PHC INC /MA/
SUBSCRIPTION AGREEMENT
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>ex10_37.txt
<DESCRIPTION>SUBSCRIPTION AGREEMENT
<TEXT>
10.37

                             SUBSCRIPTION AGREEMENT


Sandor Capital Master Fund, L.P.
2828 Routh Street, Suite 500
Dallas, TX  75201

Gentlemen:

     The purpose of this  Subscription  Agreement is to memorialize your binding
agreement  to  subscribe  for and  purchase  from  PHC,  Inc.,  a  Massachusetts
corporation  (the  "Company"),  the number,  as set forth below,  of shares of a
series of  preferred  stock to be  designated  by the Board of  Directors of the
Company (the "Preferred Stock"),  such shares having the rights as designated in
the Certificate of Designations  (as defined below),  on the following terms and
conditions.

Section 1.        Shares

     In exchange for the sale to you of [526,316]  shares of the Preferred Stock
(the  "Shares")  you will pay to the  Company the sum of  $1,500,000  ("Purchase
Price").  Upon  execution  and  delivery of this  Subscription  Agreement by the
undersigned,  as consideration for the undersigned binding obligations hereunder
the  Company  will  pay  $10,000  to the  undersigned,  which  payment  will  be
non-refundable,  for any reason,  including  the rejection or revocation of this
subscription  pursuant  to Section 2 below.  The Shares  will be entitled to the
rights as described  herein and in the  Certificate of Designation as adopted by
the  Company's  Board of  Directors  attached  as  Exhibit  A  ("Certificate  of
Designation").

                THE SHARES ACQUIRED PURSUANT TO THIS SUBSCRIPTION
           AGREEMENT ARE BEING ACQUIRED IN A TRANSACTION NOT INVOLVING
    ANY PUBLIC OFFERING AND, ACCORDINGLY, HAVE NOT BEEN REGISTERED UNDER THE
                    SECURITIES ACT OF 1933, AS AMENDED (THE
    "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SHARES MAY NOT
                      BE SOLD OR TRANSFERRED IN THE ABSENCE
           OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.

Section 2.        Acceptance and Rejection of Subscriptions

     The  undersigned  hereby agrees to purchase the Shares set forth in Section
1. The  subscription  offer shall not entitle the undersigned to purchase any of
the Shares  unless  and until it has been  accepted  in  writing by the  Company
separate and apart from this Subscription  Agreement (the "Acceptance  Notice").
The  undersigned  understands  that  this  Subscription  Agreement  may  not  be
terminated or withdrawn by the undersigned and that closing on this subscription
shall take place as soon as the undersigned deposits by wire transfer payment of
the Purchase  Price with Arent Fox PLLC (the "Escrow  Agent").  The  undersigned
understands  that the Company may accept or reject  this  subscription  offer in
whole  or in  part in its  sole  discretion  at any  time.  Notwithstanding  the
foregoing,  in the event the Company  successfully  refinances  or replaces with



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alternate  financing,  the promissory note held by GE Healthcare  Finance,  such
that the  Company's  auditors  inform the Company that such auditors are able to
issue an audit report in connection with the Company's financial  statements for
the fiscal year ended June 30, 2004,  that is not  qualified as to the Company's
ability to continue as a going concern (the "Unqualified Report Event"), (A) the
Company may in its sole discretion reject this subscription  offer and shall not
be obligated  whatsoever  to (i) proceed with the Closing (as defined  below) as
described  in Section 2 of this  Subscription  Agreement,  or (ii)  accept  this
subscription  offer,  and shall not incur  any legal  obligations,  directly  or
indirectly,  to the undersigned in connection with the transaction  contemplated
herein,  and (B) if the Company has not issued the  Acceptance  Notice  prior to
November  1, 2004,  the  undersigned  may upon  written  notice to the  Company,
withdraw this  subscription and neither the undersigned nor the Company (i) will
be obligated to proceed with the Closing,  or (ii) incur any legal  obligations,
directly  or  indirectly,  to other  party in  connection  with the  transaction
contemplated  herein . If this subscription offer or any part hereof is rejected
for any reason or withdrawn in  connection  with  occurrence  of an  Unqualified
Report  Event as set forth in clause  (B)  above,  the  Purchase  Price  will be
refunded promptly, without interest or deduction, and the undersigned shall have
no rights,  interests,  or title to the  Shares.  If the  Company  accepts  this
subscription  offer,  at  the  Closing,  the  Company,  or  its  duly  appointed
representative  or agent,  shall file the  Certificate of  Designation  with the
Massachusetts Secretary of State,  Corporations Division, in accordance with the
laws of such state.

Section 3.        Closing; Issuance of Interests

     Closing on this  subscription  shall take place at the Company's offices at
the  time  specified  in  the  Acceptance  Notice  issued  by the  Company  (the
"Closing"), upon the deposit by the undersigned of payment of the Purchase Price
by wire transfer  with the Escrow  Agent.  The Shares shall not be deemed issued
to, or owned by, the  undersigned  until  Closing  and tender to the  Company of
immediately available funds by wire transfer in payment of the Purchase Price.

Section 4.        Subscriber's Representations and Warranties

     (a) The undersigned represents, warrants and agrees with the Company that:

          (i)  The  undersigned  has  reviewed,  a draft  copy of the  Company's
               10-KSB  Annual  Report for the year ending June 30,  2004,  dated
               ____,  2004,  as well as copies of the  Company's  10-KSB  Annual
               Report for the year ending June 30, 2003, 10-QSB Quarterly report
               for the  quarter  ended  March  31,  2004,  annual  report to the
               stockholders,   proxy  statements,   current  reports  and  other
               reports, and registration statements, which include a description
               of the Company's business,  operations,  risk factors, litigation
               and other matters,  and  acknowledges  that the  undersigned  was
               provided with the  opportunity  to meet with and ask questions of
               and  receive   answers  from   representatives   of  the  Company
               concerning the business,  operations and prospects of the Company
               and  its  financial   position  and  to  obtain  any   additional
               information which the undersigned  deemed necessary in connection
               with making an investment  decision  regarding this subscription.
               The undersigned acknowledges that it has read and understands the
               material  provided to him or her and the risks associated with an
               investment in the Shares.  The undersigned  acknowledges  that an
               investment in the Shares involves a high degree of risk.


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<PAGE>
          (ii) The undersigned is able to bear the substantial economic risks of
               an investment  in the Shares,  including the risk that the entire
               investment  could be  lost,  has no need  for  liquidity  in such
               investment, and could afford a complete loss of such investment.

          (iii) The undersigned is:

               (A)  an organization  which is (l) an  institutional  investor as
                    defined  in  Securities  Act Rule  501(a)(1),  (2) a private
                    business  development  company defined in Section 202(a)(22)
                    of  the   Investment   Advisers  Act  of  1940,   or  (3)  a
                    corporation,  business trust or partnership,  not formed for
                    the specific  purpose of acquiring the  securities  offered,
                    with total  assets in excess of  $5,000,000  or a trust with
                    total  assets  exceeding  $5,000,000,  not  formed  for  the
                    purpose of acquiring the securities offered, whose purchases
                    are  directed by a  sophisticated  person as defined in Rule
                    506(b)(2)(ii); or

               (B)  an entity in which all of the equity  owners are  Accredited
                    Investors  as such term is  defined in  Securities  Act Rule
                    501(a).

          (iv) The  undersigned  has such  knowledge and experience in financial
               and  business   matters  that  the   undersigned  is  capable  of
               evaluating the merits and risks of the investment in the Shares.

          (v)  The   undersigned   is   purchasing   the   Securities   for  the
               undersigned's  own account for investment and not with a view to,
               or for sale in connection  with, any  distribution,  and does not
               have any present plan to sell or otherwise dispose of the Shares;
               the undersigned will not sell,  transfer or otherwise  dispose of
               the Shares,  or any interest  therein,  except in accordance with
               the  Securities  Act and the  applicable  rules  and  regulations
               promulgated hereunder,  as then in force, and any applicable law,
               rule or  regulation  of any state or other  jurisdiction  ("State
               Laws").

                    (b)  The undersigned further understands and agrees that:

          (i)  The Shares have not been  registered  under the Securities Act or
               the  State  Laws  and,  consequently,  the  Shares  must  be held
               indefinitely  unless  subsequently  registered  thereunder  or an
               exemption from such registration is available.

          (ii) The Securities have not been registered  under the Securities Act
               on the basis that the issuance  thereof is exempt  under  Section
               3(b)  or  4(2) of the  Securities  Act and by Rule  505 or 506 of
               Regulation D  ("Regulation  D") under the Securities Act and that
               the Company's reliance on such exemption is predicated in part on
               the undersigned's  representations and warranties as set forth in
               this Subscription Agreement.  The Shares have not been registered
               under certain State Laws in reliance on specific  exemptions from
               registration  thereunder and no securities  administrator  or any
               state  or  the  Federal   government  has  made  any  finding  or
               determination  relating to the  fairness  for  investment  of the
               Shares and no securities  administrator or the Federal government
               has recommended or endorsed the offering of the Shares.

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<PAGE>
          (iii)The  Company  is relying  on the  undersigned's  representations,
               warranties,  understandings  and  agreements  set  forth  in this
               Subscription   Agreement   in   consummating   the   transactions
               contemplated herein.

               (c)  The undersigned, if executing this Subscription Agreement in
                    a representative or fiduciary  capacity,  has full power and
                    authority to execute and deliver this Subscription Agreement
                    in  such   capacity   and  on  behalf  of  the   subscribing
                    individual,  partnership,  limited liability company, trust,
                    estate, corporation or other entity for whom the undersigned
                    is  executing   this   Subscription   Agreement,   and  such
                    individual,  partnership,  limited liability company, trust,
                    estate, corporation or other entity has full right and power
                    to perform  pursuant  to this  Subscription  Agreement.  The
                    undersigned  will,  upon  request,  furnish to the Company a
                    true and correct copy of, (i) if the undersigned is a trust,
                    the  trust   agreement,   (ii)  if  the   undersigned  is  a
                    corporation,  the Articles of Incorporation and Bylaws and a
                    copy  (certified  by  the  secretary  or  other   authorized
                    officer) of appropriate  corporate  resolutions  authorizing
                    the specific  investment,  and (iii) if the undersigned is a
                    partnership or limited liability company, the partnership or
                    limited liability company agreement.

               (d)  If the  undersigned is a partnership or a limited  liability
                    company,  the  person  who  has  signed  on  behalf  of  the
                    partnership or limited liability  company  identified as the
                    investor is authorized to so sign; if the  undersigned  is a
                    trust,   the  trustee  (or   co-trustee)  of  the  trust  is
                    authorized by the trust agreement; and if the undersigned is
                    a   corporation,   the  corporate   officer  so  signing  is
                    authorized to sign on behalf of the corporation.

               (e)  If the  undersigned is purchasing the Shares  subscribed for
                    herein in a representative or fiduciary capacity,  the above
                    representations  and warranties shall be deemed to have been
                    made on  behalf  of the  person  or  persons  for  whom  the
                    undersigned is so purchasing.

               (f)  All representations and warranties set forth above or in any
                    other  written  statement  or  document   delivered  by  the
                    undersigned in connection with the transactions contemplated
                    hereby  shall be true and correct in all  respects on and as
                    of the  date  of this  offering  as if made on and as of the
                    date of the Closing and shall survive such closing.

               (g)  The   undersigned   understands   the   meanings  and  legal
                    consequences of the representations and warranties contained
                    in this Section 4 and agrees to indemnify  and hold harmless
                    the Company  from and  against  any and all loss,  damage or
                    liability  due  to  or  arising  out  of  a  breach  of  any
                    representation  or warranty of the undersigned  contained in
                    this  Subscription  Agreement.  Notwithstanding  any  of the
                    representations,  warranties, acknowledgements or agreements
                    made herein by the  undersigned,  the  undersigned  does not
                    thereby or in any other manner  waive any rights  granted to
                    the undersigned under Federal or state securities laws.

Section 5.        Registration Rights

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<PAGE>
     The undersigned  shall be entitled to the registration  rights set forth in
Exhibit B attached hereto.

Section 6.        Irrevocability

     The undersigned hereby  acknowledges and agrees that, except as required by
law, this  subscription  offer is  irrevocable  and that the  undersigned is not
entitled to cancel,  terminate  or revoke  this  Subscription  Agreement  or any
agreements of the undersigned.

Section 7.        Binding Effect

     This Subscription  Agreement,  including Exhibits A and B hereto, which are
hereby incorporated by reference, shall be binding upon and inure to the benefit
of the theCompany and its successor's  and assigns,  and the undersigned and the
undersigned's  successors but shall not be assignable by the undersigned without
the prior written  consent of the Company,  which consent may be withheld by the
Company for any reason.

Section 8.        Applicable Law

     This Subscription  Agreement and all rights hereunder shall be governed by,
and  interpreted  in  accordance  with,  the laws of the State of  Massachusetts
without reference to any conflict of laws.

                            [SIGNATURE PAGE FOLLOWS]


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<PAGE>

     IN  WITNESS  WHEREOF,   the  undersigned  has  executed  this  Subscription
Agreement  with  the  intent  of  being  legally  bound  hereby,  on this day of
September, 2004.

SANDOR CAPITAL MASTER FUND, L.P.






By: /s/ John S Lemek                      27-0013809
_____________________________             ______________________________
Name:  John S. Lemak                      Taxpayer ID
Its:  General Partner


2828 Routh Street, Suite 500
Dallas, TX  75201



                                   ACCEPTANCE

     The  foregoing   offer,   subject  to  the  terms  and  conditions  of  the
Subscription  Agreement,  including without limitation,  the Company's rejection
rights pursuant to Section 2 as contained therein,  is hereby accepted
this 20th day of September, 2004.

                                            PHC, Inc.

                                            By: /s/ Bruce A. Shear

                                                    Title:  President



                                     - 10 -
<PAGE>
Exh10_37

                                    EXHIBIT A

                                     FORM OF

                           CERTIFICATE OF DESIGNATION
                                       OF
                    SERIES _____ CONVERTIBLE PREFERRED STOCK
                                       OF
                                    PHC, Inc.

          ____________________________________________________________
                          Pursuant to Section 25 of the
          Business Corporation Law of the Commonwealth of Massachusetts
          ____________________________________________________________

     PHC,  Inc.,  a  corporation  organized  and  existing  under  the  Business
Corporation Law of the Commonwealth of Massachusetts (the "Corporation"), hereby
certifies that the following  resolutions were adopted by the Board of Directors
of the  Corporation  on September __, 2004 pursuant to authority of the Board of
Directors  as  required  by Section 25 of the  Business  Corporation  Law of the
Commonwealth of Massachusetts ("MBCL"):

     RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this  Corporation  (the "Board of  Directors" or the "Board") in
accordance with the provisions of its Certificate of Incorporation, the Board of
Directors hereby authorizes a series of the Corporation's  previously authorized
Preferred Stock, par value $.01 per share, and hereby states the designation and
number of shares, and fixes the relative rights, preferences, privileges, powers
and restrictions thereof as follows:

                  Series ____ Convertible Preferred Stock:

                                   ARTICLE 1
                                  Definitions

     The terms  defined in this Article  whenever  used in this  Certificate  of
Designation have the following respective meanings:

     (a)  "Business Day" means a day other than  Saturday,  Sunday or any day on
          which  banks  located  in the  State  of New York  are  authorized  or
          obligated to close.

     (b)  "Closing" has the meaning set forth in the Subscription Agreement.

     (c)  "Capital  Shares"  means the Common Shares and any other shares of any
          other  class or series of  capital  stock,  whether  now or  hereafter
          authorized and however designated, which have the right to participate
          in  the  distribution  of  earnings  and  assets  (upon   dissolution,
          liquidation or winding-up) of the Corporation.

                                     - 11 -
<PAGE>
     (d)  "Common  Shares"  or  "Common  Stock"  means  shares of Class A common
          stock, par value $.01 per share, of the Corporation.

     (e)  "Common Stock Issued at  Conversion",  when used with reference to the
          securities issuable upon conversion of the Series ___ Preferred Stock,
          means all Common Shares now or hereafter Outstanding and securities of
          any other  class or series into which the Series ___  Preferred  Stock
          hereafter  shall have been  changed  or  substituted,  whether  now or
          hereafter created and however designated.

     (f)  "Conversion  Date" means any day on which all or any portion of shares
          of the Series ___ Preferred  Stock is converted in accordance with the
          provisions hereof.

     (g)  "Conversion  Price"  means the price for the  conversion  of shares of
          Series ___ Preferred  Stock into Common Shares as set forth in Section
          6.1.

     (h)  "Corporation"  means PHC, Inc., a Massachusetts  corporation,  and any
          successor or resulting  corporation  by way of merger,  consolidation,
          sale or  exchange  of all or  substantially  all of the  Corporation's
          assets, or otherwise.

     (i)  "Dividend  Period"  means  the  quarterly  period  commencing  on  and
          including the Issue Date or, if a dividend has  previously  been paid,
          the day after the immediately  preceding Dividend Payment Due Date and
          ending on and including the immediately  subsequent  Dividend  Payment
          Due Date.

     (j)  "Dividend  Payment Due Date" means  January 31,  April 30, July 31 and
          October 31 of each year commencing on October 31, 2004.

     (k)  "Dividend  Rate"  means  [8]% per  annum,  computed  on the basis of a
          360-day year.

     (l)  "Holder"  means the  Investors  who have  executed and  delivered  the
          Subscription  Agreement,  any  successor  thereto,  or any  Person  or
          Persons  to whom  the  Series  ___  Preferred  Stock  is  subsequently
          transferred in accordance with the provisions hereof.

     (m)  "Issue Date" means, as to any share of Series ___ Preferred Stock, the
          date of issuance of such share.

     (n)  "Outstanding",  when used with  reference to Common  Shares or Capital
          Shares (collectively,  "Shares"), means, on any date of determination,
          all  issued and  outstanding  Shares,  and  includes  all such  Shares
          issuable  in  respect  of  outstanding   scrip  or  any   certificates
          representing fractional interests in such Shares which are issuable at
          or below the Conversion Price; provided, however, that any such Shares
          directly  or  indirectly  owned or held by or for the  account  of the
          Corporation or any Subsidiary of the  Corporation  shall not be deemed
          "Outstanding" for purposes hereof.

     (o)  "Person"  means  an  individual,  a  corporation,  a  partnership,  an
          association,  a limited liability company, an unincorporated  business
          organization,  a  trust  or  other  entity  or  organization,  and any


                                     - 12 -
<PAGE>
          government or political  subdivision or any agency or  instrumentality
          thereof.

     (p)  "SEC" means the United States Securities and Exchange Commission.

     (q)  "Subscription  Agreement"  means that certain  Subscription  Agreement
          dated as of September __, 2004 between the Corporation and the Persons
          identified in such agreement.

     (r)  "Series ____ Preferred  Shares" or "Series ___ Preferred  Stock" means
          the  shares  of  Series  ___   Convertible   Preferred  Stock  of  the
          Corporation  or  such  other   convertible   preferred  stock  of  the
          Corporation as may be exchanged therefor.

     (s)  "Stated Value" has the meaning set forth in Article 2.

     (t)  "Subsidiary"  means any entity of which  securities or other ownership
          interests  having  ordinary  voting  power to elect a majority  of the
          board of directors or other persons  performing  similar functions are
          owned directly or indirectly by the Corporation.

     All  references  to "cash" or "$" herein mean currency of the United States
of America.

                                   ARTICLE 2
                             Designation and Amount

     The  designation  of this  series,  which  consists  of  526,316  shares of
Preferred Stock,  shall be Series ____ Convertible  Preferred Stock (the "Series
___ Preferred Stock") and the stated value shall be $3.36 per share (the "Stated
Value").
                                   ARTICLE 3
                                      Rank

     Except as otherwise  provided herein,  the Series ___ Preferred Stock shall
rank pari  passu to the Common  Stock.  Series ___  Preferred  Stock  shall rank
senior only to the Common Stock (the "Common Stock"),  with respect to dividends
and conversion rights.
                                   ARTICLE 4
                                   Dividends

     (a)  The Holder shall be entitled to receive,  when,  as and if declared by
          the Board of Directors, out of funds legally available for the payment
          of  dividends,  dividends at the Dividend  Rate on the Stated Value of
          each share of Series ___  Preferred  Stock on and as of each  Dividend
          Payment Due Date with respect to each  Dividend  Period.  Dividends on
          the Series ___ Preferred  Stock shall be  cumulative  from the date of
          issue,  whether or not  declared  for any  reason,  including  if such
          declaration  is  prohibited  under  any  outstanding  indebtedness  or
          borrowings of the Corporation or any of its Subsidiaries, or any other
          contractual  provision  binding  on  the  Corporation  or  any  of its


                                     - 13 -
<PAGE>
          Subsidiaries,  and  whether  or  not  there  shall  be  funds  legally
          available for the payment thereof.

          (i)  Each dividend shall be payable in equal quarterly amounts on each
               Dividend  Payment Due Date,  commencing  October 31, 2004, to the
               Holders of record of shares of the Series ___ Preferred Stock, as
               they appear on the stock records of the  Corporation at the close
               of business on such  record  date,  not more than 60 days or less
               than 10 days  preceding  the payment dates  thereof,  as shall be
               fixed by the Board of Directors. Accrued and unpaid dividends for
               any past  Dividend  Period may be declared  and paid at any time,
               without reference to any Dividend Payment Due Date, to Holders of
               record, not more than 15 days preceding the payment date thereof,
               as may be fixed by the Board of Directors.

          (ii) At the  option of the  Corporation,  the  dividend  shall be paid
               either  (x) in cash  or (y)  through  the  issuance  of duly  and
               validly  authorized  and  issued,  fully  paid and  nonassessable
               shares  of the  Common  Stock  valued  at the  Conversion  Price,
               assuming for this purpose,  that the applicable  Dividend Payment
               Date is the applicable  Conversion Date; provided,  however, that
               if no  funds  are  legally  available  for  the  payment  of cash
               dividends on the Series ___ Preferred  Stock,  dividends shall be
               paid as provided in clause (y) above.

          (b)  Except as provided in Section 4(d)  hereof,  the Holder shall not
               be  entitled  to  any  dividends  in  excess  of  the  cumulative
               dividends, as herein provided, on the Series ___ Preferred Stock.

          (c)  So long as any  shares  of the  Series  ___  Preferred  Stock are
               outstanding,  no dividends shall be declared or paid or set apart
               for  payment or other  distribution  declared or made upon any of
               the  Common  Stock,  nor  shall  any  Common  Stock be  redeemed,
               purchased  or  otherwise   acquired  (other  than  a  redemption,
               purchase or other  acquisition of shares of Common Stock made for
               purposes of an employee  incentive or benefit  plan  (including a
               stock option plan) of the  Corporation or any Subsidiary) for any
               consideration  by the  Corporation,  directly or indirectly,  nor
               shall any moneys be paid to or made  available for a sinking fund
               for the  redemption of any shares of any Common Stock,  unless in
               each case (i) the full cumulative  dividends  required to be paid
               in cash on all  outstanding  shares of the Series  ___  Preferred
               Stock  shall have been paid or set apart for payment for all past
               Dividend  Periods with respect to the Series ___ Preferred  Stock
               and (ii)  sufficient  funds shall have been paid or set apart for
               the payment of the dividend for the current  Dividend Period with
               respect to the Series ___ Preferred Stock.

          (d)  If the  Corporation  shall at any time or from time to time after
               the Issue Date  declare,  order,  pay or make a dividend or other
               distribution (including,  without limitation, any distribution of
               stock or other  securities  or  property or rights or warrants to
               subscribe  for  securities  of  the  Corporation  or  any  of its
               Subsidiaries  by way of  dividend or  spin-off)  on shares of its
               Common  Stock,  then,  and in each such case,  in addition to the
               dividend obligation of the Corporation  specified in Section 4(a)
               hereof,  the Corporation  shall declare,  order, pay and make the
               same  dividend  or  distribution  to each  Holder of  Series  ___
               Preferred  Stock as would  have  been made  with  respect  to the
               number of Common  Shares the Holder  would have  received  had it
               converted all of its Series D Preferred Shares, immediately prior
               to such dividend or distribution.

                                     - 14 -
<PAGE>
                                    ARTICLE 5
                   Liquidation; Mergers, Consolidations, etc.

(a)  If the  Corporation  shall  commence a  voluntary  case  under the  Federal
     bankruptcy  laws or any  other  applicable  Federal  or  state  bankruptcy,
     insolvency  or similar  law, or consent to the entry of an order for relief
     in an involuntary  case under any law or to the  appointment of a receiver,
     liquidator,  assignee, custodian, trustee or sequestrator (or other similar
     official) of the Corporation or of any substantial part of its property, or
     make an assignment  for the benefit of its  creditors,  or admit in writing
     its inability to pay its debts generally as they become due, or if a decree
     or order for  relief in respect  of the  Corporation  shall be entered by a
     court having  jurisdiction in the premises in an involuntary case under the
     Federal   bankruptcy  laws  or  any  other  applicable   Federal  or  state
     bankruptcy,  insolvency  or similar law resulting in the  appointment  of a
     receiver,  liquidator,  assignee,  custodian,  trustee or sequestrator  (or
     other similar  official) of the Corporation or of any  substantial  part of
     its property, or ordering the winding up or liquidation of its affairs, and
     any such decree or order shall be unstayed and in effect for a period of 30
     consecutive days and, on account of any such event,  the Corporation  shall
     liquidate,  dissolve  or wind up,  or if the  Corporation  shall  otherwise
     liquidate,  dissolve  or wind  up,  no  distribution  shall  be made to the
     holders of any shares of capital stock of the Corporation upon liquidation,
     dissolution or winding-up  unless prior  thereto,  the Holders of shares of
     Series ___  Preferred  Stock,  subject to this Article 5, shall possess the
     same liquidation rights as the Common Stock.

(b)  In case the  Corporation  shall  reorganize  its  capital,  reclassify  its
     capital stock,  consolidate or merge with or into another Person (where the
     Corporation  is  not  the  survivor  or  where  there  is a  change  in  or
     distribution  with respect to the Common Stock of the  Corporation),  sell,
     convey,  transfer  or  otherwise  dispose of all or  substantially  all its
     property, assets or business to another Person, or effectuate a transaction
     or series of  related  transactions  in which  more than 50% of the  voting
     power of the  Corporation is disposed of (each,  a  "Fundamental  Corporate
     Change") and,  pursuant to the terms of such Fundamental  Corporate Change,
     shares of common stock of the  successor or acquiring  corporation,  or any
     cash,  shares  of stock or  other  securities  or  property  of any  nature
     whatsoever (including warrants or other subscription or purchase rights) in
     addition  to or in lieu of  common  stock  of the  successor  or  acquiring
     corporation ("Other Property"), are to be received by or distributed to the
     holders of Common Stock of the Corporation,  then each Holder of Series ___
     Preferred  Stock shall  receive the number of shares of common stock of the
     successor  or acquiring  corporation  or of the  Corporation,  if it is the
     surviving  corporation,  and Other  Property as is receivable  upon or as a
     result of such  Fundamental  Corporate  Change by a holder of the number of
     shares of Common  Stock into which such Series ___  Preferred  Stock may be
     converted at the Conversion  Price  immediately  prior to such  Fundamental
     Corporate Change.  For purposes of this Section 5(b),  "common stock of the
     successor or acquiring corporation" shall include stock of such corporation
     of any class  which is not  preferred  as to  dividends  or assets over any
     other  class of stock  of such  corporation  and  which is not  subject  to
     redemption and shall also include any evidences of indebtedness,  shares of
     stock or other  securities  which are convertible  into or exchangeable for
     any such stock,  either immediately or upon the arrival of a specified date
     or the  happening of a specified  event and any warrants or other rights to
     subscribe for or purchase any such stock.

                                     - 15 -
<PAGE>
                                   ARTICLE 6
                         Conversion of Preferred Stock

     Section 6.1 Conversion; Conversion Price

     At the option of the  Corporation,  provided that it has an adequate number
of authorized  shares of Common Stock available or reserved for conversion,  the
shares of Series ___  Preferred  Stock may be  converted,  either in whole or in
part,  into Common Shares  (calculated as to each such conversion to the nearest
1/100th of a share) at a Conversion Price,  equal to the Stated Value divided by
three (3), for each share of Common  Stock.  At the  Corporation's  option,  the
amount of accrued and unpaid dividends as of the Conversion Date (whether or not
earned or declared,  whether or not there were funds  legally  available for the
payment of dividends and whether or not a Dividend Payment Due Date has occurred
since the last dividend  payment) shall not be subject to conversion but instead
may be paid in cash as of the  Conversion  Date;  if the  Corporation  elects to
convert the amount of such accrued and unpaid  dividends at the Conversion  Date
into Common Stock,  the Common Stock issued to the Holder shall be valued at the
Conversion Price.

     The  number of shares of Common  Stock due upon  conversion  of Series  ___
Preferred  Stock shall be (i) the number of shares of Series ___ Preferred Stock
to be  converted,  multiplied  by (ii) the Stated  Value plus accrued and unpaid
dividends  (whether or not earned or  declared,  whether or not there were funds
legally  available  for the payment of  dividends  and whether or not a Dividend
Payment Due Date has occurred  since the last dividend  payment),  to the extent
the Corporation  does not at its election pay such accrued and unpaid  dividends
in cash, and divided by (iii) the Conversion Price.

     Section 6.2 Exercise of Conversion Privilege

     (a)  Conversion  of the  Series.  If it elects to exercise  its  conversion
          rights  pursuant to Section 6.1,  the  Corporation  shall  convert the
          Preferred  Stock and issue the Common Stock Issued at Conversion,  and
          all voting and other rights  associated with the beneficial  ownership
          of the Common Stock Issued at  Conversion  shall vest with the Holder,
          effective as of the  Conversion  Date.  The Holder  shall  deliver the
          shares of Series ___  Preferred  Stock to the  Corporation  by express
          courier within 30 days following the Conversion  Date.  Upon surrender
          for conversion, the Series ___ Preferred Stock shall be accompanied by
          a proper  assignment  thereof to the  Corporation  or be  endorsed  in
          blank. As promptly as practicable after the  Corporation's  receipt of
          the shares to be converted, the Corporation shall (i) issue the Common
          Stock Issued at Conversion in accordance  with the  provisions of this
          Article  6, and (ii)  cause to be mailed  for  delivery  by  overnight
          courier to the Holder (x) a certificate or certificate(s) representing
          the number of Common  Shares to which the Holder is entitled by virtue
          of such  conversion,  (y) cash, as provided in Section 6.3, in respect
          of any fraction of a Common Share  issuable upon such  conversion  and
          (z) if the Corporation  chooses to pay accrued and unpaid dividends in
          cash,  cash in the amount of accrued  and unpaid  dividends  as of the
          Conversion Date. No cash payment  aggregating less than $1.00 shall be
          required to be given unless specifically requested by the Holder.

                                     - 16 -
<PAGE>
     Section 6.3 Fractional Shares

     No fractional Common Shares or scrip representing  fractional Common Shares
shall be issued upon  conversion of the Series ___ Preferred  Stock.  Instead of
any fractional  Common Shares which  otherwise would be issuable upon conversion
of the Series ___ Preferred Stock,  the Corporation  shall pay a cash adjustment
in respect of such fraction in an amount equal to the same fraction.

                                    ARTICLE 7
                                 Voting Rights

     The  Holders of the Series ___  Preferred  Stock  shall be  entitled to the
number of votes equal to the number of whole shares of Common Stock in which all
shares of Series ___ Preferred  Stock held by such Holders and then  convertible
in accordance with Section 6, at each meeting of shareholders of the Corporation
(and written action of shareholders in lieu of meetings) with respect to any and
all  matters  presented  to the  shareholders  of  the  Corporation.  Except  as
otherwise  provided  herein,  or as  required  by law,  Holders of the Series __
Preferred  Stock shall vote  together with the Common Stock as a single class on
all actions to be taken by the shareholders of the Corporation.

     Notwithstanding  the above,  the  Corporation  shall provide each Holder of
Series  ___  Preferred  Stock  with  prior  notification  of any  meeting of the
shareholders  (and copies of all proxy materials and other  information  sent to
shareholders).  In the event of any taking by the Corporation of a record of its
shareholders  for the purpose of  determining  shareholders  who are entitled to
receive  payment of any dividend or other  distribution,  any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining  shareholders  who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the  Corporation,  the Corporation  shall mail a notice thereof to
each Holder at least 30 days prior to the date on which any such record is to be
taken for the  purpose of such  dividend,  distribution,  right or other  event,
together  with a brief  statement  regarding  the amount and  character  of such
dividend, distribution, right or other event to the extent known at such time.

     To the extent that under the MBCL the vote of the Holders of the Series ___
Preferred  Stock,  voting  separately  as a class or  series as  applicable,  is
required to authorize a given action of the Corporation, the affirmative vote or
consent  of the  Holders  of at least a majority  of the  outstanding  shares of
Series ___ Preferred Stock  represented at a duly held meeting at which a quorum
is present or by written  consent  of a majority  of the  outstanding  shares of
Series ___ Preferred  Stock (except as otherwise may be required under the MBCL)
shall constitute the approval of such action by the class. Holders of the Series
___ Preferred Stock shall be entitled to notice of all  shareholder  meetings or
written  consents (and copies of all proxy materials and other  information sent
to  shareholders)  with  respect to which they would be entitled to vote,  which
notice would be provided pursuant to the Corporation's bylaws and the MBCL.

                                     - 17 -
<PAGE>
                                   ARTICLE 8
                                 Miscellaneous

     Section 8.1 Loss, Theft, Destruction of Preferred Stock

     Upon  receipt of  evidence  satisfactory  to the  Corporation  of the loss,
theft, destruction or mutilation of shares of Series ___ Preferred Stock and, in
the case of any such loss,  theft or  destruction,  upon receipt of indemnity or
security reasonably satisfactory to the Corporation, or, in the case of any such
mutilation,  upon surrender and  cancellation of the Series ___ Preferred Stock,
the Corporation  shall make,  issue and deliver,  in lieu of such lost,  stolen,
destroyed  or  mutilated  shares of Series ___  Preferred  Stock,  new shares of
Series ___ Preferred  Stock of like tenor.  The Series ___ Preferred Stock shall
be held and owned upon the express condition that the provisions of this Section
8.1 are exclusive with respect to the replacement of mutilated,  destroyed, lost
or stolen  shares of Series ___ Preferred  Stock and shall  preclude any and all
other  rights  and  remedies  notwithstanding  any law or  statute  existing  or
hereafter  enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.

     Section 8.2 Who Deemed Absolute Owner

     The  Corporation may deem the Person in whose name the Series ___ Preferred
Stock shall be registered  upon the registry books of the Corporation to be, and
may treat it as, the absolute  owner of the Series ___  Preferred  Stock for the
purpose of receiving payment of dividends on the Series ___ Preferred Stock, for
the conversion of the Series ___ Preferred Stock and for all other purposes, and
the  Corporation  shall not be affected by any notice to the contrary.  All such
payments  and such  conversion  shall be valid  and  effectual  to  satisfy  and
discharge the liability upon the Series ___ Preferred Stock to the extent of the
sum or sums so paid or the conversion so made.

     Section 8.3 Register

     The Corporation  shall keep at its principal office a register in which the
Corporation  shall  provide  for the  registration  of the Series ___  Preferred
Stock.  Upon any transfer of the Series ___ Preferred  Stock in accordance  with
the  provisions  hereof,  the  Corporation  shall  register such transfer on the
register of Series ___ Preferred Stock.

     Section 8.4 Withholding

     To the extent  required by  applicable  law, the  Corporation  may withhold
amounts for or on account of any taxes  imposed or levied by or on behalf of any
taxing authority in the United States having  jurisdiction  over the Corporation
from any payments made pursuant to the Series ___ Preferred Stock.

     Section 8.5 Headings

     The  headings  of  the  Articles  and  Sections  of  this   Certificate  of
Designation  are inserted for  convenience  only and do not constitute a part of
this Certificate of Designation.

                                     - 18 -
<PAGE>
     Section 8.6 Severability

     If any provision of this  Certificate of  Designation,  or the  application
thereof   to  any  person  or  entity  or  any   circumstance,   is  invalid  or
unenforceable,  (i) a suitable  and  equitable  provision  shall be  substituted
therefor  in order to carry  out,  so far as may be valid and  enforceable,  the
intent and  purpose of such  invalid or  unenforceable  provision,  and (ii) the
remainder  of  this  Certificate  of  Designation  and the  application  of such
provision to other persons,  entities or circumstances  shall not be affected by
such   invalidity   or   unenforceability,   nor  shall   such   invalidity   or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.

                            [SIGNATURE PAGE FOLLOWS]





                                     - 19 -
<PAGE>



     IN  WITNESS  WHEREOF,  the  Corporation  has  caused  this  Certificate  of
Designation to be signed by its duly authorized officers on September ___, 2004.


                                                  PHC, INC.



                                                  By: _______________________
                                                      Name:
                                                      Title:



                                     - 20 -
<PAGE>
                                    EXHIBIT B

                               REGISTRATION RIGHTS

This Exhibit B sets out the registration  rights  referenced in Section 5 of the
Subscription Agreement to which it is attached.

(a)  Request  for  Demand  Registration.  At any time  after  the  Closing,  the
undersigned  may make a written  request to the Company to  register,  under the
Securities Act (other than pursuant to a  registration  statement on Form S-4 or
S-8 or any successor thereto) and under the securities or "blue sky" laws of any
jurisdiction designated by the undersigned (a "Demand Registration"), the number
of shares of Common Stock Issued at Conversion, as defined in the Certificate of
Designation,  stated  in  such  request  ("Registrable  Securities");  provided,
however,  that the Company  shall not be  obligated  to effect more than one (1)
Demand  Registration  pursuant  to  this  Section  5 or  to  effect  any  Demand
Registration for Registrable  Securities  having an aggregate  offering price of
less than  $1,000,000.  If at the time of any  request to  register  Registrable
Securities  pursuant  to this  Section  5(a),  the Company is engaged in, or has
fixed  plans  to  engage  in  within  30 days of the  time  of such  request,  a
registered  public  offering or is engaged in any other activity  which,  in the
good faith  determination  of the Board of Directors  of the  Company,  would be
adversely  affected by the requested  registration to the material  detriment of
the  Company,  then the  Company may at its option  direct that such  request be
delayed for a reasonable period not in excess of three months from the effective
date of such offering or the date of completion of such other material activity,
as the case may be, such right to delay a request to be exercised by the Company
not more than once in any one-year period. In addition, the Company shall not be
required to effect any  registration  within 90 days after the effective date of
any other  registration  statement  of the  Company.  The  request  for a Demand
Registration  by the  undersigned  shall  state the  amount  of the  Registrable
Securities  proposed to be sold and the intended method of disposition  thereof.
Upon a request for a Demand  Registration,  the Company shall promptly take such
steps as are necessary or  appropriate  to prepare for the  registration  of the
Registrable Securities to be registered.

(b)  Effective  Demand  Registration.  The Company shall use its best efforts to
cause any such Demand  Registration  to become and remain  effective  as soon as
practicable,  but in any event  not  later  than 120 days  after it  receives  a
request under Section 5(a) hereof. A registration  shall not constitute a Demand
Registration  until it has become effective and remains  continuously  effective
for the  lesser  of (i) the  period  during  which  all  Registrable  Securities
registered  in the  Demand  Registration  are sold and (ii) 120 days;  provided,
however,  that a registration shall not constitute a Demand  Registration if (x)
after such Demand  Registration has become  effective,  such registration or the
related  offer,  sale or  distribution  of Registrable  Securities  hereunder is
interfered  with by any stop order,  injunction or other order or requirement of
the SEC or other governmental agency or court for any reason not attributable to
the undersigned  and such  interference  is not thereafter  eliminated,  (y) the
conditions to closing specified in the underwriting  agreement,  if any, entered


                                     - 21 -
<PAGE>
into in connection  with such Demand  Registration  are not satisfied or waived,
other than by reason of a failure by the  undersigned  or (z) if the request for
such Demand  Registration  is withdrawn by the  undersigned  and the undersigned
reimburses the Company for any expenses incurred in relation thereto.

<PAGE>
(c) Underwriting Procedures.  If the undersigned so elects, the offering of such
Registrable Securities pursuant to such Demand Registration shall be in the form
of a firm  commitment  underwritten  offering  and the managing  underwriter  or
underwriters  selected for such offering shall be the Approved  Underwriter  (as
hereinafter  defined)  selected in  accordance  with Section 5(d). In connection
with any Demand  Registration  under this Section 5 involving  an  underwriting,
none of the Registrable  Securities held by the undersigned shall be included in
such underwriting  unless the undersigned  accepts the terms of the underwriting
as agreed upon by the Company,  and the Approved  Underwriter,  and then only in
such  quantity  as  will  not,  in  the  opinion  of the  Approved  Underwriter,
jeopardize the success of such offering. If the Approved Underwriter advises the
Company in writing that in its opinion the aggregate  amount of such Registrable
Securities  requested to be included in such offering is  sufficiently  large to
have a material adverse effect on the success of such offering, then the Company
shall  include in such  registration  only the aggregate  amount of  Registrable
Securities  that in the opinion of the Approved  Underwriter may be sold without
any such  material  adverse  effect and shall  reduce the amount of  Registrable
Securities to be included in such registration;  provided,  however, that if the
number of  Registrable  Securities  to be included in a Demand  Registration  is
reduced by the Approved  Underwriter,  then the undersigned shall be entitled to
retain  a  Demand  Registration  with  respect  to such  number  of  Registrable
Securities excluded by the Approved  Underwriter,  provided that such Initiating
Holder may not  initiate  such  Demand  Registration  within  nine months of the
effective  date  of the  Registration  Statement  with  respect  to  the  Demand
Registration  in  which  the  Approved  Underwriter  excluded  such  Registrable
Securities.

(d)  Selection  of  Underwriters.  If any  Demand  Registration  of  Registrable
Securities is in the form of an underwritten  offering, the Company shall select
and obtain an  investment  banking  firm of  national  reputation  to act as the
managing  underwriter of the offering with the consent of the  undersigned  (the
"Approved   Underwriter");   provided,   however,  such  consent  shall  not  be
unreasonably withheld.

(e) Incidental or "Piggy-Back"  Registration.  At any time after the Closing, if
the Company  proposes to file a registration  statement under the Securities Act
with  respect to an offering  by the  Company for its own account  (other than a
registration  statement on Form S-4 or S-8 or any successor  thereto),  then the
Company shall give written notice of such proposed  filing to the undersigned at
least 30 days before the anticipated filing date, and such notice shall describe
the  proposed  registration  and  distribution  and  offer the  undersigned  the
opportunity  to register  the number of Shares the  undersigned  may request (an
"Incidental  Registration").  The Company  shall,  and shall use its  reasonable
efforts (within ten days of the notice  provided for in the preceding  sentence)
to cause the managing  underwriter or  underwriters  of a proposed  underwritten
offering (the "Company Underwriter") to permit the undersigned to participate in
the  Incidental  Registration  to include all or a portion of the Shares in such
offering  on the same terms and  conditions  as the  securities  of the  Company
included  therein.  In connection  with any Incidental  Registration  under this
Section 5(e)  involving an  underwriting,  the Company  shall not be required to


                                     - 22 -
<PAGE>
include any Shares in such underwriting unless the undersigned accepts the terms
of the  underwriting  as  reasonably  agreed  upon  between  the Company and the
Company Underwriter,  and then only in such quantity as will not, in the opinion
of the  Company  Underwriter,  jeopardize  the  success of the  offering  by the
Company.  If in the written opinion of the Company  Underwriter the registration
of all or part of the  Shares  requested  by the  undersigned  would  materially
adversely affect such offering, then the Company shall be required to include in
such  Incidental  Registration,  to the  extent of the amount  that the  Company
Underwriter believes may be sold without causing such adverse effect, first, all
of the  securities  to be offered for the account of the  Company;  second,  any
securities of third parties with  contractual  rights  requiring  such priority,
third,  the Shares to be offered for the account of the undersigned  pursuant to
this  Section  5(e),  pro rata based on the amount  recommended  by the  Company
Underwriter;  and forth, any other  securities  requested to be included in such
underwriting.

(f) Expenses of  Registration.  All  expenses,  except the Selling  Expenses (as
defined herein) incurred in connection with any  registration,  qualification or
compliance  pursuant to Section 5 hereof shall be borne by the Company.  All any
and all underwriting  discounts and selling  commissions  incurred in connection
with any registrations  hereunder  ("Selling  Expenses"),  shall be borne by the
holders of the  securities so registered  pro rata on the basis of the number of
shares so registered.

(g) Indemnification.  In connection with any registration statement in which the
undersigned is participating pursuant to Section 5 hereof, the undersigned shall
furnish to the Company in writing such information as the Company may reasonably
request  or as may be  required  by law  for use in  connection  with  any  such
registration statement or prospectus and the undersigned agrees to indemnify and
hold  harmless,  to the  fullest  extent  permitted  by law,  the  Company,  any
underwriter  retained by the Company and their respective  directors,  officers,
employees,  advisors and agents and each Person who controls the Company or such
underwriter  (within the  meaning of the  applicable  securities  laws) from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of  investigation)  arising out of or based upon any untrue, or
allegedly  untrue,  statement of a material fact  contained in any  registration
statement,  prospectus or  preliminary  prospectus or  notification  or offering
circular (as amended or  supplemented  if the Company  shall have  furnished any
amendments or supplements  thereto) or arising out of or based upon any omission
or alleged  omission  to state  therein a material  fact  required  to be stated
therein or  necessary  to make the  statements  therein not  misleading,  except
insofar as the same are caused by or contained in any information concerning the
undersigned furnished in writing to the Company by the undersigned expressly for
use therein;  provided,  however, that the total amount to be indemnified by the
undersigned  pursuant to this  Section 5(g) shall be limited to the net proceeds
received by the undersigned in the offering to which the registration  statement
or prospectus relates.



                                     - 23 -

</TEXT>
</DOCUMENT>
