Company is set forth below.
ROBERT H. BOSWELL has served as the Senior Vice President of the Company
since February 1999 and as executive vice president of the Company from 1992 to
1999. From 1989 until the spring of 1994, Mr. Boswell served as the
Administrator of the Company's Highland Ridge Hospital facility where he is
based. Mr. Boswell is principally involved with the Company's substance abuse
facilities. From 1981 until 1989, he served as the Associate Administrator at
the Prevention Education Outpatient Treatment Program--the Cottage Program,
International. Mr. Boswell graduated from Fresno State University in 1975 and
from 1976 until 1978 attended Rice University's doctoral program in philosophy.
Mr. Boswell is a Board Member of the National Foundation for Responsible Gaming
and the Chair for the National Center for Responsible Gaming.
PAULA C. WURTS has served as the Controller of the Company since 1989, as
Assistant Clerk since January 1996, as Assistant Treasurer from 1993 until April
2000 when she became Treasurer. Ms. Wurts served as the Company's Accounting
Manager from 1985 until 1989. Ms. Wurts received an Associate's degree in
Accounting from the University of South Carolina in 1980, a B.S. in Accounting
from Northeastern University in 1989 and passed the examination for Certified
Public Accountants. She received a Master's Degree in Accounting from Western
New England College in 1996.
-- 9 --
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board held four meetings during the fiscal year 2005. During fiscal
year 2005, each director attended 100% of the total number of meetings of the
Board (held during the period for which he was a director) and the total number
of meetings held by all Board committees on which such director served (during
the periods that he served as a member). The Board has a standing audit
committee (the "Audit Committee"), compensation committee and nominating and
corporate governance committee.
COMMUNICATION WITH THE BOARD OF DIRECTORS
Stockholders may communicate with the Board of Directors by writing to the
Board in care of the Company Assistant Clerk, PHC, Inc., 200 Lake Street, Suite
102, Peabody, Massachusetts 01960. The Board of Directors has delegated
responsibility for initial review of stockholder communications to the Assistant
Clerk, In accordance with the Board's instructions, the Assistant Clerk will
forward the communication to the director or directors to whom it is addressed,
except for communications, (1) solely related to complaints with respect to
ordinary course of business customer service and satisfaction issues or
(2)clearly unrelated to the Company's business industry, management or Board or
committee matters. In addition, the Assistant Clerk will make all such
communications available to each member of the Board at the Board's next
regularly scheduled meeting.
AUDIT COMMITTEE
The Board of Directors has appointed an audit committee to assist the Board
in its oversight of the financial reports, internal controls, accounting
policies and procedures and practices. The primary responsibilities of the Audit
Committee are as follows:
o Hire, evaluate and, when appropriate, replace the Company's
independent registered public accounting firm, whose duty it is to
audit the books and accounts of the Company and its subsidiaries for
the fiscal year in which it is appointed.
o Approve all audit fees in advance of work performed.
o Approve any accounting firm and fees to be charged for taxes or any
other non-audit accounting fees.
o Review internal controls over financial reporting with the independent
accountant and a designated accounting staff member.
o Review with management and the registered public accounting firm:
o The independent accountant's audit of and report on the financial
statements.
o The auditor's qualitative judgments about the appropriateness,
not just the acceptability, of accounting principles and
financial disclosures and how aggressive (or conservative) the
accounting principles and underlying estimates are.
o Any serious difficulties or disputes with management encountered
during the course of the audit.
o Anything else about the audit procedures or findings that GAAS
requires the auditors to discuss with the committee.
o Consider and review with management and a designated accounting staff
member.
o Any significant findings during the year and management's
responses to them.
o Any difficulties an accounting staff member encountered while
conducting audits, including any restrictions on the scope of
their work or access to required information.
o Any changes to the planned scope of management's internal audit
plan that the committee thinks advisable.
o Review the annual filings with the SEC and other published
documents containing the company's financial statements and
consider whether the information in the filings is consistent
with the information in the financial statements.
o Review the interim financial reports with management the
independent registered public accounting firm and an accounting
staff member.
o Prepare a letter for inclusion in the annual report that
describes the committee's composition and responsibilities and
how the responsibilities were fulfilled.
o Review the audit committee charter at least annually and modify
as needed.
During fiscal 2005 the Audit Committee consisted of Dr. David Dangerfield,
Mr. Donald Robar and Mr. William Grieco. As required by the SEC, all members of
the audit committee are "independent" as such term is defined pursuant to
applicable SEC rules and regulations. Dr. Dangerfield serves as the chairman and
is the audit committee financial expert. The Audit Committee met five times
during fiscal 2005. All of the committee members attended the meetings. The
revised Audit Committee Charter can be found at Appendix A of this proxy
statement.
-- 10 --
COMPENSATION COMMITTEE
The Board of Directors has appointed the members of the Compensation
Committee to review and approve officer's compensation, formulate bonuses for
management and administer the Company's equity compensation plans. During fiscal
2005 the Compensation Committee consisted of Mr. Donald Robar and Mr. William
Grieco. The Compensation Committee met once during fiscal 2005. Mr. Shear does
not participate in discussions concerning, or vote to approve, his salary. All
members of the compensation committee are independent under Rule 4200(a)(15) of
the NASD Manual. The Compensation Committee Charter can be found at Appendix B
of this proxy statement.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee was established in
October, 2005. This committee is appointed by the Board of Directors for the
purpose of identifying individuals qualified to become Board members and to
recommend that the Board select these individuals as nominees for election to
the Board at the next annual meeting of the Company's stockholders, and
developing and recommending to the Board a set of effective corporate governance
policies and procedures applicable to the Company. The Nominating and Corporate
Governance Committee Charter can be found at Appendix C (Policies at Appendix D)
of this proxy statement.
NOMINATION OF DIRECTORS
The company will consider all director candidates recommended to the
Nominating and Corporate Governance Committee by stockholders at all times
during the year preceding the date on which the recommendation is made that meet
the qualifications established by the Board as required by the Company's
by-laws.
Each director nominee is evaluated in the context of the full Board's
qualifications as a whole, with the objective of establishing a Board that can
best perpetuate the success of the Company's business and represent stockholder
interest through the exercise of sound judgment. Each director nominee will be
evaluated considering the relevance to the Company of the director nominees
respective skills and experience which my be complimentary to the skills and
experience of the other members of the Board. In addition, the director nominees
must possess a general understanding of marketing, finance and other elements
relevant to the success of a publicly-traded company in today's business
environment, and an understanding of the Company's business on an operational
level as well as demonstrate a willingness to devote the appropriate time to
fulfilling Board duties.
-- 11 --
PROCEDURE FOR CONSIDERATION OF STOCKHOLDER NOMINATIONS
Specifically, the Company did not receive any nominations for directors
from shareholders for consideration at the 2005 Annual Meeting. However, any
recommendations received from shareholders will be evaluated in the same manner
that potential nominees recommended to members of the Board of Directors, the
Nominating and Governance Committee, management or other parties are evaluated.
Any shareholder nominations must be made in accordance with the Company by-laws,
which currently require written notice to the chairman of the Nominating and
Governance Committee certified mailed or overnight delivered to 200 Lake Street,
Suite 102, Peabody, Massachusetts 01960 no less than 120 calendar days before
the one-year anniversary of the date that the Company's proxy statement was
released to stockholders in connection with the previous year's annual meeting.
Nominations for election to the Board of Directors at the 2006 Annual Meeting of
Shareholders must be received no later than July 23, 2006. The notice must be
set forth at a minimum:
1. A complete biography, including full employment history of the nominee;
2. A signed consent form and waiver from the nominee authorizing the Company
to perform full background checks of the director nominee, including
criminal and credit history, from a firm acceptable to the Company in its
full discretion;
3. Documentation of educational levels attained, complete with official
transcripts issued directly by the educational institution and sent
directly from the educational institution to the Company's Secretary of
Clerk;
4. Disclosure of all special interests and all political and organizational
affiliations;
5. A signed written statement from the director nominee the reason that the
director nominee wants to serve on the Company's Board, the reason that the
director nominee believes that he or she is qualified to serve; and
6. A description of all litigation to which he or any of his affiliates have
been a party within the past seven years.
In addition, the stockholder must submit any additional information
required to be included in the Company's proxy statement for director nominees
which determination will be made by the Company in its sole and absolute
discretion (including, without limitation, information regarding business
experience, involvement in legal proceedings, security ownership and
transactions with the Company or management). The information submitted by the
stockholder must include complete contact information for the submitting
stockholder and the director nominee.
-- 12 --
Audit Committee Report
The Audit Committee has reviewed and discussed the Company's audited
financial statements for the fiscal year ended June 30, 2005 with the Company's
independent registered public accounting firm, BDO Seidman, LLP, and management.
The Audit Committee approved the financial statement for inclusion in the
Company's annual report. The Audit Committee has discussed with BDO Seidman,
LLP, the matters required to be discussed by Statement on Auditing Standards No.
61. The Audit Committee has received the written disclosures and the letter from
BDO Seidman, LLP, required by Independence Standards Board Standard No. 1 and
has discussed with BDO Seidman, LLP its independence. The discussions that the
Audit Committee had with BDO Seidman, LLP regarding the matters described above
occurred before the filing with the SEC of the Company's Annual Report on form
10-K for fiscal 2005.
AUDIT COMMITTEE
David E. Dangerfield
Donald E. Robar
William F. Grieco
-- 13 --
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Employment agreements
The Company has not entered into any employment agreements with its
executive officers. The Company owns and is the beneficiary on a $1,000,000 key
man life insurance policy on the life of Bruce A. Shear.
Executive Compensation
Three executive officers of the Company received compensation in the 2005
fiscal year, which exceeded $100,000. The following table sets forth the
compensation paid or accrued by the Company for services rendered to these
executives in fiscal year 2005, 2004 and 2003:
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
(a) (b) (c) (d) (e) (g) (i)
Securities
Name and Other Annual Underlying All Other
Principal Salary Bonus Compensation Options/SARs Compensation
Position Year ($) ($) ($) (#) ($)
________________________________________________________________________________________
Bruce A. Shear 2005 $383,965 $45,000 $62,498 (1) 60,000 $37,050
President and 2004 $345,416 $25,147 $15,395 (2) -- $ --
Chief Executive 2003 $306,771 $25,000 $15,730 (3) 40,000 $11,200
Officer
Robert H. Boswell 2005 $164,590 $10,000 $29,016 (4) 25,000 $15,750
Senior Vice 2004 $155,417 $32,794 $15,582 (5) -- $ --
President 2003 $152,937 $40,147 $12,820 (6) 25,000 $ 7,000
Paula C. Wurts 2005 $140,586 $10,000 $35,009 (7) 25,000 $15,750
Controller, 2004 $129,125 $17,647 $13,901 (8) -- $ --
Treasurer and 2003 $116,981 $22,000 $11,270 (9) 25,000 $ 7,000
Assistant Clerk
(1) This amount represents $7,789 contributed by the Company to the Company's
Executive Employee Benefit Plan on behalf of Mr. Shear, $7,541 in premiums
paid by the Company with respect to life and disability insurance for the
benefit of Mr. Shear, $2,805 in club membership dues paid by the Company
for the benefit of Mr. Shear, $4,027 personal use of a Company car held by
Mr. Shear and $40,336 based on the intrinsic value of the repricing of
options held by Mr. Shear.
(2) This amount represents $5,063 contributed by the Company to the Company's
Executive Employee Benefit Plan on behalf of Mr. Shear, $5,532 in premiums
paid by the Company with respect to life and disability insurance for the
benefit of Mr. Shear, $912 in club membership dues paid by the Company for
the benefit of Mr. Shear, $3,888 personal use of a Company car held by Mr.
Shear.
(3) This amount represents $4,057 contributed by the Company to the Company's
Executive Employee Benefit Plan on behalf of Mr. Shear, $4,768 in premiums
paid by the Company with respect to life insurance for the benefit of Mr.
Shear, $1,387 in premiums paid by the Company with respect to disability
insurance for the benefit of Mr. Shear, $2,009 in club membership dues paid
by the Company for the benefit of Mr. Shear and $3,509 personal use of a
Company car held by Mr. Shear.
(4) This amount represents a $6,000 automobile allowance, $6,656 contributed by
the Company to the Company's Executive Employee Benefit Plan on behalf of
Mr. Boswell, $1,020 in benefit derived from the purchase of shares through
the employee stock purchase plan, and $15,340 based on the intrinsic value
of the repricing of options held by Mr. Boswell.
-- 14 --
(5) This amount represents a $6,000 automobile allowance, $4,650 contributed by
the Company to the Company's Executive Employee Benefit Plan on behalf of
Mr. Boswell, $428 in membership dues paid by the Company for the benefit of
Mr. Boswell, $699 in benefit derived from the purchase of shares through
the employee stock purchase plan, and $3,805 based on the intrinsic value
of the repricing of options held by Mr. Boswell.
(6) This amount represents a $6,000 automobile allowance, $3,212 contributed by
the Company to the Company's Executive Employee Benefit Plan on behalf of
Mr. Boswell, $640 in membership dues paid by the Company for the benefit of
Mr. Boswell, $617 in benefit derived from the purchase of shares through
the employee stock purchase plan, $401 in club membership dues paid by the
Company for the benefit of Mr. Boswell and $1,950 based on the intrinsic
value of the repricing of options held by Mr. Boswell.
(7) This amount represents a $4,800 automobile allowance, $8,392 contributed by
the Company to the Company's Executive Employee Benefit Plan on behalf of
Ms. Wurts, $340 in benefit derived from the purchase of shares through the
employee stock purchase plan and $21,477 based on the intrinsic value of
the repricing of options held by Ms. Wurts.
(8) This amount represents a $4,800 automobile allowance, $5,063 contributed by
the Company to the Company's Executive Employee Benefit Plan on behalf of
Ms. Wurts, $233 in benefit derived from the purchase of shares through the
employee stock purchase plan and $3,805 based on the intrinsic value of the
repricing of options held by Ms. Wurts.
(9) This amount represents a $4,800 automobile allowance, $4,211 contributed by
the Company to the Company's Executive Employee Benefit Plan on behalf of
Ms. Wurts, $309 in benefit derived from the purchase of shares through the
employee stock purchase plan and $1,950 based on the intrinsic value of the
repricing of options held by Ms. Wurts.
STOCK OPTION PLANS
The 2003 Stock Option Plan provides for the issuance of a maximum of
1,300,000 shares of Class A Common Stock of the Company pursuant to the grant of
incentive stock options to employees or nonqualified stock options to employees,
directors, consultants and others whose efforts are important to the success of
the Company. During fiscal 2005, the Company issued options to purchase 320,000
shares of Class A Common Stock. Prior to its expiration in August 2003, the
Company issued options to purchase 1,843,500 shares of Class A Common Stock
under the 1993 Stock Option Plan, of which 764,750 were exercised, 452,250
expired, and 626,500 remain outstanding as of October 21, 2005. These options
were issued at market value on the date of grant, vesting 25% immediately and
25% on each of the first three anniversaries of the grant and expiring five
years from the grant date.
The Non-Employee Directors' Stock Option Plan provides for the grant of
non-statutory stock options automatically at the time of each annual meeting of
the Board. Through June 30, 2005, options for 185,500 shares were granted under
this plan. A maximum of 350,000 shares may be issued under this plan. Each
outside director is granted an option to purchase 10,000 shares of Class A
Common Stock at fair market value on the date of grant, vesting 25% immediately
and 25% on each of the first three anniversaries of the grant and expiring ten
years from the grant date. Accordingly, options to purchase 40,000 shares of
Class A Common Stock were issued under the plan in fiscal 2005. In anticipation
of the plans expiration in August 2005, the Board and stockholder approved an
identical plan in January 2005.
Stock Option Grants
During fiscal 2005, the Company granted options to purchase 320,000 shares
of Class A Common Stock. Of the grants issued, 280,000 were incentive options
and 40,000 were non-qualified stock options. The following table provides
information about options granted to the officers and directors during fiscal
2004 under the Company's Stock Option Plans.
-- 15 --
Individual Grants
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Name Underlying Granted Exercise
Options/ to Employees or Base
SARs in Fiscal Price Expiration
Granted (#) Year ($/Share) Date
_______________________________________________________________________________
Bruce A. Shear 60,000 18.75% $.69-$2.38 01/07/2008-06/16/2010
Robert H. Boswell 25,000 7.81% $1.41 12/21/2009
Paula C. Wurts 25,000 7.81% $1.41 12/21/2009
All Directors and
Officers as a
group (8 Persons) 160,000 50.0% $1.43 01/07/2008-01/06/2015
The following table provides information about options exercised by the
named executive officers during fiscal 2005 and the number and value of options
held at the end of fiscal 2005.
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/ SARs at Options/SARs at
Acquired Value FY-End (#) FY-End ($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
_______________________________________________________________________________
Bruce A. Shear 25,000 $37,208 187,000/0 $327,260/$0
Robert H. Boswell 8,333 13,319 111,000/0 203,030/$0
Paula C. Wurts 11,667 18,648 111,000/0 203,030/$0
All Directors and
Officers as a 45,000 $69,175 861,000/0 $1,520,525/$0
group (8 persons)
All options exercised were repriced, non-qualified options and required
recognition of income by the parties exercising the options at the time of
exercise. The options were exercised at $0.25 per share and the market price at
the time of exercise ranged from $1.00 to $1.16 per share. To date, none of the
shares acquired through the exercise of these options has been sold.
In January 2001, all 791,500 shares underlying the then outstanding
employee stock options were repriced to $0.25, which was greater than the then
current market price, using the existing exercise durations. The computed effect
of the option repricing of $69,175, $16,435 and $2,505 was charged to salaries
in the fiscal years ended June 30, 2005, 2004 and 2003, respectively. As of June
30, 2005 all of the repriced options have been exercised.
On June 30, 2005, the Company accelerated the vesting on the remaining
326,250 outstanding unvested options. This resulted in a non-cash charge to
compensation of $27,025.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan provides for the purchase of Class A
Common Stock at 85% of the fair market value at specific dates, to encourage
stock ownership by all eligible employees. A maximum of 500,000 shares may be
issued under this plan. Under the Employee Stock Purchase Plan, all employees
who work in excess of 20 hours per week and more than five months per year, with
the exception of over 5% owners, may purchase shares of PHC, Inc. Class A Common
Stock through payroll deduction. The price per share will be the lesser of 85%
of the average of the bid and ask price on the first day of the plan period or
the last day of the plan period. Plan periods are one year in duration and are
designated by the Board of Directors.
The 2005 plan period ended on January 31, 2005. During that period a total
of 4,980 shares were issued at a purchase price of $1.27. Of the shares issued,
-- 16 --
3,778 were issued to the two eligible officers of the Company resulting in
compensation of $1,360 as indicated in the compensation table above. Another
plan period is currently in effect and scheduled to end on January 31, 2006. Ten
employees including both eligible officers are currently participating in this
plan. As of June 30, 2005, a total of 144,417 shares of Class A Common Stock
have been issued under the plan.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no compensation for
services as members of the Board. Directors who are not employees of the Company
receive $5,000 stipend per year and $1,250 for each Board meeting they attend.
In addition, directors of the Company are entitled to receive certain stock
option grants under the Company's Non-Employee Director Stock Option Plan (the
"Director Plan"). In January 2005, options to purchase 40,000 shares of Class A
Common Stock at an exercise price of the then current market price of $1.48 were
issued under the Director Plan. These options are included in the table above.
-- 17 --
STOCK PERFORMANCE GRAPH
The following table depicts the cumulative total return on the Company's
common stock compared to the cumulative total return for the Nasdaq Composite-US
Index and the Nasdaq Health Services Index (which includes both U.S. and foreign
companies), an index published by the University of Chicago's Center for
Research in Security Prices. The table assumes the investment of $100 on June
30, 2000.
Comparison of Five-Year Cumulative Total Returns
Performance Report for
PHC, Inc.
Prepared by the Center for Research in Security Prices
Produced on 11/09/2005 including data to 06/30/2005
Company Index: Ticker : PIHC.OB
Fiscal Year-end is 06/30/2005
Market Index: Nasdaq Stock Market (US Companies)
Peer Index: Nasdaq Health Services Stocks
SIC 8000-8099 US & Foreign
[LINE GRAPH OMITTED]
Date Company Index|_| Market Index* Peer Index^
06/30/2000 100.000 100.000 100.000
07/31/2000 86.555 94.771 103.381
08/31/2000 68.067 105.974 106.569
09/29/2000 47.059 92.204 111.019
10/31/2000 34.454 84.626 112.677
11/30/2000 18.487 65.200 107.366
12/29/2000 10.084 61.738 129.353
01/31/2001 37.815 69.215 119.263
02/28/2001 30.252 53.578 128.115
03/30/2001 15.966 46.043 118.757
04/30/2001 32.773 52.910 123.402
05/31/2001 31.933 52.852 126.437
06/29/2001 28.571 54.295 142.698
07/31/2001 26.050 50.846 141.678
08/31/2001 42.017 45.310 143.002
09/28/2001 30.252 37.675 136.384
10/31/2001 42.017 42.511 123.906
11/30/2001 30.252 48.564 130.165
12/31/2001 31.092 48.971 139.848
01/31/2002 31.933 48.600 136.715
02/28/2002 31.092 43.546 133.107
03/28/2002 31.092 46.401 146.004
04/30/2002 47.059 42.547 159.245
05/31/2002 54.622 40.670 146.030
06/28/2002 66.387 36.986 140.131
07/31/2002 55.462 33.610 126.993
08/30/2002 63.866 33.254 123.638
09/30/2002 63.025 29.678 123.288
10/31/2002 63.025 33.732 125.391
11/29/2002 57.983 37.492 125.929
12/31/2002 68.908 33.857 120.500
01/31/2003 67.227 33.491 124.439
02/28/2003 66.387 33.961 115.432
03/31/2003 78.151 34.059 119.607
04/30/2003 70.588 37.155 122.363
05/30/2003 63.025 40.417 137.806
06/30/2003 64.706 41.066 147.519
07/31/2003 70.588 43.895 157.911
08/29/2003 68.067 45.808 160.876
09/30/2003 72.269 45.213 165.570
10/31/2003 73.950 48.854 175.172
11/28/2003 104.202 49.577 184.347
12/31/2003 116.807 50.622 184.269
01/30/2004 128.571 52.123 198.819
02/27/2004 105.042 51.142 205.961
03/31/2004 113.445 50.271 204.900
04/30/2004 96.639 48.605 210.607
05/28/2004 86.555 50.219 210.893
06/30/2004 93.277 51.762 219.041
07/30/2004 97.479 47.811 199.012
08/31/2004 88.235 46.640 191.553
09/30/2004 101.681 48.032 193.547
10/29/2004 114.286 49.979 197.950
11/30/2004 127.731 53.059 219.920
12/31/2004 121.008 55.090 232.228
01/31/2005 136.975 52.223 228.353
02/28/2005 154.622 51.925 238.514
03/31/2005 168.908 50.605 253.133
04/29/2005 168.067 48.764 253.770
05/31/2005 167.227 52.534 261.380
06/30/2005 212.605 52.321 276.792
LEGEND
Symbol CRSP Total
Returns Index for: 06/2000 06/2001 06/2002 06/2003 06/2004 06/2005
_______________________________________________________________________________
|_| PHC, Inc. 100.0 28.6 66.4 64.7 93.3 212.6
* Nasdaq Stock Market
(US Companies) 100.0 54.3 37.0 41.1 51.8 52.3
^ Nasdaq Health
Services Stocks 100.0 142.7 140.1 147.5 219.0 276.8
SIC 8000-8099 US
& Foreign
The comparisons in the table and in the graph above are required by the SEC
rules and are not intended to forecast or be indicative of possible future
performance of the Company's common stock. The stock performance graph shown
above is not deemed to be part of any document filed with the SEC pursuant to
the Securities Act or the Exchange Act and is not to be deemed incorporated by
reference in any documents filed under the Securities Act or the Exchange Act
without the express written consent of the Company."
-- 18 --
Independent Auditor Fees
The following table presents fees for professional audit services rendered
by BDO Seidman, LLP for the Company's annual financial statements, quarterly
review services and other related services for the fiscal years ended June 2005
and 2004:
2005 2004
________ ________
Audit Fees 125,500 $117,500
Audit related fees -- 12,000
________ ________
Total fees 125,500 $129,500
======== ========
In fiscal 2004, BDO Seidman, billed the Company an additional $4,000 in
connection with the company's current report on form 8-k filed regarding the
acquisition of Pivotal Research Centers, LLC and $8,000 in connection with the
Company's registration statement on form S-3. These amounts are listed as "All
other fees" in the above table and relate to services traditionally provided by
auditors, which are compatible with BDO Seidman, LLP's independence. The
Company's Audit Committee considered the non-audit services rendered by BDO
Seidman, LLP during fiscal 2004 and determined that such services were
compatible with BDO Seidman, LLP's independence. Firms other than BDO Seidman,
LLP, provide tax and other accounting services.
BDO Seidman, LLP did not directly or indirectly, operate, or supervise the
operation of, the Company's information systems or manage the Company's local
area network, nor did BDO Seidman, LLP design or implement a hardware or
software system that aggregates source data underlying the financial statements
of the Company or generates information that is significant to the Company's
financial statements taken as a whole.
The charter of the Audit Committee provides that the Audit Committee must
pre-approve all auditing and non-auditing services to be provided by the
auditor. In addition, any services exceeding pre-approved cost levels will
require specific pre-approval by the Audit Committee. All services shown in the
table above were pre-approved by the Audit Committee.
PROPOSAL TO APPROVE THE 2005 EMPLOYEE STOCK PURCHASE PLAN
On October 28, 2005, the Board of Directors of the Company voted to adopt,
pending stockholder approval, a new employee stock purchase plan to replace the
plan that expired on October 18, 2005. Prior to its expiration the Company had
available 500,000 shares for purchase under the 1995 plan. Of that number
144,417 have been issued. Ten employees are participating in the current
offering. The new plan is, in its design, a duplicate of the 1995 Employee Stock
Purchase Plan which it replaces. If approved a maximum of 500,000 shares of
Class A Common Stock will be available to be issued under the plan. The purpose
of the plan is to permit employees the purchase of stock at a discount to
market. The Company's business is dependent upon its human resources and it
believes this benefit aids in attracting and retaining key personnel.
-- 19 --
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ADOPTION OF THE 2005 EMPLOYEE STOCK PURCHASE PLAN
Description of the proposed 2005 Stock Purchase Plan
General. The Company 's 2005 Employee Stock Purchase Plan (the "Stock
Purchase Plan"), was adopted by the Board of Directors in October, 2005. This
plan would authorize an aggregate of 500,000 shares of Class A Common Stock for
issuance under the plan. The Board of Directors administers the Stock Purchase
Plan.
All employees of the Company whose customary employment is in excess of 20
hours per week and more than five months per year, other than those employees
who own 5% or more of the stock of the Company, are eligible to participate in
the Stock Purchase Plan. The Stock Purchase Plan is implemented by offerings of
such duration as the Board of Directors determines, provided that no offering
period may be longer than 27 months. An eligible employee participating in an
offering is able to purchase Common Stock at a price equal to the lesser of (i)
85% of its fair market value on the date the right was granted or (ii) 85% of
its fair market value on the date the right was exercised. Payment for Class A
Common Stock purchased under the plan is through regular payroll deduction or
lump sum cash payment, or both, as determined by the Board of Directors. The
Stock Purchase Plan shall have the following grant limitations: (i) no employee
shall be granted a right under the Stock Purchase Plan if such employee, as a
result of such grant, would own five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company; (ii) no employee
shall be granted a right under the Stock Purchase Plan, which, when combined
with rights to purchase shares of capital stock of the Company under the other
Company employee stock purchase plans would accrue at a rate that exceeds
twenty-five thousand dollars ($25,000) of the fair market value of such shares
for each calendar year in which such right is outstanding; and, (iii) no
employee shall be granted a right under the Stock Purchase Plan under a single
offering to purchase an amount of shares, which when multiplied by the exercise
price, is more than 10% of the compensation payable to such employee during the
offering or such other percentage as determined by the Board of Directors from
time to time.
In the event that an offering results in employees participation that would
require greater than the remaining authorized shares under the plan, based on
85% of the then current market price, the approved participation of each
employee will be adjusted downward, on a prorated basis, to insure sufficient
shares will be available for issue at the end of the offering period.
Employee Stock Purchase Plan-Federal Income Tax Information. The Stock
Purchase Plan is intended to qualify as an "employee stock purchase plan within
"the meaning of Section 423 of the Code. Section 423 provides that the employee
pays no federal income tax, and the Company is entitled to no deduction, at
either the beginning or end of an offering period. The federal income tax
consequences upon disposition of the shares acquired pursuant to an offering
under the Stock Purchase Plan depend on when such disposition occurs. If the
disposition occurs after the expiration of both (i) two years from the offering
commencement date and (ii) one year from the purchase date, and the fair market
value of the stock on the date of disposition is higher than the price paid for
the stock, the employee will recognize compensation taxable as ordinary income
equal to the lesser of (1) the excess of the fair market value of the stock on
the offering commencement date over the option price; and (2) the excess of the
fair market value of the stock at the time of disposition over the price paid
for it. If the disposition occurs before the expiration of either of the above
two dates, the employee will recognize the excess of the fair market value of
the stock on the date of the purchase over the option price as compensation
taxable as ordinary income even though there may have been no gain on the
disposition of the stock. To the extent of reported ordinary income in such
case, the Company will be allowed a tax deduction in an equal amount. Any gain
recognized in excess of the amount reported as ordinary income will be reported
as long-term or short-term capital gain, depending on how long after the
purchase date the disposition occurs.
PROPOSAL TO AMEND THE COMPANY 'S 2004
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
On October 28, 2005, the Board of Directors of the Company adopted an
amendment to the 2005 Non-Employee Director Stock Option Plan (the "Director
Plan") to increase the annual grant of options to non-employee directors from
10,000 options to 20,000 options. At this time the Company has available for
issue under this plan 500,000 options. The purpose of the increase is to obtain
and retain the services of qualified persons who are not employees of the
Company to serve as members of its Board of Directors. Non-employee directors of
the Company are eligible to receive options under the Director Plan and will
therefore benefit from such approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
AMENDMENT TO THE 2004 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN
-- 20 --
General. The 2004 Non-Employee Director Stock Option Plan was adopted by
the Board of Directors on September 20, 2004 and approved by the stockholders on
January 21, 2005. This approval allows for options to be issued to directors to
purchase up to 350,000 shares of class A Common Stock. On October 28, 2005, the
directors voted to increase the annual grant of options under the plan from
10,000 per non-employee director to 20,000 per non-employee director pending
stockholder approval.
The Board of Directors or a committee of the Board administers the Director
Plan. Under the Director Plan, at each annual meeting of the Board of Directors
of the Company, each non-employee director of the Company, is granted an option
to purchase 10,000 shares (20,000 shares if the amendment is approved by
stockholders) of the Class A Common Stock of the Company. The option exercise
price is the fair market value of the shares of the Company's Class A Common
Stock on the date of the grant. The options are non-transferable and become
exercisable as follows: 25% immediately and 25% on each of the first, second and
third anniversaries of the grant date. If an optionee ceases to be a member of
the Board of Directors for a reason other than death or permanent disability,
the unexercised portion of the options, to the extent unvested, immediately
terminate, and the unexercised portion of the options which have vested lapse
180 days after the date the optionee ceases to serve on the Board. In the event
of death or permanent disability, all unexercised options vest and the optionee
or his or her legal representative has the right to exercise the option for a
period of 180 days or until the expiration of the option, if sooner.
Non-Employee Stock Option Plan Federal Income Tax Information. Set forth
below is a general summary of the federal income tax consequences to the Company
and to recipients who receive options or restricted stock under the Director
Plan. The following summary is not intended to be exhaustive, does not address
certain special federal tax provisions, and does not address state, municipal or
foreign tax laws.
Under Section 83 of the Code, optionees realize no taxable income when a
non-qualified stock option ("NSO") is granted. Instead, the difference between
the fair market value of the stock and the option price paid is taxed as
ordinary compensation income, on or after the date on which the option is
exercised. The difference is measured and taxed as of the date of exercise if
the stock is not subject at that time to a "substantial risk of forfeiture, " as
defined in Section 83. To the extent that the stock is subject to a substantial
risk of forfeiture, the difference is measured as of the date or dates on which
the risk terminates. The Director Plan permits the Compensation Committee to
impose repurchase rights on stock acquired upon exercise of options that would
constitute such a "substantial risk of forfeiture." If such repurchase rights
are imposed, the optionee would recognize taxable income and incur a tax
liability, and the optionee's holding period for tax purposes would commence, in
the year or years that the substantial risk of forfeiture terminates with
respect to the stock.
Alternatively, an optionee holding an NSO may elect, within thirty days
after the option is exercised, in accordance with Section 83(b), to be taxed on
the difference between the option exercise price and the fair market value of
the stock on the date of exercise even though the stock acquired is subject to a
substantial risk of forfeiture. If the optionee makes this election, subsequent
changes in the value of the Common Stock at the time the forfeiture provisions
lapse will not result in ordinary compensation income to the optionee.
The Company receives no tax deduction on the grant of an NSO, but is
entitled to a tax deduction when the optionee recognizes taxable income on or
after exercise of the option, in the same amount as the income recognized by the
optionee.
-- 21 --
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely on its review of Forms 3 and 4 furnished to the Company, the
Company believes that, all directors, officers and beneficial owners of more
than ten percent of any class of equity securities of the Company registered
pursuant to Section 12 of the Securities Exchange Act complied with all
applicable filing requirement required by Section 16(a) of the Exchange Act
during the most recent fiscal year.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related Party Indebtedness
For approximately the last fifteen years, Bruce A. Shear, a director and
the President and Chief Executive Officer of the Company, and persons affiliated
and associated with him have made a series of unsecured loans to the Company and
its subsidiaries to enable them to meet ongoing financial commitments. The
borrowings generally were entered into when the Company did not have financing
available from outside sources and, in the opinion of the Company, were entered
into at an arms length basis at market rates given the financial condition of
the Company and the risks of repayment at the time the loans were made.
During the period ended June 30, 2004, the Company paid Mr. Shear and
affiliates approximately $62,515 in principal and accrued interest under the
related party notes. The remaining balance of this debt, $52,000, was converted
into 50,000 shares of Class B Common Stock at the then current market price for
Class A Common Stock. As of June 30, 2004 all outstanding related party debt has
been eliminated. During the fiscal year ended June 30, 2005 no amounts were
borrowed from related parties and related party debt remains at zero.
STOCKHOLDER PROPOSALS FOR 2006 MEETING
Proposals of stockholders intended to be presented and director nominations
intended to be made at the 2005 Annual Meeting of Stockholders must be received
by the Company at its principal office, 200 Lake Street, Suite 102, Peabody,
Massachusetts 01960, Attention: Paula C. Wurts, Assistant Clerk, not later than
July 23, 2006 for inclusion in the proxy statement for that meeting. Any
proposal of a stockholder to be presented at the Company's annual meeting of
stockholders in 2006, which has not been included in the Company's proxy
material, must be received not later than September 15, 2006 to be considered
timely.
-- 22 --
OTHER MATTERS
The Board does not know of any other matters that may come before the
Annual Meeting. However, if any other matters are properly presented to the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise to act, in accordance with their judgment on such
matters.
All costs of solicitation of proxies by management will be borne by the
Company. In addition to solicitations by mail, the Company's directors, officers
and regular employees, without additional remuneration, may solicit proxies by
telephone or personal interviews. Brokers, custodians and fiduciaries will be
requested to forward proxy soliciting materials to the beneficial owners of the
Company's stock held in the names of such brokers, custodians and fiduciaries,
and the Company will reimburse them for their out-of-pocket expenses in this
connection.
By order of the Board of Directors
Paula C. Wurts, Assistant Clerk
November 10, 2005
The Board hopes that stockholders will attend the meeting. WHETHER OR NOT
YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A prompt response will greatly
facilitate arrangements for the meeting, and your cooperation will be
appreciated. Stockholders who attend the meeting may vote their stock personally
even though they have sent in their proxies.
-- 24 --
REVOCABLE PROXY - CLASS A COMMON STOCK
PHC, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2005 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of PHC, Inc., a Massachusetts corporation, (the
"Company") hereby acknowledges receipt of the Notice of 2005. Annual Meeting of
Stockholders and Annual Report on Form 10-K for fiscal year ended June 30, 2005
and hereby appoints Bruce A. Shear and Paula C. Wurts, and both of them, as
proxies, with full power to each of substitution, and hereby authorizes either
of them to represent and to vote, as designated on the reverse side, all the
shares of Class A Common Stock of the Company held of record by the undersigned
on October 21, 2005 at the Annual Meeting of Stockholders to be held at 2:00
p.m. (Boston time), on December 20, 2005 at the Corporate offices of PHC, Inc.,
200 Lake Street, Suite 102, Peabody, Massachusetts 01960, and at any
adjournments or postponements thereof. The undersigned stockholder hereby
revokes any proxy or proxies heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED, OR IF
NO DIRECTION IS MADE, FOR SUCH PROPOSALS, AND IN ACCORDANCE WITH THE
DETERMINATION OF THE PROXY HOLDERS AS TO OTHER MATTERS. THE UNDERSIGNED
STOCKHOLDER HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND
PROXY STATEMENT.
(Continued And To Be Signed And Dated On Reverse Side)
(BACK)
-- 25 --
FORM OF PROXY FOR CLASS A COMMON STOCK STOCKHOLDERS
[X} Please mark your
votes as in this
example.
Nominees:
Donald E. Robar
Howard W. Phillips
WITHHOLD FOR ABSTAIN
FOR AUTHORITY AGAINST
1. To elect Donald E. Robar [ ] [ ] 2. To approve the [ ] [ ] [ ]
and Howard W. Phillips [ ] [ ] Company's 2005 Employee
as the Class A Directors of the company, Stock Purchase Plan
each to hold the office until the annual with a maximum of 500,000
meeting next following his election: shares which may be issued
under the plan.
For all nominees except as noted below: 3. To approve the [ ] [ ] [ ]
__________________________________________ amendment to the 2004 non-
employee director stock option
plan to increase the annual
grant of options to non-employee
directors from 10,000 to 20,000
options.
4. In their discretion, the Proxies
are authorized to vote upon
such other matters as may
properly come before the meeting
or any adjournment or
postponement thereof.
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
SIGNATURE DATE DATE
(SIGNATURE IF HELD JOINTLY)
_______________________________________________________________________________
Note: Please sign exactly as name appears on this proxy. All joint owners should
sign. When signing as attorney, executor, administrator, trustee, guardian or
custodian for a minor, please give your full title as such. If a corporation,
please sign full corporate name and indicate signer's office. If a partner sign
in the partnership name.
(FRONT)
-- 26 --
REVOCABLE PROXY - CLASS B COMMON STOCK
PHC, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2005 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of PHC, Inc., a Massachusetts corporation, (the
"Company") hereby acknowledges receipt of the Notice of 2005 Annual Meeting of
Stockholders and Annual Report on Form 10-K for fiscal year ended June 30, 2005
and hereby appoints Bruce A. Shear and Paula C. Wurts, and both of them, as
proxies, with full power to each of substitution, and hereby authorizes either
of them to represent and to vote, as designated on the reverse side, all the
shares of Class B Common Stock of the Company held of record by the undersigned
on October 21, 2005 at the Annual Meeting of Stockholders to be held at 2:00
p.m. (Boston time), on December 20, 2005 at the Corporate offices of PHC, Inc.,
200 Lake Street, Suite 102, Peabody, Massachusetts 01960, and at any
adjournments or postponements thereof. The undersigned stockholder hereby
revokes any proxy or proxies heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED, OR IF
NO DIRECTION IS MADE, FOR SUCH PROPOSALS, AND IN ACCORDANCE WITH THE
DETERMINATION OF THE PROXY HOLDERS AS TO OTHER MATTERS. THE UNDERSIGNED
STOCKHOLDER HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND
PROXY STATEMENT.
(Continued And To Be Signed And Dated On Reverse Side)
(BACK)
-- 27 --
FORM OF PROXY FOR CLASS B COMMON STOCK STOCKHOLDERS
[X} Please mark your
votes as in this
example.
Nominees:
Bruce A. Shear
William F. Grieco
David E. Dangerfield
WITHHOLD FOR ABSTAIN
FOR AUTHORITY AGAINST
1. To elect Bruce A. Shear [ ] [ ] 2. To approve the [ ] [ ] [ ]
William F. Grieco and Company's 2005 Employee Stock
David E. Dangerfield as the Class B Purchase Plan with a maximum of
Directors of the Company, each to hold 500,000 shares which may be
the office until the annual meeting issued under the plan.
next following his election.
3. To approve the [ ] [ ] [ ]
proposed amendment to the
For, all nominees except as noted below 2004 non-employee director stock
__________________________________________ option plan to increase the
annual grant of options to non-
employee directors from 10,000
to 20,000 options.
4. In their discretion, the Proxies
are authorized to vote upon
such other matters as may
properly come before the meeting
or any adjournment or
postponement thereof.
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
SIGNATURE DATE DATE
(SIGNATURE IF HELD JOINTLY)
_______________________________________________________________________________
Note: Please sign exactly as name appears on this proxy. All joint owners should
sign. When signing as attorney, executor, administrator, trustee, guardian or
custodian for a minor, please give your full title as such. If a corporation,
please sign full corporate name and indicate signer's office. If a partner sign
in the partnership name.
(FRONT)
-- 28 --
APPENDIX A
PHC, INC. AND SUBSIDIARIES
AUDIT COMMITTEE CHARTER
One committee of the board of directors will be known as the audit committee.
All of the members of the audit committee will be independent directors. An
independent director is free of any relationship that could influence his or her
judgment as a committee member. An independent director may not be associated
with a major vendor to, or customer of, the company. When there is some doubt
about independence, as when a member of the committee has a short-term
consulting contract with a major customer, the director should recuse himself
from any decisions that might be influenced by that relationship.
The primary function of the audit committee is to assist the board in fulfilling
its oversight responsibilities by reviewing the financial information that will
be provided to the shareholders and others, the systems of internal control
management and all audit processes.
GENERAL RESPONSIBILITIES
1. The audit committee provides open avenues of communication among the
internal accounting staff, the registered public accounting firm and the
board of directors.
2. The audit committee must report committee actions to the full board of
directors and may make appropriate recommendations.
3. The audit committee has the power to conduct or authorize investigations
into matters within the committee's scope of responsibilities. The
committee is authorized to retain independent counsel, accountants or
others it needs to assist in an investigation.
4. The committee will meet at least quarterly or more frequently if
circumstances warrant. The audit committee chairman has the power to call a
committee meeting whenever he or she thinks there is a need. An audit
committee member should not vote on any matter in which he or she is not
independent. The committee may ask members of management or others to
attend the meeting and is authorized to receive all pertinent information
from management.
5. The Committee shall establish procedures to facilitate:
a. the receipt, retention and treatment of complaints received by the
Company from third parties regarding accounting, internal accounting
controls or auditing matters; and
b. the confidential, anonymous submission by employees of the Company of
concerns regarding questionable accounting or auditing matters.
6. The committee will do whatever else the law, the company's charter or
bylaws or the board of directors require.
-- 29 --
RESPONSIBILITIES FOR ENGAGING REGISTERED PUBLIC ACCOUNTING FIRM
1 The audit committee will select the registered public accounting firm for
company audits. The committee's selection is subject to approval by the
full board of directors. The audit committee will also pre-approve any fees
paid to the registered public accounting firm in connection with the annual
audit and review and approve dismissal of the registered public accounting
firm.
2. The audit committee will confirm and assure the independence of the
registered public accounting firm, including, the review and approval of
any non-audit services, and related fees, to be provided by the registered
public accounting firm. The audit committee will consider, in consultation
with the registered public accounting firm and a designated accounting
staff member, the audit scope and procedural plans made by the accounting
staff and the registered public accounting firm.
4. The audit committee will listen to management and the audit partner if
either believes there might be a need to engage an additional accounting
firm as consultants in order to preserve the registered public accounting
firms independence. The audit committee will decide whether to engage an
additional firm and, if so, which firm will be selected and the related
services and fees.
5. The audit committee will make sure that the designated accounting staff
member and the registered public accounting firm, coordinate the internal
and external audits. The purpose of coordinating these efforts is to assure
completeness of coverage, reduce redundancy and use audit resources
effectively.
RESPONSIBILITIES FOR REVIEWING INTERNAL INFORMATION, THE ANNUAL EXTERNAL AUDIT
AND THE REVIEW OF QUARTERLY AND ANNUAL FINANCIAL STATEMENTS
1. The audit committee will ascertain that the registered public accounting
firm views the board of directors as its client, that it will be available
to the full board of directors at least annually and that it will provide
the committee with a timely analysis of significant financial reporting
issues.
2. The audit committee will ask management, a designated accounting staff
member and the registered public accounting firm about significant risks
and exposures and will assess management's steps to minimize them,
3. The audit committee will review the following with the registered public
accounting firm and a designated accounting staff member.
(a) The adequacy of the company's internal controls, including
computerized information system controls and security.
(b) Any significant findings and recommendations made by the registered
public accounting firm or accounting staff, together with management's
responses to them,
4. Shortly after the annual examination is completed, the audit committee will
review the following with management and the registered public accounting
firm:
(a) The company's annual financial statements and related footnotes.
(b) The registered public accounting firm's audit of and report on the
financial statements.
(c) The auditor's qualitative judgments about the appropriateness, not
just the acceptability, of accounting principles and financial
disclosures and how aggressive (or conservative) the accounting
principles and underlying estimates are.
-- 30 --
(d) Any serious difficulties or disputes with management encountered
during the course of the audit.
(e) Anything else about the audit procedures or findings that GAAS
requires the auditors to discuss with the committee.
5. The audit committee will consider and review with management and a
designated accounting staff member:
(a) Any significant findings during the year and management's responses to
them.
(b) Any difficulties an accounting staff member encountered while
conducting audits, including any restrictions on the scope of their
work or access to required information.
(c) Any changes to the planned scope of management's internal audit plan
that the committee thinks advisable.
6. The audit committee will review annual filings with the SEC and other
published documents containing the company's financial statements and will
consider whether the information in the filings is consistent with the
information in the financial statements.
7. The audit committee will review the interim financial reports with
management the registered public accounting firm and an accounting staff
member before those interim reports are released to the public or filed
with the SEC or other regulators.
8. The audit committee will prepare a letter for inclusion in the annual
report that describes the committee's composition and responsibilities and
how the responsibilities were fulfilled.
PERIODIC RESPONSIBILITIES
1. Review and update the committee's charter annually.
2. Review policies and procedures covering officers' expense accounts and
perquisites, including their use of corporate assets, and consider the
results of any review of those areas by the accounting staff or the
registered public accounting firm.
3. Review, with an accounting staff member and the registered public
accounting firm, the results of their examination of compliance with the
company's code of conduct.
4. Review legal and regulatory matters that may have a material effect on the
organization's financial statements, compliance policies and programs and
reports from regulators.
5. Meet with an accounting staff member, the independent accountant and
management in separate executive sessions to discuss and matters the
committee or these groups believe should be discussed privately with the
audit committee.
-- 31 --
APPENDIX B
PHC, Inc.
Compensation Committee Charter
Purpose
The Compensation Committee (the "Committee") exists to assist the Board of
Directors of PHC, Inc. (the "Company") in the discharge of its fiduciary
responsibilities relating to the fair and competitive compensation of the
executives and other key employees of the Company. The Committee has the
ultimate responsibility for assuring that the senior executives of the Company
are compensated in a manner consistent with the compensation philosophy and
strategy of the Board of Directors and in compliance with the requirements of
the regulatory bodies that oversee the Company. Generally, the Committee is
charged with reviewing and approving the Company's compensation philosophy and
its executive compensation programs, plans and awards. The Committee also
administers the Company's short and long-term incentive plans and other
stock-based plans and reviews and approves general employee pension benefit
plans of the Company and other benefit plans on an as-needed basis.
Membership
The members of the Committee shall be appointed by the full Board of
Directors upon the recommendation of the Nominating and Corporate Governance
Committee. Each director appointed to the committee must meet: (a) the
independence requirements set forth in the American Stock Exchange Company
Guide, and (b) any other legal requirements relevant to the proper
administration of the Company's compensation plans, including requirements under
the federal securities laws and the Internal Revenue Code of 1986, as amended.
In addition, unless approved by the Board of Directors, no director may serve on
the Compensation Committee if he or she is, or during the past fiscal year has
been, part of an interlocking directorate in which an executive officer of the
Company serves on the compensation committee of another company that employs the
director.
The determination as to each Committee member's independence shall be
disclosed in the Company's proxy statement. The Committee shall consist of a
minimum of three (3) and a maximum of five (5) independent directors. One member
who is not independent may be included as a Committee Member if the Board deems
their inclusion in the best interest of the Company. The business of the
Committee may be transacted if a quorum of the Committee's members is present. A
quorum shall consist of at least one-third of the Committee's membership, but no
fewer than two persons. All action taken by the Committee shall be deemed
approved on the vote of a majority of its members, however, the package of
compensation for the Chairman, CEO and President that is submitted to the Board
of Directors must be approved by the two-thirds vote of the standing members of
the Committee. Membership on the Committee shall rotate at the full Board of
Director's discretion. Generally, the Board of Directors fills vacancies on the
Committee and may remove a Committee member from the membership of the Committee
at any time with or without cause.
-- 32 --
Powers & Responsibilities
General Executive Compensation
The Committee shall have the power and responsibility to:
1. Independently review the Company's philosophy and strategy regarding
executive compensation, and counsel with the CEO, as needed, regarding
organization objectives, performance goals and the long-term interests
of the Company's shareholders;
2. Annually review market and industry data to assess the Company's
competitive position with respect to the individual elements of total
executive compensation to ensure the attraction, retention and
appropriate reward of principal officers and other key employees;
3. Annually approve the base salary amounts of, and all option grants,
cash awards and stock awards to the SEC reporting officers ("SEC
reporting officers" are those officers that file Forms 3 and 4 with
the SEC under Section 16 of the Securities Exchange Act of 1934, as
amended) of the Company;
4. Periodically review and approve the Company's stock ownership
guidelines;
5. Annually evaluate and approve the discretionary bonuses, benefits and
perquisites offered to the Company's CEO and other principal officers;
6. Administer incentive compensation or option plans and stock-related
plans (including specific provisions) in which the CEO and other
senior executives and key employees may be participants and adopt or
recommend amendments to such plans. In connection with administering
such plans, the Committee has the authority to:
a. approve option guidelines and general size of overall grants;
b. make grants;
c. interpret the plans;
d. determine rules and regulations relating to the plans;
e. modify or cancel existing grants and substitute new grants (with
the consent of grantees);
f. designate employees eligible to participate in the long-term
incentive plans; and
-- 33 --
g. impose limitations, restrictions and conditions upon any award as
the Committee deems appropriate and as permitted under the Plan;
7. Assure that any payments under the long-term incentive plans are in
conformance with any restrictions placed thereon by the Board of Directors
and shareholders;
8. Review recommendations made by the CEO for the compensation of the
Company's principal executives and other key employees;
9. Retain and engage, with its sole authority and at its sole discretion, an
independent compensation consultant or expert advisor to assist the
Committee in the performance of its responsibilities. The Committee shall
have the sole authority to approve the consultant's fees and other terms of
retention;
10. Assure that total compensation paid to the Company's SEC reporting officers
and other key employees is appropriate and consistent with the Company's
compensation philosophy;
11. Approve any SEC reporting officer's employment agreement(s), severance
agreement(s), change in control agreement(s) or provision(s) or separation
agreement(s), or any amendments to the same;
12. Approve any deferred compensation arrangement with the Company's SEC
reporting officers;
13. Review with the CEO matters relating to management succession, including,
but not limited to, compensation;
14. Periodically review the competitiveness and appropriateness of compensation
paid to executives of the Company's controlled subsidiaries;
15. Annually issue a report to the Company's Board of Directors that advises
the Board as to whether the Company's executive compensation arrangements
are appropriate, meet their stated purpose and effectively serve the
interests of the Company and identify the specific factors and criteria
that make each individual SEC reporting officer's compensation reasonable
or unreasonable;
16. Annually issue a report on executive compensation in accordance with
applicable rules and regulations of the Securities and Exchange Commission
for inclusion in the Company's proxy statement;
17. Retain independent legal, financial or other advisors it deems necessary to
fulfill its responsibilities, without obtaining approval of any officer of
the Company in advance; and
18. Delegate authority and responsibilities to subcommittees as it deems
proper.
-- 34 --
CEO Compensation
CEO compensation must be approved by the Committee comprised entirely of
independent directors or by a majority of the Company's Board of Directors.
In determining the CEO's total compensation and in fulfilling its
responsibilities hereunder, at a minimum, the Committee shall consider the
Company's performance during good and bad economic times and the relative
shareholder returns, the value of incentive awards to CEOs at comparable
companies, the value of awards given to CEOs in prior periods, the proper
balance between short term and long term incentives provided to the CEO, and the
difference in compensation at various levels of the Company's management.
Base Salary. Annually, the Committee shall have the power and
responsibility to:
1. Review market and industry data to assess the competitiveness of the
CEO's base salary; and
2. Approve in advance any salary increase or decrease for the CEO and
provide a written explanation to the Board of Directors for the
approval of any such increase or decrease.
Annual Incentives. Annually, the Committee shall have the power and
responsibility to:
1. Review and approve specific corporate goals and objectives that will
be tied to CEO compensation incentives for the following year. These
goals and objectives shall be submitted to the Board of Directors at
the end of the current fiscal year and shall be discussed with the
entire Board of Directors and the CEO;
2. Evaluate the performance of the CEO in meeting that year's goals and
objectives; and
3. Approve any annual incentive awards given to the CEO based upon this
evaluation.
Long-Term Incentive Compensation. Annually, the Committee shall have the
power and responsibility to:
1. Review and approve any long-term incentive awards granted to the CEO;
2. Consider the value of such award compared with those granted to other
CEOs in the industry and at comparable companies, as well as any other
data it deems relevant; and
3. Consider the common stock and number of stock options granted to the
CEO in prior years.
-- 35 --
Director Compensation
The Committee shall have the power and responsibility to:
1. Annually review the directors' compensation and recommend any changes
to the full Board of Directors. In considering an independent
director's compensation the Committee shall consider whether fees and
emoluments exceed what is customary. The Committee should also
consider the effect that any form of indirect compensation may have on
a director's independence (i.e. substantial charitable contributions
to an organization in which a director is affiliated); and
2. Approve annual retainer and meeting fees for the Board of Directors
and its committees and fix the terms and awards of compensation to
members of the Board.
Procedures
Meetings:
1. Any action required to be taken at a meeting of the Committee will be
deemed the action of the Committee if all of the Committee members
executed, either before or after the action is taken, a written
consent and the consent is filed with the Company's Secretary or
Clerk.
2. The Chairman will report from time to time to the Board of Directors
on Committee actions and on the fulfillment of the Committee's
responsibilities under its Charter.
3. The Committee will meet a minimum of once each year and at such other
times as may be requested by its Chairman.
-- 36 --
APPENDIX C
PHC, INC.
NOMINATING AND CORPORATE GOVERNANCE
COMMITTEE CHARTER
Purpose
The Nominating and Corporate Governance Committee (the "Committee") is
appointed by the Board of Directors (the "Board") of PHC, Inc., (the "Company")
for the purposes of (1) identifying individuals qualified to become Board
members and to recommend that the Board select these individuals as nominees for
election to the Board at the next annual meeting of the Company's stockholders,
and (2) developing and recommending to the Board a set of effective corporate
governance policies and procedures applicable to the Company.
Committee Membership and Operations
The Committee shall consist of such number of directors as may be
designated from time to time by the Board, each of whom shall meet the
independence requirements of the American Stock Exchange, Inc, in accordance
with its rules and regulations and shall also comply with and satisfy all other
applicable laws, rules, regulations and requirements. The members of the
Committee shall be appointed and replaced by the Board. The Board shall also
appoint one member of the Committee to act as Chair of the Committee. The Chair
and each other member of the Committee shall serve until the earlier of (i) the
date on which he or she is no longer a member of the Board or (ii) his or her
resignation or removal by the Board. The Board may appoint additional or
replacement members of the Committee from time to time.
The Committee shall meet in person or telephonically as often as it deems
necessary or appropriate to carry out the responsibilities and may, in its sole
discretion, form and delegate authority to subcommittees (comprised solely of
the Committee members) in furtherance of such responsibilities. Meetings of the
Committee shall be called by the Chair, the Chairman of the Board or the
President of the Company. The Committee members are expected to attend each
regularly scheduled and special meetings. The Company will report director
attendance in its public reports and proxy solicitation materials to the extent
it is required to do under the federal securities or other applicable laws and
regulations. All Committee meetings shall be held pursuant to the By-Laws of the
Company, if so stated, with regard to notice and waiver thereof, and written
minutes of each such meeting shall be duly filed with the Company's records. The
Committee is authorized and empowered to adopt its own rules of procedure not
inconsistent with (a) any provision of this Charter, (b) any provision of the
Bylaws of the Company, or (c) the laws of the state of Massachusetts.
The Board believes that the long-term success of the Company is dependent
upon the maintenance of an ethical business environment that focuses on
adherence to both the letter and the spirit of regulatory and legal mandates.
The Board and Committee agendas and materials are established with legal and
regulatory requirements in mind. The Board expects that directors and management
will acknowledge adherence to and conduct operations consistent with the
Company's corporate governance charters and documents.
-- 37 --
Nomination and Appointment
The Committee believes that it is in the best interests of the Company and
its stockholders to obtain highly-qualified candidates to serve as members of
the Board. The Committee will seek candidates for election and appointment with
excellent decision-making ability, technological background, personal integrity
and reputation, experience with businesses and other organizations of comparable
size, experience as an executive with a publicly traded company, the interplay
of the candidate's experience with the experience of other Board members, and
the extent to which the candidate would be a desirable addition to the Board and
any committees thereof. In addition, the Committee recognizes the benefit of a
Board that reflects the diversity of the Company's stockholders, employees and
customers, and the communities in which it operates, and will accordingly
actively seek qualified candidates for nomination and election to the Board in
order to reflect such diversity. The Committee may consider candidates proposed
by management or the Company's stockholders, if required to do so.
Committee Authority and Responsibilities
1. The Committee shall develop and recommend to the Board a set of
corporate governance guidelines applicable to the Company, and shall
review and reassess the adequacy of such guidelines annually and
recommend to the Board any changes deemed appropriate.
2. The Committee shall develop policies on the size and composition of
the Board.
(a) The Committee shall actively seek individuals qualified to become
board members for recommendation to the Board. The Committee
shall develop membership qualifications for the Board and all
Board committees, including defining specific criteria for
director independence and committee membership and making any
necessary independence determination for committee membership.
The assessment for Board membership should include issues of
diversity, age, business or administrative experience and skills,
in addition to such other attributes deemed appropriate by the
Committee, all in the context of an assessment of the perceived
needs of the Board at that point in time. Notwithstanding the
foregoing, it shall be the responsibility of the full Board to
make any required independence determination as to members of
this Committee. At minimum, director candidates must be
individuals, at least 18 years of age with power under law to
contract and no prior convictions of (i) financial or economic
crimes (e.g. embezzlement, breach of trust and fraud), or (ii)
crimes of moral turpitude as defined involving fraud or
dishonesty.
3. The Committee shall annually recommend a slate of nominees for
election or reelection to the Board at the Company's annual meeting of
stockholders.
4. The Committee shall receive comments from all directors and report
annually to the Board with an assessment of the Board's performance,
to be discussed with the full Board following the end of each fiscal
year.
-- 38 --
5. The Committee shall also advise the Board on (a) committee member
qualifications, (b) committee member appointments and removals, (c)
committee structure and operations and (d) committee reporting to the
Board.
6. The Committee shall review and reassess the adequacy of the corporate
governance procedures of the Company and recommend any proposed
changes to the Board for approval.
7. The Committee shall have the sole authority to retain and terminate
any search firm to be used to identify director candidates and shall
have sole authority to approve the search firm's fees and other
retention terms. The Committee shall also have authority to obtain
advice and assistance from internal or external legal, accounting or
other advisors.
8. The Committee shall maintain an orientation program for new directors
and a continuing education program for all directors.
9. The Committee may form and delegate authority to subcommittees
composed of one or more of its members when appropriate.
10. The Committee shall make reports to the Board at the next meeting of
the Board following each Committee meeting.
11. The Committee shall review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval.
The Committee shall annually review its own performance.
-- 39 --
APPENDIX D
PHC, INC.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
POLICIES & PROCEDURES FOR THE CONSIDERATION OF BOARD OF DIRECTOR CANDIDATES
I. Policy Regarding Director Candidates Recommended by Stockholders.
PHC, Inc. (the "Company") will consider all director candidates recommended
to the Nominating and Corporate Governance Committee (the "Committee") by
stockholders at all times during the year preceding the date on which the
recommendation is made that meet the qualifications established by the
Board as required by the Company's by laws.
II. Director Minimum Qualifications.
Set forth below are the minimum qualifications that the Nominating Committee
believes are needed to effectively serve as a Company director.
A. Each director nominee is evaluated in the context of the full Board's
qualifications as a whole, with the objective of establishing a Board that
can best perpetuate the success of the Company's business and represent
stockholder interests through the exercise of sound judgment. Each director
nominee will be evaluated considering the relevance to the Company of the
director nominee's respective skills and experience, which must be
complimentary to the skills and experience of the other members of the
Board.
B. Director nominees must possess a general understanding of marketing,
finance and other elements relevant to the success of a publicly-traded
company in today's business environment, and an understanding of the
Company's business on an operational level.
C. Each director may be assigned committee responsibilities. A director
nominee's educational and professional backgrounds must be consistent with
the director nominee's committee assignment (e.g., director nominees who
will be assigned to the audit committee must be financially literate as may
be defined within the Company's Audit Committee Charter).
D. Director nominees must demonstrate a willingness to devote the appropriate
time to fulfilling Board duties.
E. Director nominees shall not represent a special interest or special
interest group whose agenda is inconsistent with the Company's goals and
objectives or whose approach and methods are inconsistent with what the
Board believes is in the best interest of the Company's stockholders.
F. Director nominees shall not be a distraction to the Board, nor shall a
director nominee be disruptive to the achievement of the Company's business
mission, goals and objectives.
III. Procedures for Consideration of Security Holder Nominations.
Set forth below are the procedures by which a stockholder may recommend a Board
of Directors nominee to the Committee.
A. Stockholder nominations must include ALL of the information described in
paragraphs C. though G. below and must be received in its entirety by the
120th calendar day before the date of the Company's proxy statement
released to stockholders in connection with the previous year's annual
meeting to be considered for the next scheduled annual meeting of
stockholders.
B. Stockholder nominations must be in writing and submitted via registered
mail or overnight delivery service to the Committee Chairman at the
Company's corporate headquarters' address.
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C. Supporting documentation must be submitted that allows the Committee to
verify ownership by the nominating stockholder of the Company's outstanding
shares at all times during the immediately preceding year from the date of
the recommendation as required by the Company's by laws.
D. The stockholder must submit an affidavit from the director nominee stating
that if elected, the director nominee is willing and able to serve on the
Company's Board for the full term to which the director nominee would be
elected. The affidavit must also acknowledge that the director nominee is
aware of, has read and understands the Company's Code of Ethics, which can
be found on the Company's web site at phc-inc.com, and Board of Director
Committee Charters (collectively the "Corporate Governance Documents"), and
further that the director nominee acknowledges that, if elected, the
director nominee is subject to and will abide by the Corporate Governance
Documents.
E. The stockholder must submit documentation as to the director nominee's
qualifications, which at a minimum must include:
1. A complete biography, including full employment history;
2. A signed consent form and waiver authorizing the Company to perform
full background checks of the director nominee, including criminal and
credit history, from a firm acceptable to the Company in its sole
discretion;
3. Documentation of educational levels attained, complete with official
transcripts issued directly by the educational institution and sent
directly from the educational institution to the Company's Corporate
Secretary or Clerk;
4. Disclosure of all special interests and all political and
organizational affiliations;
5. A signed, written statement from the director nominee the reasons that
the director nominee wants to serve on the Company's Board, the
reasons that the director nominee believes that he or she is qualified
to serve, and
6. A description of all litigation to which he or any of his affiliates
have been a party within the past seven years.
F. The stockholder must submit any additional information required to be
included in the Company's proxy statement for director nominees which
determination will be made by the Company in its sole and absolute
discretion (including, without limitation, information regarding business
experience, involvement in legal proceedings, security ownership and
transactions with the Company or management).
G. The information submitted by the stockholder must include complete contact
information for the submitting stockholder and the director nominee.
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