UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule 14a-6
(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
PHC, Inc.
(Name of Registrant as specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)1) and 0-11
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-ll (set forth the amount on which the
filing fee is calculated and site how it was determined):
4. Proposed maximum aggregate value of transaction 5. Total fee paid
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date filed:
1
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Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
PHC, Inc., which will be held on Wednesday, December 19, 2007, at 1:00 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
describe the items to be considered by the stockholders and contain 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
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PHC, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 19, 2007
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 Wednesday, December 19, 2007, at 1:00 PM, for the following
purposes:
1. To elect five directors (two to be elected by the holders of the Company's
Class A Common Stock and three to be elected by the holders of the
Company's Class B Common Stock) to hold office until the annual meeting
next following their election and until their successors are duly elected
and qualified;
2. To consider and vote upon a proposed amendment to increase the number of
shares of Class A Common Stock available for issuance under the 2003 Stock
Purchase and Option Plan from 1,300,000 shares to 1,900,000 shares;
3. To ratify the selection by the Board of Directors of Eisner LLP as the
Company's independent registered public accounting firm for the fiscal year
ended June 30, 2008; 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 10, 2007
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, Clerk
Peabody, Massachusetts
October 26, 2007
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.
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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 19,
2007 at 1:00 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, Clerk of the Company,
or by voting in person at the Annual Meeting.
The Company's Annual Report on Form 10-K, as amended, for the year ended
June 30, 2007 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 5, 2007.
The Board of Directors has fixed October 10, 2007 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
19,349,820 shares of Class A Common Stock and 775,760 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.
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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.
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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 common stock of the Company currently outstanding) as of October
10, 2007 by each person known by the Company to beneficially own more than 5% of
any class of the Company's voting securities, each director of the Company, each
of the named executive officers as defined in 17 CFR 228.402(a)(2) and all
directors and officers of the Company as a group. Shares of common stock subject
to stock options vesting on or before December 10, 2007 are deemed to be
outstanding and beneficially owned for purposes of computing the percentage
ownership of such person but are not treated as outstanding for purposes of
computing the percentage ownership of others. 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:
Beneficial Owners 5% (Non affiliate)
Amount and
Nature of
Name and Address Beneficial Percent of
of Beneficial Owner Owner (11) Class
____________________ _______________ __________
Title of Class
Class A Common Stock Marathon Capital Mgmt, LLC 1,498,865 7.8%
P. O. Box 771
Hunt Valley, MD 21030
Camden Partners Capital 1,657,177 8.6%
Management LLC
500 East Pratt Street,
Suite 1200
Baltimore, MD 21202
Boston Partners Asset 1,508,370 7.8%
Management, LLC
28 State Street, 20th Floor
Boston, MA 02109
Beneficial Ownership of Named Executives and Directors
Amount and
Nature of
Name and Address Beneficial Percent of
of Beneficial Owner Owner (11) Class
____________________ _______________ __________
Title of Class
Class A Common Stock Bruce A. Shear 717,495(1) 3.7%
Robert H. Boswell 245,359(2) 1.3%
Paula C. Wurts 191,793(3) 1.0%
Howard W. Phillips 188,750(4) 1.0%
Donald E. Robar 135,232(5) *
William F. Grieco 150,750(6) *
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Amount and
Nature of
Name and Address Beneficial Percent of
of Beneficial Owner Owner (11) Class
____________________ _______________ __________
David E. Dangerfield 25,000(7) *
All Directors and Officers
as a Group (7 persons) 1,684,317(8) 8.5%
Class B Common Stock
(9) Bruce A. Shear 721,259(10) 93.0%
All Directors and Officers
as a Group (7 persons) 721,259 93.0%
* Less than 1%
1. Includes 142,500 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of $.69
to $2.68 per share.
2. Includes 48,125 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options at an exercise price range of $1.41 to
$2.73 per share.
3. Includes 47,500 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of
$1.41 to $2.73 per share.
4. Includes 55,000 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options having an exercise price range of $.74
to $3.18 per share.
5. Includes 90,500 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options having an exercise price range of $.22
to $3.18 per share.
6. Includes 90,500 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of $.22
to $3.18 per share.
7. Includes 25,000 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price range of $
1.48 to $3.18 per share.
8. Includes an aggregate of 499,125 shares of Class A Common Stock issuable
pursuant to currently exercisable stock options. Of those options, 20,000
have an exercise price of $3.18, 30,000 have an exercise price of $2.73 per
share, 67,500 have an exercise price of $2.68 per share, 15,000 have an
exercise price of $2.38 per share, 15,000 have an exercise price of $2.20,
40,000 have an exercise price of $2.11 per share, 19,000 have an exercise
price of $2.06 per share, 625 have an exercise price of $1.95 per share,
40,000 have an exercise price of $1.48 per share, 50,000 have an exercise
price of $1.41 per share, 15,000 have an exercise price of $1.37 per share,
30,000 have an exercise price of $1.33 per share, 15,000 have an exercise
price of $1.21, 4,000 have an exercise price of $1.03 per share, 4,000 have
an exercise price of $.81 per share, 30,000 have an exercise price of $.75
per share, 30,000 have an exercise price of $.74 per share, 15,000 have an
exercise price of $.69 per share, 35,000 have an exercise price of $.55 per
share, 20,000 have an exercise price of $.35 per share and 4,000 have an
exercise price of $.22 per share.
9. 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.
10. Includes 56,369 shares of Class B Common Stock pledged to Steven J. Shear
of 2 Addison Avenue, Lynn, Massachusetts 01902, Bruce A. Shear's brother,
to secure the purchase price obligation of Bruce A. Shear in connection
with his purchase of his brother's stock in the Company in December 1988.
In the absence of any default under this obligation, Bruce A. Shear retains
full voting power with respect to these shares.
11. "Amount and Nature of Beneficial Ownership". Each share of Class A Common
Stock is entitled to one vote per share and each share of Class B Common
Stock is entitled to five votes per share on all matters on which
stockholders may vote (except that the holders of the Class A Common Stock
are entitled to elect two members of the Company's Board of Directors and
holders of the Class B Common Stock are entitled to elect all the remaining
members of the Company's Board of Directors).
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By virtue of the fact that Mr. Shear owns 93% of the class B shares and the
class B shareholders have the right to elect all of the directors except the two
directors elected by the class A shareholders, 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,
including vesting options, as of December 10, 2007:
Bruce A. Shear ........................................18.50%
All Directors and Officers as a Group
(7 persons).........................................22.30%
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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 52 Director, President and Chief Executive
Officer
Donald E. Robar (1)(2) (3) 70 Director
Howard W. Phillips 77 Director
William F. Grieco (1)(2) (3) 53 Director
David E. Dangerfield (1) (3) 66 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.
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HOWARD W. PHILLIPS has served as a Director of the Company since August
1996 and has been employed by the Company as a public relations specialist since
August 1995. From 1982 until 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
1997. Mr. Grieco is the Vice President and General Counsel of American Science
and Engineering, Inc., an X-Ray inspection technology company. Prior to that,
from 1999 to 2005, he was Managing Director of Arcadia Strategies, LLC, a legal
and business consulting organization servicing science and technology companies.
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 & Stewart, a general service law firm. Mr. Grieco received a B.S. from
Boston College in 1975, an M.S. in Health Policy and Management from Harvard
University in 1978 and a J.D. from Boston College Law School in 1981.
DAVID E. DANGERFIELD has served as a Director of the Company since December
2001. Mr Dangerfield formerly 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
trade organization in Utah. 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 59 Senior Vice President
Paula C. Wurts 58 Chief Financial Officer, Treasurer and 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 Chief Financial Officer and Controller of
the Company since 1989, as Assistant Clerk from January 1996 until February
2006, when she became Clerk, 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.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 2007, the Board of Directors held a total of four meetings
and took action by written consent seven times. Each director attended all of
the meetings of the Board and committees of the Board on which such director
served. The Board has a standing audit committee (the "Audit Committee"),
compensation committee and a nominating and corporate governance committee.
Communications with the Board of Directors
Stockholders may communicate with the Board of Directors by writing to the
Board in care of the Company's 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 Clerk. In
accordance with the Board's instructions, the Clerk will forward the
communication to the director or directors to whom it is addressed, except for
communications that are (1) advertisements or promotional communications, (2)
solely related to complaints with respect to ordinary course of business
customer service and satisfaction issues or (3) clearly unrelated to the
Company's business, industry, management or Board or committee matters. In
addition, the 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 the oversight of the financial reports, internal controls, accounting
policies and procedures. 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
registered public accounting firm and a designated accounting staff
member.
o Review with management and the independent 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.
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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 2007 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 and as required under AMEX listing standard
Section 121. Dr. Dangerfield serves as the chairman and is the audit committee
financial expert. The Company reviewed Dr. Dangerfield's extensive experience
managing the budget and operations for large Behavioral Healthcare organizations
and determined that this industry experience qualifies him to act as the
financial expert in accordance with SEC requirements. The Audit Committee met
four times during fiscal 2007. All of the committee members attended the
meetings.
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. The
Compensation Committee is a chartered committee made up of independent members
of the Board of Directors. During fiscal 2007 the Compensation Committee
consisted of Mr. Donald Robar and Mr. William Grieco. The Compensation Committee
met three times during fiscal 2007, twice telephonically and once in person. Mr.
Shear does not participate in discussions concerning, or vote to approve, his
salary.
On an annual basis, the Compensation Committee undertakes a review of the
base salary and bonus targets of each of our named executive officers and
evaluates their respective compensation based on the committee's overall
evaluation of their performance toward the achievement of our financial,
strategic and other goals, with consideration given to each executive officer's
length of service and to comparative executive compensation data. Based on its
review, the Compensation Committee makes recommendations to the Board of
Directors, which from time to time has resulted in increases in the salary
and/or potential bonus amounts for our executive officers.
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 consists of Dr. David Dangerfield, Mr. Donald Robar and Mr.
William Grieco.
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
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. In addition, the director nominees
12
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.
Procedures for Consideration of Stockholder Nominations.
Specifically, the Company did not receive any nominations for directors
from shareholders for consideration at the 2007 Annual Meeting. However, any
recommendations received from shareholders will be evaluated in the same manner
that potential nominees recommended by 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 by way of certified mail or overnight delivery 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 2008 Annual
Meeting of Shareholders must be received no later than July 23, 2008. The notice
must 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 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 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.
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.
Charters for all committees of the Board of Directors were included as
Appendix to the Company's 2005 proxy statement filed with the Securities and
Exchange Commission on November 18, 2005 and are available for review on the
Company website at www.phc-inc.com.
13
Audit Committee Report
The Audit Committee has reviewed and discussed the Company's audited
financial statements for the fiscal year ended June 30, 2007 with the Company's
independent registered public accounting firm, Eisner LLP and management. The
Audit Committee approved the financial statements for inclusion in the Company's
annual report. The Audit Committee has discussed with Eisner 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 Eisner LLP,
required by the Securities Acts administered by the Securities and Exchange
Commission, including rules of the Public Company Accounting Oversight Board and
has discussed with Eisner LLP its independence. The discussions that the Audit
Committee had with Eisner 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 2007.
AUDIT COMMITTEE
David E. Dangerfield
Donald E. Robar
William F. Grieco
14
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation Discussion and Analysis
The Board of Directors, the Compensation Committee and senior management
share responsibility for establishing, implementing and continually monitoring
our executive compensation program, with the Board making the final
determination with respect to executive compensation. The goal of our executive
compensation program is to provide a competitive total compensation package to
our executive management team through a combination of base salary, quarterly
cash incentive bonuses, long-term equity incentive compensation in the form of
stock options and benefits programs. This Compensation Discussion and Analysis
explains our compensation objectives, policies and practices with respect to our
Chief Executive Officer, Chief Financial Officer and one of our other most
highly-compensated executive officers as determined in accordance with
applicable SEC rules, which are collectively referred to in this report as the
Named Executive Officers.
Objectives of our Executive Compensation Program
Our executive compensation program is designed to achieve the following
objectives:
o to attract and retain talented and experienced executives necessary to
achieve our strategic objectives in the highly competitive industry in
which we compete;
o to motivate and reward executives whose knowledge, skills and
performance are critical to our success;
o to align the interest of our executives and stockholders by motivating
executives to increase stockholder value by increasing our Company's
long-term profitability;
o to provide a competitive compensation package in which a significant
portion of total compensation is determined by Company and individual
results and the creation of stockholder value; and,
o to foster a shared commitment among executives by coordinating their
Company and individual goals.
Role of the Compensation Committee
Our Compensation Committee oversees all aspects of executive compensation.
The committee plays a critical role in establishing our compensation philosophy
and in setting and amending elements of the compensation package offered to our
named executive officers.
The members of our Compensation Committee during fiscal 2007 were Donald
Robar and William Grieco. Each current member of our Compensation Committee is
an independent, non-employee director. During fiscal 2007, the Compensation
Committee met three times; twice telephoncially and once in person.
On an annual basis, or in the case of promotion or hiring of an executive
officer, the Compensation Committee reviews and makes recommendations to the
Board of Directors regarding the compensation package to be provided to our
named executive officers. On an annual basis, the Compensation Committee
undertakes a review of the base salary and bonus targets of each of our named
executive officers and evaluates their respective compensation based on the
committee's overall evaluation of their performance toward the achievement of
our financial, strategic and other goals, with consideration given to each
executive officer's length of service and to comparative executive compensation
data. Based on its review, from time to time the Compensation Committee has
increased the salary and/or potential bonus amounts for our executive officers.
COMPENSATION COMMITTEE REPORT
The compensation committee report below is not "soliciting material," is
not deemed "filed" with the Securities and Exchange Commission and is not
incorporated by reference in any of our filings under the Securities Act of 1933
as amended, or the Securities Exchange Act of 1934, as amended, whether made
before or after this filing and irrespective of any general language to the
contrary.
15
The Compensation Committee comprised solely of independent directors,
reviewed and discussed the above Compensation Discussion and Analysis with
management. Based on this review and discussions, the committee recommended to
the Board of Directors, and the Board has approved, the inclusion of the
Compensation Discussion and Analysis in the Company's proxy statement on
Schedule 14A.
Compensation Committee
_______________________
Donald E. Robar
William F. Grieco
Elements of Executive Compensation
Compensation for our named executive officers generally consists of the
following elements:
o base salary;
o cash bonuses;
o stock-based awards;
o health, dental and life insurance and disability and retirement plans;
and
o severance and change-in-control arrangements.
The Company does not have a policy or target for allocating compensation
between long-term and short-term compensation. Instead the Compensation
Committee determines subjectively what it believes to be the appropriate level
and mix of various compensation components. The Compensation Committee's
objective in allocating between annual and long-term compensation is to ensure
adequate base compensation to attract and retain personnel, while providing
incentives to maximize long-term value for our Company and its stockholders.
Base Salary
Salary for our executives is generally set by reviewing compensation levels
for comparable positions in the market and the historical compensation levels of
our executives. Salaries may then be adjusted from time to time, based upon
market changes, actual corporate and individual performance and changes in
responsibilities.
Bonuses
Bonuses are based on actual corporate and individual performances compared
to targeted performance criteria and various subjective performance criteria.
Targeted financial performance for the Company is set annually by the
compensation committee for each fiscal quarter. In considering bonuses the
Compensation Committee does not rely on a formula that assigns a pre-determined
value to each of the criteria, but instead evaluates each executive officer's
contribution in light of all relevant criteria. Individual performance targets
are used less frequently but may include completion of specific projects. There
were no individual performance targets specified in the prior or current fiscal
years meetings of the compensation committee.
Stock Based Awards
Compensation for executive officers also includes the long-term incentives
afforded by stock options and other equity-based awards. Our stock option
program is designed to align the long-term interests of our employees and our
stockholders and assist in the retention of executives. The size of stock-based
awards is generally intended to reflect the executive's position and the
executive's expected contributions. Although some awards may be provided as part
of the hiring agreement of new executives, in general these stock-based awards
follow the same benchmarks as the executive bonus element of the named
executive's compensation. Options are generally granted with installment-vesting
over a period of three years.
16
Because of the direct relationship between the value of an option and the
market price of our common stock, the compensation committee believes that stock
options are an effective method of motivating the named executive officers to
manage our Company in a manner that is consistent with the interests of our
Company and our Stockholders.
In addition the named executives are also eligible to participate in the
Company's Employee Stock purchase plan as long as all other criteria of the plan
are met.
Insurance and Other Employee Benefits
We maintain insurance benefits for all employees that include health,
dental and life insurance. The company bears one hundred percent of the cost of
these benefits for the named executives. In addition the company provides a
company vehicle or an auto allowance, additional supplemental life insurance and
other supplemental taxable fringe benefits for the named executive officers. In
addition, the company provides a disability pool for the named executives based
on the number of years of service. The number of days of pay under the
disability plan increases incrementally until it reaches a maximum accrual of
730 days. This disability pool has no cash value and is not payable upon
termination of employment. The Company also provides an Executive Retirement
plan, which allows for the use of the accrued disability plan bank to be
distributed as an annuity over a four year period at the named executive's
retirement providing the minimum term of employment of twenty years of service
has been met. For the fiscal year ended June 30, 2007, no accrual has been made
for this retirement plan as each of the named executives have waived their right
to the retirement plan based on the Company's financial position at the time
that the plan was approved.
Severance and Change-in-Control Arrangement
The Company has not entered into any severance agreements with any of the
named executive officers; however, compensation for the named executive officers
does include change-in-control arrangements. These arrangements, like other
elements of executive compensation, are structured with regard to practices at
comparable companies for similarly situated officers and in a manner we believe
is likely to attract and retain high quality executive talent. The plan calls
for the named executive officers, in the event of a change in control, to
receive payment of their average annual salary for the past five years times a
multiplier based on their number of years of service in the position at the
effective date as shown below.
Name and position Multiplier
__________________ __________
Bruce A. Shear, Chief Executive Officer 2.99
Robert H. Boswell, Senior Vice President 2.00
Paula C. Wurts, Chief Financial Officer 2.00
Changes in Executive Compensation for Fiscal 2007
In September 2006, the Compensation Committee met to discuss the
compensation of the named executive officers. The meeting resulted in a proposal
to the Board of Directors to increase the base salary of the named executive
officers and change the net earnings targets for the named executive officers to
earn cash and stock based compensation for each quarter of fiscal 2007. The
Board of Directors accepted the proposals of the Committee and salary increase
were affected and bonus and stock-based compensation targets were set. The named
executive officers met the bonus and stock-based compensation targets in the
fourth fiscal quarter of 2007.
Accounting for Executive Compensation
We account for equity based compensation paid to our employees under the
rules of Statement of Financial Accounting Standards No. 123R (SFAS 123R), which
17
requires us to measure and record an expense over the service period of the
award. Accounting rules also require us to record cash compensation as an
expense at the time the obligation is incurred.
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.
Three executive officers of the Company received compensation in the 2007
fiscal year, which exceeded $100,000. The following table sets forth the
compensation paid or accrued by the Company for services rendered to these
executives in fiscal year 2007, 2006 and 2005:
Summary Compensation Table
Name and
Principal Option All Other
Position Year Salary Bonus Awards Compensation Total
($) ($) ($) ($) ($)
(a) (b) (c) (d) (f) (i) (j)
Bruce A. Shear 2007 $420,957 $40,000 $ 38,013 $21,833 (1) $520,803
President and Chief 2006 $393,515 $70,000 $124,800 $27,458 (2) $615,773
Executive Officer 2005 $383,965 $45,000 $ 37,050 $62,498 (3) $528,513
Robert H. Boswell 2007 $196,538 $20,000 $ 11,778 $14,901 (4) $243,217
Senior Vice President 2006 $176,878 $40,000 $ 33,488 $14,701 (5) $265,067
2005 $164,590 $10,000 $ 15,750 $29,016 (6) $219,356
Paula C. Wurts 2007 $170,231 $20,000 $ 11,481 $76,563 (7) $278,275
Chief Financial Officer, 2006 $152,878 $35,000 $ 32,300 $15,029 (8) $235,207
Treasurer and Clerk 2005 $140,586 $10,000 $ 15,750 $35,009 (9) $201,345
* The named executive officers did not forfeit any stock options during any
of the fiscal years presented. For information regarding the assumptions used to
value these stock options, see "Note A THE COMPANY AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES - Stock-based compensation" in the financial statements
included in this report.
(1) This amount represents $9,019 contributed by the Company to the Company's
Executive Employee Benefit Plan on behalf of Mr. Shear, $9,152 in premiums
paid by the Company with respect to life and disability insurance for the
benefit of Mr. Shear and $3,662 personal use of a Company car held by Mr.
Shear.
(2) This amount represents $8,910 contributed by the Company to the Company's
Executive Employee Benefit Plan on behalf of Mr. Shear, $13,648 in premiums
paid by the Company with respect to life and disability insurance for the
benefit of Mr. Shear, $864 in club membership dues paid by the Company for
the benefit of Mr. Shear, and $4,036 personal use of a Company car held by
Mr. Shear.
(3) 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
18
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.
(4) This amount represents a $6,000 automobile allowance, $8,001 contributed by
the Company to the Company's Executive Employee Benefit Plan on behalf of
Mr. Boswell and $900 in benefit derived from the purchase of shares through
the employee stock purchase plan
(5) This amount represents a $6,000 automobile allowance, $8,172 contributed by
the Company to the Company's Executive Employee Benefit Plan on behalf of
Mr. Boswell and $529 in benefit derived from the purchase of shares through
the employee stock purchase plan.
(6) 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.
(7) This amount represents a $4,800 automobile allowance, $9,505 contributed by
the Company to the Company's Executive Employee Benefit Plan on behalf of
Ms. Wurts, $218 in benefit derived from the purchase of shares through the
employee stock purchase plan and $62,040 realized on the exercise of
options.
(8) This amount represents a $4,800 automobile allowance, $10,053 contributed
by the Company to the Company's Executive Employee Benefit Plan on behalf
of Ms. Wurts and $176 in benefit derived from the purchase of shares
through the employee stock purchase plan.
(9) 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.
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 $10,000 stipend per year and $2,500 for each Board meeting they attend.
The Audit Committee Chairperson receives an annual stipend of $5,000, members of
the audit committee receive an annual stipend of $3,000 and compensation
committee and nominating/governance committee receive an annual stipend of
$2,000. In addition, Directors of the Company are entitled to receive certain
stock option grants under the Company's Non-Employee Director Stock Option Plan
(the "Director Plan"). The following table presents Director compensation for
the fiscal year ended June 30, 2007.
DIRECTOR COMPENSATION
Fees Earned
or Paid Option All Other
Name in Cash Awards Compensation Total
____ _______ ______ ____________ _____
($) ($) ($) ($)
(a) (b) (d) (g) (h)
Donald Robar $27,000 $22,525 $ -- $49,525
William Grieco $27,000 $22,525 $ -- $49,525
David Dangerfield $27,000 $22,525 $ -- $49,525
Howard W. Phillips* $ -- $16,550 $42,470 $50,020
o Mr. Phillips is an employee of the Company, serving as a Public Relations
Specialist. Other than his salary as an employee he receives no additional
compensation as a director.
19
As of June 30, 2007 each member of the Board of Directors had the following
options outstanding: Donald Robar, 117,500 (87,500 vested); William Grieco,
117,500 (87,500 vested); David Dangerfield, 50,000 (20,000 vested); and, Howard
Phillips, 117,500 (87,500 vested).
Compensation Committee Interlocks and Insider Participation
During fiscal 2007 the Compensation Committee consisted of Mr. Donald Robar
and Mr. William Grieco, neither of which was an officer or employee of the
Company during the 2007 fiscal year. Mr. Robar served as the Company's Treasurer
from February 1996 until April 2000. During the 2007 fiscal year, none of our
executive officers served on our Compensation Committee (or equivalent), or
board of directors, of another entity whose executive officer(s) served on our
Compensation Committee or Board of Directors.
OPTION PLANS
Stock Plan
The Board of Directors adopted the Company's first stock option plan on
August 26, 1993. This stock option plan has expired, however, options to
purchase 195,000 shares remain outstanding under the plan. On September 22, 2003
the Board of Directors adopted the Company's current stock option plan and the
stockholders of the Company approved the plan on December 31, 2003. The Stock
Plan provides for the issuance of a maximum of 1,300,000 shares of the Class A
Common Stock of the Company pursuant to the grant of incentive stock options to
employees and the grant of nonqualified stock options or restricted stock to
employees, directors, consultants and others whose efforts are important to the
success of the Company.
The Board of Directors administers the Stock Plan. Subject to the
provisions of the Stock Plan, the Board of Directors has the authority to select
the optionees or restricted stock recipients and determine the terms of the
options or restricted stock granted, including: (i) the number of shares, (ii)
option exercise terms, (iii) the exercise or purchase price (which in the case
of an incentive stock option cannot be less than the market price of the Class A
Common Stock as of the date of grant), (iv) type and duration of transfer or
other restrictions and (v) the time and form of payment for restricted stock
upon exercise of options. Generally, an option is not transferable by the option
holder except by will or by the laws of descent and distribution. Also,
generally, no option may be exercised more than 60 days following termination of
employment. However, in the event that termination is due to death or
disability, the option is exercisable for a period of one year following such
termination.
During the fiscal year ended June 30, 2007, the Company issued additional
options to purchase 177,500 shares of Class A Common Stock under the 2003 Stock
Plan at a price per share ranging from $2.06 to $3.35. Generally, options are
exercisable upon grant for 25% of the shares covered with an additional 25%
becoming exercisable on each of the first three anniversaries of the date of
grant.
Employee Stock Purchase Plan
On October 18, 1995, the Board of Directors voted to provide employees who
work in excess of 20 hours per week and more than five months per year rights to
elect to participate in an Employee Stock Purchase Plan (the "Plan"), which
became effective February 1, 1996. The price per share was to 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. The plan was amended on December 19, 2001
and December 19, 2002 to allow for a total of 500,000 shares of Class A Common
Stock to be issued under the plan. On January 31, 2006 the stockholders approved
a replacement Employee Stock Purchase Plan to replace the 1995 plan, which
expired on October 18, 2005. The new plan is identical to the old plan and
expires on January 31, 2016.
A total of 157,034 shares of Class A Common Stock were issued under the
1995 plan before it's expiration and 10,855 shares have been issued under the
2005 plan. Thirteen employees are participating in the current offering period
under the new plan, which began on February 1, 2007 and will end on January 31,
2008.
20
Non-Employee Director Stock Plan
The non-employee directors' stock option plan provides for the grant of
nonstatutory stock options automatically at the time of each annual meeting of
the Board. Through June 30, 2007, options for 145,500 shares were granted under
the 1995 plan. This plan expired in August 2005 and, in January 2005, the
shareholders voted to approve a new non-employee directors' stock plan. The new
plan is identical to the plan it replaced. Under the new plan a maximum of
350,000 shares may be issued. On January 31, 2006, this plan was amended to
increase the number of options issued to each outside director each year from
10,000 options to 20,000 options. Each outside director is granted an option to
purchase 20,000 shares of Class A Common Stock annually 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. The new
plan will expire in January 2015, ten years from the date of shareholder
approval. As of June 30, 2007, 160,000 options have been issued under the plan.
If an optionee ceases to be a member of the Board of Directors other than
for 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.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS as of JUNE
30, 2007
(a) (b) (c)
Number
of securities
remaining
available
for future
Number of issuance
securities under equity
to be issued compensation
upon exercise Weighted-average plans
of outstanding exercise price of (excluding
options, outstanding securities
warrants and options, warrants reflected
PLAN rights and rights in column (a))
____ ______________ __________________ _____________
1993 Option plan 195,000 $0.70 --
2003 Option plan 675,000 $2.03 555,313
2006 Employee stock
Purchase plan -- $0.00 489,145
1995 Director plan 76,000 $0.85 --
2005 Director plan 150,000 $2.41 190,000
_________ _____ ________
Total Shares and Options
authorized 1,096,000 $1.76 1,234,458
========= ===== =========
All equity compensation plans were approved by the security holders.
21
Options Exercised
During the fiscal year ended June 30, 2007, a total of 241,687 options were
exercised under the plans, of which 41,000 options were exercised at prices
ranging from $0.22 to $0.45, 152,000 options were exercised at prices ranging
from $0.55 to $0.81, 42,000 options were exercised at prices ranging from $1.03
to $1.48 and 6,687 options were exercised at prices ranging from $2.01 to 2.53.
The following table provides information about options granted to the named
executive officers during fiscal 2007 under the Company's Stock Plan, Employee
Stock Purchase Plan and Non-Employee Director Stock Plan.
GRANTS OF PLAN-BASED AWARDS
___________________________
All Other Option
Awards Number Exercise or Grant Date
of Securities Base Price Fair Value
Underlying of Options of Stock
Options Awards and Option
Name Grant Date (#) ($/Share)* Awards
(a) (b) (j) (k) (l)
Bruce A. Shear 10/31/2006 15,000 $2.06 $16,350
Robert H. Boswell 10/31/2006 7,500 $2.06 $ 8,175
Paula C. Wurts 10/31/2006 7,500 $2.06 $ 8,175
These options were issued under the Executive bonus plan based on the
Company's performance in fiscal 2006. The Company utilized the Black-Scholes
valuation model for estimating the Grant Date Value with no adjustments for
non-transferability or risk of forfeiture. The assumptions used are as follows:
Risk free interest rate 4.60%
Expected dividend yield 0.0%
Expected lives 5
Expected volatility 48.0%
22
The following table provides information about options outstanding, held by
the named executive officers at the end of fiscal 2007.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Number of Number of
Securities Securities
Underlying Underlying
Unexercised Unexercised Option
Options Options Exercise Option
(#) (#) Price Expiration
Name Exercisable Unexercisable ($) Date
____ ____________ ______________ ________ ___________
(a) (b) (c) (e) (f)
Bruce A. Shear 40,000 -- $0.75 09/30/2007
15,000 -- $0.69 01/06/2008
15,000 -- $1.37 11/04/2009
15,000 -- $1.21 11/04/2009
15,000 -- $2.38 06/16/2010
7,500 7,500 $2.68 09/20/2010
37,500 37,500 $2.68 09/20/2010
11,250 3,750 $2.20 05/22/2011
3,750 11,250 $2.06 10/31/2011
Robert H. Boswell 25,000 -- $0.75 09/30/2007
25,000 -- $1.41 12/21/2009
10,000 10,000 $2.73 09/22/2010
625 625 $1.95 02/16/2011
5,625 1,875 $2.20 05/22/2011
1,875 5,625 $2.06 10/31/2011
Paula C. Wurts 25,000 -- $0.75 09/30/2007
25,000 -- $1.41 12/21/2009
10,000 10,000 $2.73 09/22/2010
5,625 1,875 $2.20 05/22/2011
1,875 5,625 $2.06 10/31/2011
On June 30, 2005, the Company accelerated the vesting on the 326,250 of
outstanding unvested options held by employees. This resulted in a non-cash
charge to compensation of $9,875 and $27,025 in the fiscal years ended June 30,
2006 and 2005, respectively. No charge was made for these repriced options in
the fiscal year ended June 30, 2007.
OPTIONS EXERCISED AND STOCK VESTED
The following table provides information about options exercised, held by
the named executive officers during the fiscal year ended June 30, 2007.
23
Option Awards
Number of Value
Shares Realized
Acquired on On
Exercise Exercise
Name (#) ($)
(a) (b) (c)
Bruce A. Shear 20,000 $ 51,000
Robert H. Boswell 25,000 59,625
Paula C. Wurts 25,000 69,250
24
AMENDMENT TO THE 2003 STOCK PURCHASE AND OPTION PLAN
On October 16, 2007, the Board of Directors of the Company adopted an
amendment to the 2003 Stock Purchase and Option Plan (the "Stock Plan") to
increase the maximum number of shares of Common Stock available for issuance
under the plan from 1,300,000 to 1,900,000 shares. The purpose of the increase
is to permit the continuing grant of stock options to employees, officers,
directors and consultants, which the Board of Directors believes is necessary to
continue to attract and retain such persons, particularly in view of the fact
that the Company's business is dependent upon its human resources. The executive
officers and directors of the Company are eligible to receive options and
restricted stock under the Stock Plan and will therefore benefit from such
approval. The Company plans to register the additional shares to be issued under
the stock plan on Form S-8 to be filed by the Company under the Securities Act
of 1933.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE AMENDMENT TO THE 2003 STOCK PURCHASE AND OPTION PLAN
Description of the Company's 2003 Stock Plan
General. The Company's Stock Plan, originally adopted by the Board of
Directors in 2003 and approved by stockholders in 2003, currently authorizes the
grant of options to purchase a maximum of 1,300,000 shares of Class A Common
Stock, subject to adjustment for stock splits and similar capital changes.
The Board of Directors administers the Stock Plan. Under the Stock Plan,
the Board of Directors has the authority to select the recipients of options or
restricted stock and determine the terms of the options or restricted stock
granted, including: (i) the number of shares; (ii) option exercise terms; (iii)
the exercise or purchase price (which in the case of an incentive stock option
cannot be less than the fair market value of the Class A Common Stock on the
date of grant); (iv) the type and duration of transfer or other restrictions;
and (v) the time and form of payment for restricted stock and upon exercise of
options. There are no restrictions on the eligibility of recipients of options
under this plan. Generally, an option is not transferable by the option holder
except by will or by the laws of descent and distribution. Also, generally, no
incentive stock option may be exercised more than 60 days following termination
of employment. In the event that termination is due to death or disability,
however, the option is exercisable for a period of one year following such
termination. Options granted to date generally become exercisable in four equal
installments over a three-year period, at the time of grant and on the first,
second and third anniversaries of the grant date and expire on the fifth
anniversary of the grant date
Employee Stock Purchase and 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
Stock Plan. The following summary is not intended to be exhaustive, does not
address certain special federal tax provisions, and does not address state,
municipal or foreign tax laws.
Tax Treatment of Non-Qualified Stock Options. Under Section 83 of the
Internal Revenue Code, optionees realize no taxable income when a non-qualified
stock option ("NSO") is granted. Instead, the difference between the fair market
value of the stock and the option price paid is taxed as ordinary compensation
income, on or after the date on which the option is exercised. The difference is
measured and taxed as of the date of exercise if the stock is not subject at
that time to a "substantial risk of forfeiture," as defined in Section 83. To
the extent that the stock is subject to a substantial risk of forfeiture, the
difference is measured as of the date or dates on which the risk terminates. The
Stock Plan permits the Compensation Committee to impose repurchase rights on
stock acquired upon exercise of options that would constitute such a
"substantial risk of forfeiture." If such repurchase rights are imposed, the
optionee would recognize taxable income and incur a tax liability, and the
optionee's holding period for tax purposes would commence, in the year or years
that the substantial risk of forfeiture terminates with respect to the stock.
Alternatively, an optionee holding an NSO may elect, within thirty days
after the option is exercised, in accordance with Section 83(b), to be taxed on
the difference between the option exercise price and the fair market value of
25
the stock on the date of exercise even though the stock acquired is subject to a
substantial risk of forfeiture. If the optionee makes this election, subsequent
changes in the value of the Common Stock at the time the forfeiture provisions
lapse will not result in ordinary compensation income to the optionee.
The Company receives no tax deduction on the grant of an NSO, but is
entitled to a tax deduction when the optionee recognizes taxable income on or
after exercise of the option, in the same amount as the income recognized by the
optionee.
Tax Treatment of Incentive Stock Options. Under Section 422 of the Internal
Revenue Code, an optionee incurs no federal income tax liability on either the
grant or exercise of an incentive stock option ("ISO"). Provided that the stock
is held for at least one year after the date of exercise of the option and at
least two years after its date of grant, any gain realized on the subsequent
sale of stock will be taxed as long-term or short-term capital gain depending on
the holding period since the date of exercise. If the stock is disposed of
within a shorter period, the optionee will be taxed, with respect to the gain
realized, as if he or she had then received ordinary compensation income in an
amount equal to the difference between the fair market value of the stock on the
date of exercise of the option and its fair market value on the date on which
the option was granted. The balance of the gain realized will be taxed as
capital gain, long-term or short-term depending on the holding period since the
date of exercise.
The Company receives no tax deduction on the grant or exercise of an ISO,
but is entitled to a tax deduction if the optionee recognizes ordinary
compensation income on account of a premature disposition of ISO stock in the
same amount and at the same time as the optionee's recognition of income.
Tax Treatment of Purchases of Restricted Stock. An employee or consultant
who receives a grant of restricted stock generally will not recognize taxable
income at the time such stock is received, but will recognize ordinary
compensation income when the transfer and forfeiture restrictions lapse in an
amount equal to the excess of the aggregate fair market value, as of the date
the restrictions lapse, over the amount, if any, paid by the employee or
consultant for the restricted stock. Alternatively, an employee or consultant
receiving restricted stock may elect, in accordance with Section 83(b) of the
Code, to be taxed on the excess of the fair market value of the shares of
restricted stock at the time of grant over the amount, if any, paid by the
employee or consultant, notwithstanding the transfer and forfeiture restrictions
on the stock. All such taxable amounts are deductible by the Company at the time
and in the amount of the ordinary compensation income recognized by the employee
or consultant. The full amount of dividends or other distributions of property
made with respect to restricted stock prior to the lapse of the transfer and
forfeiture restrictions will constitute ordinary compensation income to the
employee or consultant and the Company will be entitled to a deduction at the
same time and in the same amount.
26
APPROVAL OF AUDITORS
Effective March 8, 2006, the Company's independent registered public
accounting firm resigned and declined to submit a proposal for the audit of the
Company's financial records for the fiscal year ending June 30, 2006.
For the fiscal years ended June 30, 2004 and 2005, the reports on the
Company's financial statements were unqualified. The reports of BDO contained no
adverse opinion, disclaimer of opinion nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. During these two fiscal years
and the two subsequent interim periods through the date of their resignation,
there were no disagreements with BDO on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure. There
were no "reportable events" as that term is described in Item 304 (a)(1)(v) of
Regulation S-K.
On March 8, 2006, the Company engaged a new principal accounting firm,
Eisner LLP ("Eisner"), to review the financial statements for the quarter ending
March 31, 2006 and to perform the audit for the fiscal year ending June 30, 2006
and 2007. During the Company's two most recent fiscal years and the two
subsequent interim periods prior to engaging Eisner, the Company has not
consulted the newly engaged accountant on any matters.
This change in accountants was approved by the audit committee and board of
directors
The Board has selected the firm of Eisner LLP, independent registered
public accountants, as auditors of the Company for the fiscal year ending June
30, 2008 and is submitting the selection to stockholders for approval. The Board
recommends a vote "FOR" this proposal. Unless the proxy indicates otherwise, the
shares represented by the enclosed proxy will be voted to approve such
selection.
Although there is no legal requirement that this matter be submitted to a
vote of stockholders, the Board believes that the selection of independent
auditors is of sufficient importance to seek stockholder ratification. In the
event Eisner LLP is not ratified by the affirmative vote of the holders of
shares representing a majority of the votes cast at the Annual Meeting, the
Board may reconsider its selection. A representative of Eisner LLP is expected
to be available for the Annual Meeting. Such representative will have an
opportunity to make a statement and will be available to respond to appropriate
questions from stockholders.
INDEPENDENT AUDITOR FEES
The Company changed independent registered public accounting firms during
the fiscal year ended June 30, 2006. The following table presents fees for
professional audit services rendered by Eisner LLP for the Company's annual
financial statements and quarterly review services and other related services
for the fiscal years ended June 30, 2007 and 2006.
2007 2006
____ ____
Audit and audit related fees $233,760 $215,256
Tax services* -- --
All other fees 0 0
_________ ________
Total fees $233,760 $215,256
========= ========
* Firms other than Eisner LLP, provide tax and other accounting services.
The amount listed as "audit and audit related fees" in the above table
relate to services traditionally provided by auditors, which are compatible with
Eisner LLP's independence such as the review of the S-3 filed by the Company and
the review of the warrant being issued in conjunction with the Company's
refinancing. The Company's Audit Committee considered the non-audit services
rendered by Eisner LLP during fiscal 2007 and determined that such services were
compatible with Eisner LLP's independence. Firms other than Eisner LLP, provide
tax and other accounting services.
27
Neither BDO Seidman, LLP nor Eisner LLP directly or indirectly, operate, or
supervise the operation of, the Company's information systems or manage the
Company's local area network, nor did they 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.
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE ABOVE SELECTION
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of the
Company's Common Stock, to file with the SEC reports of ownership and reports of
changes in ownership of Common Stock. SEC rules also require the reporting
persons and entities to furnish the Company with a copy of the reports they
file. The Company is required to report any failure to file these reports.
Based on the review of the filings and written representations from the
Company's directors and executive officers, the Company believes that all
reports required to be filed with the SEC by Section 16(a) during the most
recent fiscal year have been filed on a timely basis.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
For the periods presented in the Annual Report on 10-K to date, the Company
has had no related party transactions. Before entering into any contract or
agreement involving a related party the Board of Directors reviews and approves
the transaction. In the event one of the related parties is a member of the
Board of Directors, that member of the Board recuses himself from participation
in the discussion or approval of the transaction.
STOCKHOLDER PROPOSALS FOR 2008 MEETING
Proposals of stockholders intended to be presented and director nominations
intended to be made at the 2008 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, Clerk, not later than July 23,
2008 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
2007, which has not been included in the Company's proxy material, must have
been received not later than September 15, 2007 to be considered timely.
28
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, Clerk
October 26, 2007
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.
29
REVOCABLE PROXY - CLASS A COMMON STOCK
PHC, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2007 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of PHC, Inc., a Massachusetts corporation, (the
"Company") hereby acknowledges receipt of the Notice of 2007 Annual Meeting of
Stockholders and Annual Report on Form 10-K for fiscal year ended June 30, 2007
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 10, 2007 at the Annual Meeting of Stockholders to be held at 1:00
p.m. (Boston time), on December 19, 2007 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)
30
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 ratify the [ ] [ ] [ ]
and Howard W. Phillips as the Class A selection by the
Directors of the company, each to hold Board of Directors
the office until the annual meeting next of Eisner LLP as the
following his election: Company's independent registered
public accounting firm for the
2008 fiscal year.
FOR ABSTAIN
AGAINST
3. To approve the [ ] [ ] [ ]
proposed amendment to the
Company's 2003 Stock Purchase
and Option Plan to increase the
number of Class A Shares
available for issue under the
plan from 1,300,0000 to
1,900,000.
For all nominees except as noted below: 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's name.
(FRONT)
31
REVOCABLE PROXY - CLASS B COMMON STOCK
PHC, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2007 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of PHC, Inc., a Massachusetts corporation, (the
"Company") hereby acknowledges receipt of the Notice of 2007 Annual Meeting of
Stockholders and Annual Report on Form 10-K for fiscal year ended June 30, 2007
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 10, 2007 at the Annual Meeting of Stockholders to be held at 1:00
p.m. (Boston time), on December 19, 2007 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)
32
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 ratify the [ ] [ ] [ ]
William F. Grieco and David E Dangerfield selection by the
as the Class B Directors of the company, Board of Directors
each to hold the office until the annual of Eisner LLP as the
meeting next following his election. Company's independent registered
public accounting firm for the
2008 fiscal year.
FOR ABSTAIN
AGAINST
3. To approve the [ ] [ ] [ ]
proposed amendment to the
Company's 2003 Stock Purchase
and Option Plan to increase the
number of Class A Shares
available for issue under the
plan from 1,300,000 to
1,900,000.
For all nominees except as noted below: 3. 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's name.
(FRONT)
33