U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

[X]      Annual report under section 13 or 15(d) of the Securities Exchange Act
         of 1934 [FEE REQUIRED] for the fiscal year ended June 30, 1999
[   ]    Transition report under section 13 or 15(d) of the Securities Exchange
         Act of 1934 [NO FEE REQUIRED] for the transition period from       to

Commission file number: 0-23524

                                    PHC, INC.
                 (Name of small business issuer in its charter)

MASSACHUSETTS                                            04-2601571
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
Incorporation or organization)


200 LAKE STREET,  SUITE 102, PEABODY,  MA                       01960
 (Address of principal executive offices)                     (Zip Code)


Issuer's telephone number:  (978) 536-2777 (New area code)

              Securities registered under Section 12(b) of the Act:

                                      NONE.

              Securities registered under Section 12(g) of the Act:

                 CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (Title of class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days. Yes X No

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. No Disclosure  X

The issuer's revenues for the fiscal year ended June 30, 1999 were $ 19,139,496.

The aggregate market value of the voting stock held by  non-affiliates  computed
by  reference  to the price at which the stock was sold,  or the average bid and
asked prices of such stock,  as of  September  15, 1999,  was  $6,353,776.  (See
definition of affiliate in Rule 12b-2 of Exchange Act).

At September 15, 1999, 5,610,194 shares of the issuer's Class A Common Stock and
727,170 shares of the issuer's Class B Common Stock were outstanding.

                 TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT:
                                    Yes No X




<PAGE>

PART I

ITEM 1.           DESCRIPTION OF BUSINESS

INTRODUCTION

     PHC, Inc. with its  subsidiaries  (the "Company") is a national health care
company specializing in the treatment of substance abuse, which includes alcohol
and drug dependency and related  disorders,  and in the provision of psychiatric
services.   The  Company  currently   operates  two  substance  abuse  treatment
facilities:  Highland Ridge Hospital, located in Salt Lake City, Utah; and Mount
Regis Center,  located in Salem,  Virginia,  near Roanoke and eight  psychiatric
facilities:  Harbor Oaks Hospital,  a 64-bed psychiatric hospital located in New
Baltimore,  Michigan;  Harmony Healthcare,  a provider of outpatient  behavioral
health  services at two locations in the Las Vegas,  Nevada area;  Total Concept
EAP, a provider of outpatient  behavioral  health  services in Shawnee  Mission,
Kansas;  and North  Point-Pioneer,  Inc.  ("NPP") which operates four outpatient
behavioral  health  centers  under  the name  Pioneer  Counseling  Center in the
greater  Detroit  metropolitan  area.  The Company also  operates  BSC-NY,  Inc.
("BSC"), which provides management and administrative  services to psychotherapy
and  psychological  practices  in the greater New York City  metropolitan  area.
Through its subsidiary,  Behavioral Health Online,  Inc.,  ("BHO"),  the company
operates its web site, Behavioralhealthonline.com.

     The Company's  substance abuse  facilities  provide  specialized  treatment
services to patients who  typically  have poor  recovery  prognoses  and who are
prone to  relapse.  These  services  are  offered  in small  specialty  care and
subacute  facilities (i.e.,  facilities  designed to provide care to individuals
who no longer require  hospital care but who require some medical  care),  which
permits  the  Company to provide  its  clients  with  efficient  and  customized
treatment  without the  significant  costs  associated  with the  management and
operation of general acute care  hospitals.  The Company  tailors these programs
and services to  "safety-sensitive"  industries and  concentrates  its marketing
efforts  on the  transportation,  oil  and  gas  exploration,  heavy  equipment,
manufacturing, law enforcement, gaming, and health services industries.

     Harbor Oaks provides psychiatric care to children,  adolescents and adults.
The Company draws patients from the local  population and uses the facility as a
mental health  resource to complement its substance  abuse  facilities.  Harmony
Healthcare  and  Total  Concept  provide   psychiatric   treatment  for  adults,
adolescents and children.  BSC is a manager of psychological  service  providers
with contracts at over 35 long-term  care  facilities.  NPP provides  outpatient
psychiatric  treatment for adults,  adolescents and children in the Metropolitan
Detroit area.

     Behavioral  Health  Online,  Inc.  designs,   develops  and  maintains  the
Company's web site,  Behavioralhealthonline.com.  The web site,  was designed to
provide   products,   information,   and   instruction   to  behavioral   health
professionals and consumers for a fee.

     In May  1998 the  Company  closed  Good  Hope  Center,  a  substance  abuse
treatment  facility located in West Greenwich,  Rhode Island and entered into an
agreement  terminating the lease for the facility.  All  obligations  under this
closure  agreement  were met by June 30, 1999.  In June,  1998 the Company's sub
acute long-term care facility,  Franvale Nursing and  Rehabilitation  Center, in
Braintree,  Massachusetts  was closed in a State  Receivership  action which was
precipitated when the Company caused the owner of the Franvale facility, Quality
Care Centers of Massachusetts,  Inc., to institute a proceeding under Chapter 11
of the Federal  Bankruptcy Code. The  receivership was terminated  September 16,
1998 and on October 5, 1998 Quality Care Centers of Massachusetts,  Inc. filed a
Chapter 7  bankruptcy  petition.  A Trustee  has been  appointed;  however,  the
bankruptcy  proceedings have not been finalized.  For additional information see
"Business-Closed  and  Discontinued  Operations-Franvale."  In January  1999 the
Company  closed  its  80%  owned  outpatient  operations  in  Virginia,  Pioneer
Counseling  of  Virginia,  Inc.  The Company  sold this  business   and retained
accounts  receivable and most fixed assets,  to the minority  owners in exchange
for their shares of stock in Pioneer Counseling of Virginia, Inc., approximately
$25,000,  release  from the first  mortgage  on the  property  of  approximately
$506,000 and release from Notes Payable to the minority owners of $20,000.

     The Company intends to limit its business  operations to behavioral  health
through facilities  providing services to particular markets through customized,
outcome-oriented  programs,  which the Company  believes  produce  overall  cost
savings  to the  patient  or client  organization  and its web site  which  will
provide  behavioral health  professionals with the educational tools required to
keep them  abreast  of  behavioral  health  breakthroughs  and keep  individuals
informed of current issues in behavioral health of interest to them.

     The  Company's   substance  abuse  facilities  provide  treatment  services
designed to prevent relapse.  Such services,  while potentially more costly on a
per patient stay basis,  often  result in long-term  health care cost savings to
insurers, patients and patients' families. The goal of the Company's psychiatric
treatment  programs  is to  provide  care  at  the  lowest  level  of  intensity
appropriate  for the patient in an  integrated  delivery  system  that  includes
inpatient and outpatient treatment  opportunities.  The integrated nature of the
Company's  psychiatric  programs,  which generally  involves the same caregivers
supervising different treatment modalities, provides for efficient care delivery
and the avoidance of repeat procedures and diagnostic and therapeutic errors.

     The Company was organized as a Delaware  corporation in 1976 under the name
American International Health Services, Inc. In 1980, the Company merged into an
inactive  publicly  held   Massachusetts   Corporation  and  was  the  surviving
corporation  in the merger.  The Company  changed its name to "PHC,  Inc." as of
November 24, 1992.  The Company is based in  Massachusetts  and is  unaffiliated
with an  inactive  Minnesota  corporation  of the same name.  The  Company  does
business  under the trade name  "Pioneer  Healthcare"  and  "Pioneer  Behavioral
Health."  With the  exception of the services  provided  directly by the Company
under the name Pioneer Development  Support Services,  the Company operates as a
holding company, providing administrative, legal and programmatic support to its
subsidiaries.  The Company's  executive  offices are located at 200 Lake Street,
Suite  102,  Peabody,  Massachusetts,  01960 and its  telephone  number is (978)
536-2777.

PSYCHIATRIC SERVICES INDUSTRY

Substance Abuse Facilities

         Industry Background

     The demand for substance abuse treatment  services increased rapidly in the
last  decade.  The  Company  believes  that the  increased  demand is related to
clinical  advances  in  the  treatment  of  substance  abuse,  greater  societal
willingness  to  acknowledge  the  underlying  problems as treatable  illnesses,
improved  health  insurance  coverage  for  addictive   disorders  and  chemical
dependencies  and governmental  regulation  which requires certain  employers to
provide  information to employees about drug counseling and employee  assistance
programs.

     To contain costs  associated  with  behavioral  health issues in the 1980s,
many private payors instituted  managed care programs for  reimbursement,  which
included pre-admission certification,  case management or utilization review and
limits on financial coverage or length of stay. These cost containment  measures
have  encouraged  outpatient  care  for  behavioral  problems,  resulting  in  a
shortening of the length of stay and revenue per day in inpatient chemical abuse
facilities.  The Company  believes that it has addressed these cost  containment
measures by specializing in treating  relapse-prone patients with poor prognoses
who have failed in other  treatment  settings.  These  patients  require  longer
lengths of stay and come from a wide geographic  area. The Company  continues to
develop  alternatives  to  inpatient  care  including  partial  day and  evening
programs in addition to on site and off site outpatient programs.

     The Company  believes  that because of the apparent  unmet need for certain
clinical and medical services, its strategy has been successful despite national
trends  towards  outpatient  treatment,  shorter  inpatient  stays and  rigorous
scrutiny by managed care organizations.


         Company Operations

     The Company has been able to secure insurance reimbursement for longer-term
inpatient treatment as a result of its success with poor prognosis patients. The
Company's two substance abuse  facilities work together to refer patients to the
center that best meets the patient's  clinical and medical needs.  Each facility
caters  to  a  slightly  different  patient  population   including   high-risk,
relapse-prone  chronic  alcoholics,  drug  addicts,  minority  groups  and  dual
diagnosis  patients  (those  suffering from both substance abuse and psychiatric
disorders).  The Company concentrates on providing services to insurers, managed
care  networks  and  health  maintenance   organizations  for  both  adults  and
adolescents.  The  Company's  clinicians  often work  directly  with managers of
employee  assistance programs to select the best treatment facility possible for
their clients.

     Each of the Company's  facilities  operates a case  management  program for
each  patient  including  a clinical  and  financial  evaluation  of a patient's
circumstances to determine the most  cost-effective  modality of care from among
outpatient treatment,  detoxification,  inpatient, day care, specialized relapse
treatment  and others.  In addition to any care provided at one of the Company's
facilities,  the case management  program for each patient  includes  aftercare.
Aftercare  may  be  provided  through  the  outpatient  services  provided  by a
facility.  Alternatively,  the Company may arrange for outpatient aftercare,  as
well as family and mental  health  services,  through its numerous  affiliations
with clinicians located across the country once the patient is discharged.

     In general,  the Company  does not accept  patients  who do not have either
insurance coverage or adequate financial resources to pay for treatment. Each of
the Company's substance abuse facilities does,  however,  provide treatment free
of charge  to a small  number of  patients  each year who are  unable to pay for
treatment,  but who meet certain  clinical  criteria and who are believed by the
Company  to  have  the  requisite  degree  of  motivation  for  treatment  to be
successful. In addition, the Company provides follow-up treatment free of charge
to relapse  patients who satisfy  certain  criteria.  The number of patient days
attributable  to all patients who receive  treatment free of charge in any given
fiscal year is less than 5%.

     The Company  believes that it has benefited from an increased  awareness of
the need to make substance abuse treatment  services  accessible to the nation's
workforce.  For  example,  subchapter  D of the  Anti-Drug  Abuse  Act  of  1988
(commonly  known as The Drug Free  Workplace  Act),  requires  employers who are
Federal contractors or Federal grant recipients to establish drug free awareness
programs to inform employees about available drug counseling, rehabilitation and
employee assistance  programs and the consequences of drug abuse violations.  In
response to the Drug Free  Workplace Act, many  companies,  including many major
national corporations and transportation  companies,  have adopted policies that
provide for treatment options prior to termination of employment.

     Although  the Company does not provide  federally  approved  mandated  drug
testing, the Company treats employees who have been referred to the Company as a
result  of  compliance  with the Drug  Free  Workplace  Act,  particularly  from
companies  that are part of the  gaming  industry  as well as  safety  sensitive
industries such as railroads,  airlines, trucking firms, oil and gas exploration
companies,  heavy  equipment  companies,   manufacturing  companies  and  health
services.


<PAGE>
         HIGHLAND RIDGE

     Highland  Ridge  is a  34-bed,  freestanding  alcohol  and  drug  treatment
hospital,  which the Company  has been  operating  since 1984.  It is the oldest
facility  dedicated to substance abuse in Utah.  Highland Ridge is accredited by
the Joint Commission on Accreditation of Healthcare  Organizations ("JCAHO") and
is licensed  by the Utah  Department  of Health.  Highland  Ridge is  recognized
nationally for its excellence in treating substance abuse disorders.

     Most patients are from Utah and surrounding states.  Individuals  typically
access Highland Ridge's services through professional referrals, family members,
employers,  employee  assistance  programs or contracts  between the Company and
health maintenance organizations located in Utah.

     Highland  Ridge  was the  first  private  for-profit  hospital  to  address
specifically  the  special  needs of  chemically  dependent  women in Salt  Lake
County.  In addition,  Highland  Ridge has  contracted  with Salt Lake County to
provide medical  detoxification  services  targeted to women.  The hospital also
operates a specialized continuing care support group to address the unique needs
of women and minorities.

     A pre-admission evaluation,  which involves an evaluation of psychological,
cognitive and situational factors, is completed for each prospective patient. In
addition,  each  prospective  patient  is  given  a  physical  examination  upon
admission.   Diagnostic  tools,   including  those  developed  by  the  American
Psychological  Association,  the American Society of Addiction  Medicine and the
Substance Abuse Subtle Screening Inventory are used to develop an individualized
treatment   plan  for  each   client.   The   treatment   regimen   involves  an
interdisciplinary  team which integrates the twelve-step principles of self-help
organizations,  medical detoxification,  individual and group counseling, family
therapy,  psychological  assessment,  psychiatric  support,  stress  management,
dietary planning,  vocational  counseling and pastoral  support.  Highland Ridge
also offers extensive aftercare assistance at programs  strategically located in
areas of client  concentration  throughout  the United  States.  Highland  Ridge
maintains a comprehensive  array of professional  affiliations to meet the needs
of discharged  patients and other  individuals  not admitted to the hospital for
treatment.

     Highland Ridge periodically  conducts or participates in research projects.
Highland  Ridge  was the  site of a recent  research  project  conducted  by the
University  of Utah  Medical  School.  The research  explored  the  relationship
between individual motivation and treatment outcomes. The research was regulated
and reviewed by the Human  Subjects  Review Board of the  University of Utah and
was  subject  to  federal  standards  that  delineated  the  nature and scope of
research  involving human subjects.  Highland Ridge benefited from this research
by expanding its professional  relationships within the medical school community
and by applying  the findings of the research to improve the quality of services
the Company delivers.


SPECIALIZED TREATMENT SERVICE

     In the  spring of 1994,  the  Company  began to  operate  a crisis  hotline
service under contract with a major transportation client. The hotline,  Pioneer
Development Support Services, or PDS2 ("PDS2"), is a national, 24-hour telephone
service,  which  supplements  the  services  provided by the  client's  Employee
Assistance  Programs.   The  services  provided  include   information,   crisis
intervention,  critical  incidents  coordination,  employee  counselor  support,
client monitoring,  case management and health promotion. The hotline is staffed
by counselors who refer callers to the  appropriate  professional  resources for
assistance  with  personal  problems.   Four  major   transportation   companies
subscribed to these  services as of June 30, 1999.  This operation is physically
located in Highland Ridge  Hospital,  but a staff dedicated to PDS2 provides the
services. PDS2 is currently operated by the parent entity, PHC, Inc.


         MOUNT REGIS

     Mount Regis is a 25-bed,  freestanding  alcohol and drug  treatment  center
located in Salem,  Virginia,  near Roanoke.  The Company  acquired the center in
1987.  It is the  oldest  of its  kind in the  Roanoke  Valley.  Mount  Regis is
accredited by the JCAHO, and licensed by the Department of Mental Health, Mental
Retardation  and Substance Abuse Services of the  Commonwealth  of Virginia.  In
addition,  Mount Regis operates Changes,  a freestanding  outpatient clinic. The
Changes clinic provides structured  intensive  outpatient treatment for patients
who have been  discharged  from Mount Regis and for patients who do not need the
formal structure of a residential  treatment program. The program is licensed by
the  Commonwealth of Virginia and approved for  reimbursement by major insurance
carriers

     Mount  Regis  Center's  programs  are  sensitive  to  needs  of  women  and
minorities.   The  majority  of  Mount  Regis  clients  are  from  Virginia  and
surrounding  states. In addition,  because of its relatively close proximity and
accessibility  to New York,  Mount Regis has been able to attract an  increasing
number  of  referrals  from  New  York-based  labor  unions.   Mount  Regis  has
established  programs  that  allow the  Company to better  treat dual  diagnosis
patients (those suffering from both substance abuse and psychiatric  disorders),
cocaine  addiction  and  relapse-prone  patients.  The  multi-disciplinary  case
management, aftercare and family programs are key to the prevention of relapse.


<PAGE>

General Psychiatric Facilities

Introduction

     The  Company  believes  that its proven  ability to provide  high  quality,
cost-effective  care in the treatment of substance  abuse has enabled it to grow
in the related behavioral health field of psychiatric  treatment.  The Company's
main  advantage  is its  ability  to provide an  integrated  delivery  system of
inpatient and outpatient care. As a result of integration, the Company is better
able to manage and track patients.

     The  Company  offers  inpatient  and  partial  hospitalization   psychiatry
services through Harbor Oaks Hospital. The Company also currently operates seven
outpatient psychiatric facilities.

     The  Company's  philosophy  at  these  facilities  is to  provide  the most
appropriate and efficacious care with the least restrictive modality of care. An
attending physician and a case manager with continuing  oversight of the patient
as the patient  receives  care in different  locations  or programs  handle case
management.  The integrated  delivery system allows for better patient  tracking
and follow-up, and fewer repeat procedures and therapeutic or diagnostic errors.
Qualified,  dedicated  staff members take a full history on each new patient and
through  test and  evaluation  procedures  they  provide  a thorough  diagnostic
write-up of the  patient's  condition.  In addition a Physician  does a complete
physical  examination  for  each  new  patient.   This  information  allows  the
caregivers  to  determine  which  treatment  alternative  is best suited for the
patient and to design an individualized recovery program for the patient.

     Managed health care organizations,  state agencies, physicians and patients
themselves  refer patients to our  facilities.  These  facilities have a patient
population  ranging from children as young as 5 years of age to senior citizens.
The psychiatric facilities treat a larger percentage of female patients than the
substance abuse facilities.

HARBOR OAKS

     The Company acquired Harbor Oaks Hospital,  a 64-bed  psychiatric  hospital
located in New Baltimore, Michigan, approximately 20 miles northeast of Detroit,
in September 1994.  Harbor Oaks Hospital is licensed by the Michigan  Department
of  Commerce  and it is  accredited  by JCAHO.  Harbor Oaks  provides  inpatient
psychiatric care, partial  hospitalization and outpatient treatment to children,
adolescents and adults.  Harbor Oaks Hospital has serviced  clients from Macomb,
Oakland and St. Clair Counties and has now expanded its coverage area to include
Wayne, Sanilac and Livingston Counties.

     Until March 1998,  Harbor Oaks Hospital worked in conjunction with New Life
Treatment  Centers,  Inc.  ("New  Life")  to offer  counseling  programs  with a
traditional  Christian  philosophy on an inpatient  and partial  hospitalization
basis.  The Company and New Life terminated the contract by mutual  agreement on
May 22, 1998.

     The Company  utilizes the Harbor Oaks facility as a mental health  resource
to complement its nationally focused substance abuse treatment programs.  Harbor
Oaks Hospital has a specialty  program that treats  substance abuse patients who
have a coexisting  psychiatric  disorder.  This program  provides an  integrated
holistic  approach to the treatment of individuals who have both substance abuse
and  psychiatric  problems.  Both adults and  adolescents  can benefit from this
program.

     On February  10, 1997,  Harbor Oaks  Hospital  opened an 8-bed  adjudicated
residential  unit  serving  adolescents  with a  substance  abuse  problem and a
co-existing mental disorder who have been adjudicated to have committed criminal
acts and who have been referred or required to undergo psychiatric  treatment by
a court or family service  agency.  The patients in the program range from 13 to
18 years of age. The program provides patients with educational and recreational
activities and adult life functioning skills as well as treatment.  Typically, a
patient is admitted to the unit for an initial  period of 30 days to six months.
A case  review is done for any patient  still in the program at six months,  and
each  subsequent  six-month  period  thereafter,   to  determine  if  additional
treatment is required.  State authorization  allowed the Company to increase the
number of beds in the adjudicated  residential unit to twelve on May 1, 1998 and
twenty on June 26, 1998.

     In  addition  to  direct  patient  care,   Harbor  Oaks  works  with  major
manufacturers  of  psychiatric  pharmaceuticals  to  assist  in the study of the
effects of certain FDA approved  products in the  treatment  of specific  mental
illness.

     Harmony Healthcare

     Harmony  Healthcare,  which consists of two psychiatric  clinics in Nevada,
provides outpatient psychiatric care to children,  adolescents and adults in the
local area.  Harmony also operates employee  assistance  programs for railroads,
health care companies and several large casino  companies  including Boyd Gaming
Corporation,  the MGM Grand, the Mirage and Treasure Island resorts with a rapid
response  program to provide  immediate  assistance 24 hours a day. Harmony also
provides outpatient  psychiatric care and inpatient  psychiatric case management
through  a  capitated  rate  behavioral   health  carve-out  with  Pacific  Care
Insurance.


     Total Concept EAP

     Total Concept,  an outpatient  clinic located in Shawnee  Mission,  Kansas,
provides psychiatric and substance abuse treatment to children,  adolescents and
adults and manages employee  assistance  programs for local businesses,  gaming,
railroads and managed health care companies.


     North Point-Pioneer, Inc.

     NPP consists of four psychiatric  clinics in Michigan.  The clinics provide
outpatient  psychiatric and substance  abuse treatment to children,  adolescents
and adults operating under the name Pioneer  Counseling Center. The four clinics
are located in close proximity to the Harbor Oaks facility,  which provides more
efficient  integration of inpatient and outpatient  services,  a larger coverage
area and the ability to share personnel which results in cost savings.


     BSC-NY, Inc.

     BSC provides  management and  administrative  services to psychotherapy and
psychological practices in the greater New York City metropolitan area.

     Behavioral Health Online, Inc.

     BHO   designs,   develops   and   maintains   the   Company's   web   site,
Behavioralhealthonline.com.  The web site when fully  operational  will  provide
behavioral health professionals with the educational tools required to keep them
abreast of behavioral  health  breakthroughs  and keep  individuals  informed of
current  issues in behavioral  health of interest to them. The site was launched
in May 1999.

<PAGE>
Operating Statistics

     The following table reflects selected financial and statistical information
for all psychiatric services.
                                              Year Ended June 30,

                                      1999             1998               1997

  Inpatient*

  Net patient service revenues    $ 10,491,517     $ 13,640,801    $ 13,557,703

  Net revenues per patient day(1) $        400     $        476    $        414

  Average occupancy rate (2)             58.4%            51.7%           58.8%

  Total number of licensed beds at
     end of period                         123              123             172

  Source of Revenues:

       Private (3)                        81.5%            86.9%          91.6%

       Government (4)                     18.5%            13.1%           8.4%

  Partial Hospitalization and Outpatient
  Net Revenues:*
       Individual                   $ 5,356,008       $4,705,454    $ 5,629,760

       Contract                     $ 1,682,453      $ 1,423,098    $ 1,459,580

  Sources of revenues:

       Private                            98.9%            94.0%          98.4%

       Government                          1.1%             6.0%           1.6%

Other Psychiatric Services
                  PDSS (5)          $   942,637      $   763,086    $   629,761

        Practice Management (6)     $   576,881      $   713,750    $   650,852


* Includes revenue from Good Hope Center which was closed in May 1998:
      Inpatient                     $         0      $1,012,679     $ 1,300,745
      Outpatient                    $         0      $  331,057     $   457,018
* Includes  revenue  from  Pioneer  Counseling  of Virginia which was closed in
  January 1999:
      Outpatient                    $   537,688      $  963,352     $   227,601

(1)  Net revenues per patient day equals net patient service revenues divided by
     total patient days.
(2)  Average  occupancy  rates were  obtained  by dividing  the total  number of
     patient days in each period by the number of beds available in such period.
(3)  Private pay percentage is the percentage of total patient  revenue  derived
     from all payors other than Medicare and Medicaid.
(4)  Government  pay  percentage  is the  percentage  of total  patient  revenue
     derived  from  the  Medicare  and  Medicaid  programs.
(5)  PDSS, Pioneer Development and Support Services,  provides clinical support,
     referrals  management  and  professional  services  for  a  number  of  the
     Company's national contracts.
(6) Practice Management revenue is produced through BSC-NY.

Closed and Discontinued Operations

     Franvale

     The Company engaged Oasis Management  Company ("Oasis") on November 1, 1996
to June 30, 1997 to provide  management  services to  Franvale.  On February 19,
1997, the Massachusetts  Department of Public Health, as the result of a routine
survey,   cited  the  Company's  Franvale  Nursing  and  Rehabilitation   Center
("Franvale") for serious patient care and safety deficiencies. The State imposed
a civil  penalty on the  Company of $3,050 per day and  reduced it to $2,250 per
day on March 12, 1997.  The State reduced the fine to $90,545 in total after the
Company filed an appeal. The Department of Public Health and the federal agency,
HCFA,  notified the Company at the time of the original citation,  that Franvale
would be terminated from the Medicare and Medicaid  programs unless Franvale was
in  substantial  compliance  with  regulatory  requirements  by March 14,  1997.
Franvale  submitted a plan of correction to the  Department of Public Health and
on March 12,  1997,  as the result of a  resurvey  by the  Department  of Public
Health,  a  new  statement  of  deficiencies  was  issued,   which  contained  a
significant number of violations but recharacterized the level of seriousness of
the  deficiencies  to a  lower  degree  of  violation  and  which  extended  the
threatened date of termination to April 30, 1997.

     As a result of the new statement of deficiencies,  the Department of Public
Health had  precluded  the Company from  admitting  new patients to its Franvale
facility until at least April 30, 1997.  However, on April 11, 1997, the Company
received  authority to admit new  patients on a  case-by-case  basis.  The State
permitted previous patients to be readmitted to the Franvale facility only after
a  case-by-case  review by the  Department  of Public  Health.  The  Company was
obligated to notify the attending physician of each resident of Franvale who was
found  to have  received  substandard  care  of the  deficiency  notice  and was
obligated   also  to  notify  the   Massachusetts   board  which   licenses  the
administrator of Franvale.

     On April 19, 1997 the Department of Public Health,  Division of Health Care
Quality  completed a follow-up  survey of the Franvale Nursing Home. As a result
of this survey it was determined that all deficiencies  cited from the April 17,
1997 visit had been  corrected and the  restrictions  on  Franvale's  ability to
admit patients were lifted.

     The  Company   replaced  the  management  team  at  Franvale  and  expended
significant  sums for staffing and  programmatic  improvements in order to bring
the facility into  substantial  compliance at the earliest  possible  date.  The
Company  conducted  an  intensive  staff  review,  which  resulted  in  a  total
reorganization. The new staff was provided with in-service training.

     On January 29, 1998  Franvale  was again cited for patient  care and safety
deficiencies by the  Massachusetts  Department of Public Health as a result of a
routine  survey.  A civil penalty of $224,250 was imposed for the period of time
that the facility was not in compliance. At the time of the citation the Company
was notified by the Department of Public Health and by the federal agency, HCFA,
that Franvale would be terminated from the Medicare and Medicaid programs if the
facility was not in  substantial  compliance  with  regulatory  requirements  by
February 21, 1998. As a result of this  statement of  deficiencies  Franvale was
precluded from  readmitting  patients or admitting new patients.  As of February
13, 1998 the ban from  readmission  was  removed;  however,  Franvale  was still
unable to admit new  patients  until after the resurvey  was  completed  and the
facility was found to be in substantial compliance with Federal requirements.

     On April 14, 1998 the State completed the resurvey of Franvale to determine
if the facility had corrected all patient care and safety  deficiencies cited by
the  Massachusetts  Department  of Public Health in its January 29, 1998 routine
survey.  As a result of the resurvey the facility was found to be in substantial
compliance  with  regulatory  requirements.  In its letter of April 23, 1998 the
State  Department of Public Health  advised the facility that "all  deficiencies
were  found to have been  corrected"  and the  facility  "is now in  substantial
compliance  ...with  the  federal  regulations  applicable  to  long  term  care
facilities".  The  Department of Public Health also advised the facility in this
letter that it was  withdrawing  its  recommendation  to the Health Care Finance
Administration  (HCFA)  that  the  facility  certification  be  terminated,  and
recommending  the denial of payment for new  admissions  and any civil  monetary
penalties imposed on the facility cease as of the date the facility alleged that
it was in substantial compliance, which was March 29, 1998.

     Despite the successful survey as documented in the Department's letter, the
notice  continues by advising the facility  that the  "limitation  on admissions
previously  imposed ...  shall  remain in effect,  irrespective  of whether HCFA
accepts the state's  recommendation to rescind its pending Medicaid  termination
action,  on the grounds that the Department has initiated and there is currently
pending a license revocation action against the facility.

     On February 12, 1998, the Company entered into an Asset Purchase  Agreement
with Lexington  Healthcare Group, Inc. to sell  substantially all the assets and
liabilities  of Franvale  Nursing and  Rehabilitation  Center.  The inability of
Franvale to admit new patients and the State's pending  license  revocation made
completion of the sale an impossibility.

     As a result of the  decrease  in census  resulting  from the  inability  of
Franvale to admit new  patients and the  limitations  on its ability to re-admit
patients,  the monetary penalties and the expenses that had been incurred by the
Company in  correcting  the cited  deficiencies,  continued  facility  cash flow
deficit of approximately  $80,000 monthly, the stall of the sale of Franvale and
the  probability  that the  State  would  not lift the  admission  freeze on the
facility, the Company concluded that it should file for protection under Chapter
11 of the United States Bankruptcy Code for the wholly owned subsidiary  Quality
Care  Centers  of  Massachusetts,  Inc.  which  operates  Franvale  Nursing  and
Rehabilitation Center.

     On May 26, 1998  Franvale  Nursing  and  Rehabilitation  Center,  filed for
reorganization  under  Chapter 11 of the United  States  bankruptcy  Code in the
Eastern Division of the District of Massachusetts at Boston, Massachusetts.  The
case was  assigned  to C J Kenner.  On May 27, 1998 on motion of  Franvale,  the
court authorized the appointment of a Trustee and appointed Joseph Braunstein as
the Chapter 11 Trustee.  On May 29, 1998,  the Bankruptcy  Court  terminated the
Chapter 11 proceeding determining that there was no likelihood of reorganization
since the  prospective  acquirer of the facility was now imposing  certain terms
unacceptable  to all  interested  parties and that the  transfer of patients and
liquidation  of  assets  could  be  as  readily  effectuated  in a  state  court
receivership  under the aegis of the  Massachusetts  Health  Care  Statutes  and
accordingly  dismissed  the Chapter 11 case. On June 1, 1998, on the Petition of
the  Attorney  General of the  Commonwealth  of  Massachusetts  on behalf of the
Department of Public Health with the  acquiescence  of Franvale,  Robert Griffin
was  appointed by J. Kottmyer as Receiver to transfer the patients and close the
facility expeditiously.

     In October 1998 the Company's  Bankruptcy  Attorney  received  notification
that as of  September  30, 1998 the patient care  receivership  for Quality Care
Centers of Massachusetts,  Inc. was terminated.  On October 5, 1998, in response
to the termination of the State  Receivership,  the Company filed for protection
under Chapter 7 of the United States  bankruptcy Code in the Eastern Division of
the District of Massachusetts at Boston,  Massachusetts.  On October 7, 1998 the
court appointed Mark G. DeGiacomo as the Chapter 7 Trustee.

     As a consequence of Franvale's  bankruptcy and subsequent  receivership,  a
number of claims  have been  asserted  against  the  Company or may be  asserted
against the Company in the future. To date, such claims are as follows:

     The  Commonwealth of  Massachusetts  named Franvale,  the Company and Bruce
Shear as party  defendants in the  Commonwealth  receivership  action,  C.A. No.
98-2783 in the Superior Court,  Suffolk  County.  On June 28, 1999, the Superior
Court entered a judgment of dismissal, dismissing the case without prejudice and
without  costs,  as of September  16,  1998.  The Company  understands  that the
facility has been closed,  all patients  transferred  and that the  Commonwealth
receiver has resigned.

     The Commonwealth of Massachusetts  may institute a claim seeking to recover
any expenses  incurred but not recovered by the Commonwealth as a consequence of
Franvale's receivership. The Commonwealth has a receivership statute that allows
the  Commonwealth  to  seek  indemnification  for  receivership   expenses  from
"licensee[s],  persons  responsible  for the  affairs  of the  licensee,  or the
owner." Under  Commonwealth law, the Commonwealth could seek to hold the Company
liable as a "licensee" or "a person  responsible for the affairs of the licensee
[Franvale]."  Management  believes that there are defenses to any such claim. At
this time the potential claim does not appear to be a material  issue,  however,
since the Company  understands that Franvale's  collectible  accounts receivable
are far in excess of the operating  expenses and the  receiver's  fees that were
incurred during the receivership.

     On  or  about  September  14,  1998,  the  Company  and  its  wholly  owned
subsidiary,  Franvale,  were each served with  document  subpoenas in connection
with an on-going  investigation of Franvale being conducted by the Massachusetts
Medicaid  Fraud Control Unit. The focus of the  investigation  appears to be the
quality of patient  care  provided by  Franvale  during the period of early 1997
until the facility was placed into  receivership  in June 1998.  The Company has
cooperated fully with the  investigation  including the production of documents.
While no specific dollar demand has yet been asserted by the state, the Attorney
General's  office has  indicated  that a payment will be required to settle this
action.  Preliminary  negotiations  between  the Company and the State are under
way.

     The  Company  has  been  named as a  defendant  in a  proceeding  captioned
Healthcare  Services Group, Inc. v. Quality Care Centers of Massachusetts,  Inc.
and PHC,  Inc.,  C.A. No. 98-132 (Sup.  Ct.,  Suffolk Co.,  MA). The  plaintiff,
supplier of housekeeping and laundry services to Franvale, alleges two causes of
action against the Company in the Substitute First Amended  Complaint.  In Count
III (Accord and Satisfaction), plaintiff seeks $51,845 for the Company's alleged
breach of an  agreement  to pay  plaintiff  the  money it was owed.  In Count IV
(Guaranty), plaintiff alleges that the Company agreed to pay Franvale's debt but
did not do so;  plaintiff  seeks a judgment  of $67,412.  The  Company  filed an
answer  contesting   plaintiff's  claims.   Plaintiff  propounded  requests  for
admissions  to which the  Company  responded.  Plaintiff  recently  noticed  two
depositions  and served the Company with a request for documents.  Discovery was
set to close  September 1, 1999, but was extended by the consent of the parties.
At this time it is not possible for the Company to evaluate the likelihood of an
unfavorable  outcome or to predict the Company's potential loss. Based on the ad
damnum clause of the Substitute First Amended  Complaint,  the maximum potential
loss to the Company is alleged to be $67,412,  plus costs and interest  from the
date of demand.

     On or about  November  4, 1998,  Mellon US  Leasing,  a division  of Mellon
Leasing  Corporation,  a successor in interest to US Capital  Corp.  ("Mellon"),
brought a lawsuit  against the Company in the Superior  Court for Essex  County,
Massachusetts,  C.A. No. 98-2116. Mellon alleged that the Company had guaranteed
a lease  agreement  entered into by Quality Care  Centers of  Massachusetts,  on
which  Quality Care had  defaulted.  Mellon  sought  damages of  $222,005,  plus
interest costs and reasonable  attorney's  fees. Since the company did guarantee
of this debt of the  subsidiary at the inception of the lease,  on or about July
28, 1999, the Company and Mellon reached an agreement in principle,  although no
documents have yet been signed  memorializing  the settlement.  The terms of the
settlement  are that the  Company  will pay  Mellon the sum of  $150,000  over a
period of 36 months at the  interest  rate of 9 percent per year in exchange for
dismissal of the lawsuit and the execution of releases.

     The  liquidation of the assets and  liabilities of Franvale may result in a
non-cash financial  statement gain of approximately  $2,000,000.  In the quarter
ended  December  31,  1998 the  company  was  relieved  of the HUD  mortgage  of
approximately  $6,741,000 and  surrendered  the underlying  assets  amounting to
approximately  $4,329,000.  The  recognition of the gain has been deferred until
final resolution of all contingent liabilities.


<PAGE>

Good Hope Center

     Good Hope Center is a 49-bed substance abuse treatment  facility located in
West  Greenwich,  Rhode  Island  which,  until  May,  1998 was  operated  by the
Company's subsidiary PHC of Rhode Island, Inc.

     The Good Hope Center operated at a loss for the fiscal years ended June 30,
1998  and 1997  because  of a  decline  in  census,  length  of stay  and  lower
reimbursements  from third party payors.  Efforts to increase length of stay and
improve market share were unsuccessful requiring the closure of the facility.

     In May 1998 the  Company  closed  Good  Hope  Center  and  entered  into an
agreement  terminating  the lease for the  facility.  As of June 30,  1999,  the
company  paid all of the  expenses  related to the  facility  and met all of the
terms of the agreement.  During the fiscal year ended June 30, 1999, the Company
collected over $100,000 in accounts receivable  previously written off resulting
in Net Income of approximately $108,000 for the facility for the year.

Pioneer Counseling of Virginia, Inc.

     In June  1998 the  Company  decided  to close  the  Blacksburg  Clinic  and
consolidate  the  Blacksburg  resources  and  operations  with the Salem  Clinic
operations to enhance profitability of Pioneer Counseling of Virginia,  Inc. The
write  down of assets  and  anticipated  costs  related  to the  closing  of the
Blacksburg  clinic are  reflected in the  accompanying  June 30, 1998  Financial
Statements.  In December 1998 the Company decided to close the remaining Pioneer
Counseling of Virginia clinic located in Salem, Virginia.  Since the Company was
required by  contract  to give  30-days  notice to  contract  therapists  before
closing the clinic,  in January 1999 the Company closed its 80% owned outpatient
operations in Virginia,  Pioneer  Counseling of Virginia,  Inc. The Company sold
this  business,  excluding  accounts  receivable  and most fixed assets,  to the
minority  owners in exchange for their shares of stock in Pioneer  Counseling of
Virginia,  Inc.  approximately  $25,000,  release from the first mortgage on the
property  of  approximately  $506,000  and  release  from  Notes  Payable to the
minority owners of $20,000.


Operating Statistics

The following table reflects closed and discontinued operations:



                                               For the Year Ended
                                                     June 30
                                     1999             1998             1997

    Discontinued Operations
    Franvale:
        Loss                    $         0        $(2,220,296)    $(1,958,756)

    Closed Operations
    Good Hope Center
        Income (Loss)           $   108,372        $(1,540,772)    $  (642,119)

    Pioneer Counseling Centers of
      Virginia, Inc.
        Loss                    $  (811,957)      $   (583,188)    $  (120,914)


     The Company experienced a recovery of accounts written off resulting in net
income  from  Good Hope  Center in fiscal  year  1999.  No  further  significant
recoveries of this nature are expected in future periods.


Business Strategy

     The  Company's  objective  is to  become a  leading  national  provider  of
treatment services, specializing in substance abuse and psychiatric care.

     The Company focuses its marketing efforts on "safety-sensitive" industries.
This focus  results in  customized  outcome  oriented  programs that the Company
believes   produce   overall  cost  savings  to  the  patients   and/or   client
organizations.  The Company intends to leverage experience gained from providing
services to customers in certain  industries  that it believes  will enhance its
selling efforts within these certain industries.


 Marketing And Customers

     The  Company  markets  its  substance   abuse,   inpatient  and  outpatient
psychiatric  health  services both locally and  nationally,  primarily to safety
sensitive industries,  including transportation,  oil and gas exploration, heavy
machinery and equipment,  manufacturing and healthcare  services.  Additionally,
the Company  markets  its  services  in the gaming  industry  both in Nevada and
nationally.

     The Company  employs  six  individuals  dedicated  to  marketing  among the
Company's  facilities.  Each facility performs marketing activities in its local
region. The National Marketing Director of the Company  coordinates the majority
of the Company's national marketing efforts.  In addition,  employees at certain
facilities  perform national  marketing  activities  independent of the National
Marketing  Director.  The  Company,  with the  support  of its owned  integrated
outpatient  systems and  management  services,  continues to pursue more at-risk
contracts and  outpatient,  managed health care  fee-for-service  contracts.  In
addition to providing  excellent  services and treatment  outcomes,  the Company
will continue to negotiate  pricing  policies to attract  patients for long-term
intensive  treatment  which  meet  length  of  stay  and  clinical  requirements
established  by insurers,  managed health care  organizations  and the Company's
internal professional standards.

     The Company's  integrated system of comprehensive  outpatient mental health
clinics and physician  practices managed by the Company complement the Company's
inpatient  facilities.  These clinics and medical  practices  are  strategically
located in Nevada, Virginia, Kansas City, Michigan, Utah and New York. They make
it possible for the Company to offer wholly  integrated,  comprehensive,  mental
health services for corporations and managed care organizations on an at-risk or
exclusive  fee-for-service  basis.  Additionally,  the Company  operates Pioneer
Development  and Support  Services (PDS2) located in the Highland Ridge facility
in Salt Lake City, Utah. PDS2 provides clinical support,  referrals,  management
and professional  services for a number of the Company's national contracts.  It
gives the Company the capacity to provide a complete  range of fully  integrated
mental health services.

     The Company has been  successful in securing a number of national  accounts
with a variety of corporations  including:  Boyd Gaming, Canadian Rail, Conrail,
CSX, the IUE, MCC, MGM, Station Casinos,  Union Pacific Railroad,  Union Pacific
Railroad Hospital Association, VBH, and others.

     In addition to its direct patient care services,  the Company  launched its
web site, Behavioralhealthonline.com, in May 1999. Although many of the articles
published on the web site are of interest to the general  public,  the Company's
primary  target  market  is  the  behavioral  health  professional.  When  fully
operational the site will not only provide  information to the behavioral health
professional,  but will also provide a time and cost effective  alternative  for
acquiring the professional educational units required each year.


Competition

     The Company's substance abuse programs compete nationally with other health
care providers,  including  general and chronic care hospitals,  both non-profit
and for-profit,  other substance abuse facilities and short-term  detoxification
centers.  Some competitors have substantially  greater financial  resources than
the Company.  The Company believes,  however,  that it can compete  successfully
with  such  institutions  because  of its  success  in  treating  poor-prognosis
patients.  The Company  will  compete  through its focus on such  patients,  its
willingness to negotiate appropriate rates and its capacity to build and service
corporate relationships.

     The Company's psychiatric  facilities and programs compete primarily within
the  respective  geographic  area  serviced by them.  The Company  competes with
private doctors,  hospital-based clinics, hospital-based outpatient services and
other comparable facilities. The main reasons that the Company competes well are
its integrated  delivery and dual  diagnosis  programming.  Integrated  delivery
provides for more  efficient  follow-up  procedures  and reductions in length of
stay.  Dual  diagnosis  programming  provides a niche service for clients with a
primary mental health and a secondary  substance  abuse  diagnosis.  The Company
developed  its dual  diagnosis  service in  response  to demand  from  insurers,
employees and treatment facilities.


Revenue Sources And Contracts

     The Company has entered into relationships with numerous  employers,  labor
unions and third-party payors to provide services to their employees and members
for the treatment of substance abuse and psychiatric disorders. In addition, the
Company admits patients who seek treatment  directly without the intervention of
third  parties  and  whose   insurance  does  not  cover  these   conditions  in
circumstances  where the patient either has adequate financial  resources to pay
for  treatment  directly  or is  eligible  to  receive  free  care at one of the
Company's  facilities.  The Company's psychiatric patients either have insurance
or pay at least a portion of treatment costs. Free treatment  provided each year
amounts to less than 5% of the Company's total patient days.

     Each contract is negotiated  separately,  taking into account the insurance
coverage provided to employees and members, and, depending on such coverage, may
provide for  differing  amounts of  compensation  to the  Company for  different
subsets of employees and members. The charges may be capitated,  or fixed with a
maximum charge per patient day, and, in the case of larger  clients,  frequently
result in a  negotiated  discount  from the  Company's  published  charges.  The
Company  believes that such  discounts are  appropriate as they are effective in
producing a larger volume of patient admissions. The Company treats non-contract
patients  and bills them on the basis of the  Company's  standard per diem rates
and for any additional ancillary services provided to them by the Company.


Quality Assurance And Utilization Review

     The Company has established comprehensive quality assurance programs at all
of its  facilities.  These  programs are  designed to ensure that each  facility
maintains  standards that meet or exceed  requirements  imposed upon the Company
with the objective of providing  high-quality  specialized treatment services to
its patients.  To this end, the Joint  Commission on Accreditation of Healthcare
Organizations  ("JCAHO") survey and accredit the Company's inpatient  facilities
and the Company's  outpatient  facilities  comply with the standards of National
Commission  Quality  Assurance  ("NCQA")  although the  facilities  are not NCQA
certified.  The  Company's  professional  staff,  including  physicians,  social
workers, psychologists, nurses, dietitians, therapists and counselors, must meet
the minimal requirements of licensure related to their specific  discipline,  in
addition to each facility's own internal quality assurance criteria. The Company
participates in the federally  mandated National  Practitioners Data Bank, which
monitors professional accreditation nationally.

     In  response to the  increasing  reliance  of  insurers  and  managed  care
organizations upon utilization review  methodologies,  the Company has adopted a
comprehensive  documentation policy to satisfy relevant reimbursement  criteria.
Additionally,  the Company has  developed an internal  case  management  system,
which  provides  assurance  that services  rendered to  individual  patients are
medically  appropriate  and  reimbursable.   Implementation  of  these  internal
policies has been integral to the success of the Company's strategy of providing
services to relapse-prone, higher acuity patients.



Government Regulation

     The Company's  business and the  development and operation of the Company's
facilities  are  subject  to  extensive  federal,  state  and  local  government
regulation.  In recent years, an increasing number of legislative proposals have
been  introduced  at both the  national and state levels that would effect major
reforms  of the  health  care  system  if  adopted.  Among the  proposals  under
consideration   are  reforms  to  increase  the  availability  of  group  health
insurance, to increase reliance upon managed care, to bolster competition and to
require that all businesses offer health insurance  coverage to their employees.
The Company  cannot  predict  whether  any such  legislative  proposals  will be
adopted and, if adopted,  what effect,  if any, such proposals would have on the
Company's business.

     In  addition,  both the  Medicare  and  Medicaid  programs  are  subject to
statutory and regulatory  changes,  administrative  rulings,  interpretations of
policy, intermediary  determinations and governmental funding restrictions,  all
of which may  materially  increase or decrease  the rate of program  payments to
health care facilities. Since 1983, Congress has consistently attempted to limit
the growth of federal spending under the Medicare and Medicaid programs and will
likely continue to do so.  Additionally,  congressional  spending reductions for
the Medicaid program  involving the issuance of block grants to states is likely
to hasten the reliance upon managed care as a potential savings mechanism of the
Medicaid  program.  As a result of this reform  activity the Company can give no
assurance that payments under such programs will in the future remain at a level
comparable to the present level or be sufficient to cover the costs allocable to
such  patients.  In  addition,  many  states,   including  the  Commonwealth  of
Massachusetts  and the State of Michigan,  are  considering  reductions in state
Medicaid budgets.

     Health Planning Requirements

     Some of the states in which the  Company  operates,  and many of the states
where the Company may consider  expansion  opportunities,  have health  planning
statutes which require that prior to the addition or  construction  of new beds,
the addition of new services,  the acquisition of certain  medical  equipment or
certain  capital  expenditures  in  excess of  defined  levels,  a state  health
planning  agency must  determine  that a need exists for such new or  additional
beds, new services, equipment or capital expenditures. These state determination
of need or certificate of need ("DoN") programs are designed to enable states to
participate in certain  federal and state health  related  programs and to avoid
duplication  of health  services.  DoN's  typically  are issued for a  specified
maximum expenditure, must be implemented within a specified time frame and often
include  elaborate  compliance  procedures  for  amendment or  modification,  if
needed.  Several  states,  including the  Commonwealth  of  Massachusetts,  have
instituted moratoria on some types of DoN's or otherwise stated an intent not to
grant approvals for certain health services. Such moratoria may adversely affect
the Company's  ability to expand in such states,  but may also provide a barrier
to entry to potential competitors.

     Licensure and Certification

     State regulatory  authorities must license all of the Company's facilities.
The Company's Harbor Oaks facility is certified for  participation as a provider
in the Medicare and Medicaid programs.

     The  Company's  initial and  continued  licensure  of its  facilities,  and
certification to participate in the Medicare and Medicaid programs, depends upon
many  factors,  including  accommodations,  equipment,  services,  patient care,
safety,  personnel,  physical  environment,  the existence of adequate policies,
procedures  and controls and the  regulatory  process  regarding the  facility's
initial  licensure.  Federal,  state and local agencies  survey  facilities on a
regular  basis to  determine  whether such  facilities  are in  compliance  with
governmental  operating and health standards and conditions for participating in
government  programs.  Such surveys  include review of patient  utilization  and
inspection of standards of patient care.  The Company has procedures in place to
ensure that its  facilities  are operated in compliance  with all such standards
and conditions.  To the extent these standards are not met, however, the license
of a facility could be restricted,  suspended or revoked, or a facility could be
decertified from the Medicare or Medicaid programs.

     Medicare Reimbursement

     Currently  the  only  facility  of  the  Company  that  receives   Medicare
reimbursement  is Harbor Oaks. For the fiscal year ended June 30, 1999 13.11% of
revenues for Harbor Oaks were derived from Medicare programs.

     The Medicare program generally reimburses  psychiatric  facilities pursuant
to its prospective  payment system ("PPS"),  in which each facility  receives an
interim  payment of its allowable  costs during the year which is later adjusted
to reflect actual allowable direct and indirect costs of services based upon the
submission of a cost report at the end of each year.  However,  current Medicare
payment policies allow certain  psychiatric  service providers an exemption from
PPS. In order for a facility to be eligible for exemption from PPS, the facility
must  comply  with  numerous   organizational   and  operational   requirements.
PPS-exempt  providers  are cost  reimbursed,  receiving  the lower of reasonable
costs or reasonable charges. The Medicare program fiscal intermediary pays a per
diem rate based upon prior year costs, which may be retroactively  adjusted upon
the submission of annual cost reports.

     The  Harbor  Oaks  facility  is  currently  PPS-exempt.  The  amount of its
cost-based   reimbursement   may  be  limited  by  the  Tax  Equity  and  Fiscal
Responsibility Act of 1982 ("TEFRA") and regulations  promulgated under the Act.
Generally,  TEFRA limits the amount of reimbursement a facility may receive to a
target amount per discharge,  adjusted  annually for  inflation.  The facility's
reasonable Medicare operating costs divided by Medicare  discharges,  plus a per
diem  allowance for capital costs during its base year of operations  determines
the target  amount.  It is not possible to predict the ability of Harbor Oaks to
remain  PPS-exempt or to anticipate  the impact of TEFRA upon the  reimbursement
received by Harbor Oaks in future periods.

     In order to receive Medicare  reimbursement,  each  participating  facility
must meet the applicable  conditions of  participation  set forth by the federal
government  relating to the type of facility,  its equipment,  its personnel and
its standards of medical  care,  as well as compliance  with all state and local
laws and regulations.  In addition,  Medicare regulations generally require that
entry into such facilities be through physician referral. The Company must offer
services  to  Medicare  recipients  on a  non-discriminatory  basis  and may not
preferentially accept private pay or commercially insured patients.

     Medicaid  Reimbursement  Currently  the only  facility of the Company  that
receives  reimbursement  under any state  Medicaid  program  is Harbor  Oaks.  A
portion of Medicaid  costs is paid by states under the Medicaid  program and the
federal  matching  payments  are not made  unless the  state's  portion is made.
Accordingly,  the  timely  receipt of  Medicaid  payments  by a facility  may be
affected by the financial condition of the relevant state.

     Harbor Oaks is a participant in the Medicaid  program  administered  by the
State of  Michigan.  The  Company  receives  reimbursement  on a per diem basis,
inclusive  of  ancillary  costs.  The state  determines  the rate and adjusts it
annually based on cost reports filed by the Company.

     Fraud and Abuse Laws

     Various  federal and state laws  regulate  the business  relationships  and
payment  arrangements  between  providers and suppliers of health care services,
including employment or service contracts, and investment  relationships.  These
laws  include  the fraud and  abuse  provisions  of the  Medicare  and  Medicaid
statutes as well as similar state statutes  (collectively,  the "Fraud and Abuse
Laws"),  which prohibit the payment,  receipt,  solicitation  or offering of any
direct or indirect remuneration intended to induce the referral of patients, the
ordering,  arranging,  or providing  of covered  services,  items or  equipment.
Violations of these provisions may result in civil and criminal penalties and/or
exclusion   from   participation   in   the   Medicare,   Medicaid   and   other
government-sponsored  programs.  The federal  government has issued  regulations
that set forth certain "safe harbors,"  representing business  relationships and
payment  arrangements  that can safely be  undertaken  without  violation of the
federal  Fraud and Abuse  Laws.  Failure to fall  within a safe  harbor does not
constitute a per se violation of the federal  fraud and abuse laws.  The Company
believes that its business  relationships and payment  arrangements  either fall
within the safe harbors or otherwise comply with the Fraud and Abuse Laws.

Employees

     As of  September  15, 1999,  the Company had 299  employees of which 6 were
dedicated to marketing,  79 (12 part time) to finance and administration and 214
(91 part time) to patient  care.  All of the  Company's 299 employees are leased
from  Inovis,  formerly  International  Personnel  Resources,  LTD.  ("IPR"),  a
national  employee-leasing  firm. The Company has elected to lease its employees
to provide more favorable  employee  health benefits at lower cost than would be
available  to  the  Company  as a  single  employer  and  to  eliminate  certain
administrative  tasks which  otherwise would be imposed on the management of the
Company. The agreement provides that Inovis will administer payroll, provide for
compliance with workers'  compensation laws,  including  procurement of workers'
compensation  insurance  and  administering  claims,  and  procure  and  provide
designated  employee  benefits.  The  Company  retains  the right to reject  the
services of any leased employee and Inovis has the right to increase its fees at
any time upon thirty days' written  notice or  immediately  upon any increase in
payroll taxes, workers' compensation  insurance premiums or the cost of employee
benefits provided to the leased employees.

     The Company believes that it has been successful in attracting  skilled and
experienced  personnel.  Competition for such employees is intense,  however and
there can be no  assurance  that the Company  will be able to attract and retain
necessary qualified employees in the future. None of the Company's employees are
covered by a collective  bargaining  agreement.  The Company  believes  that its
relationships with its employees are good.

INSURANCE

     Each of the Company's facilities maintains separate professional  liability
insurance policies. Mount Regis, Harbor Oaks, Harmony Healthcare, Total Concept,
NPP and BSC  have  coverage  of  $1,000,000  per  claim  and  $3,000,000  in the
aggregate.  Highland  Ridge has limits of $1,000,000 per claim and $6,000,000 in
the aggregate. In addition,  these entities maintain general liability insurance
coverage in similar amounts.

     The Company  maintains  $1,000,000  of directors  and  officers'  liability
insurance  coverage,  general  liability  coverage of  $1,000,000  per claim and
$2,000,000  in  aggregate  and an  umbrella  policy of  $1,000,000.  The Company
believes,  based on its experience,  that its insurance coverage is adequate for
its business and that it will continue to be able to obtain adequate coverage.

ITEM 2.           DESCRIPTION OF PROPERTY

Executive Offices

     The Company's executive offices are located in Peabody, Massachusetts.  The
Company's new lease agreement in Peabody covers  approximately 4,800 square feet
for a 60-month  term,  which  expires  September  17, 2004.  The current  annual
payment  under the lease is $72,000 and  increases to $87,516 in the final year.
This space will also house Behavioral  Health Online,  Inc. The Company believes
that this  facility  will be adequate  to satisfy its needs for the  foreseeable
future.

Highland Ridge Hospital

     The Highland Ridge premises consist of approximately  24,000 square feet of
space occupying the majority of the first floor of a two-story hospital owned by
Valley  Mental  Health.  The Company is currently  operating on a month to month
basis until the lease is finalized. The lease currently in negotiations is for a
five-year agreement, which provides for monthly rental payments of approximately
$15,000,  which includes  housekeeping and maintenance for the first six months,
and  includes  changes  in rental  payments  each  year  based on  increases  or
decreases in the CPI.  After the initial six month term the  faqcility  will pay
yet   undetermined   additional   amount   each  month  for   housekeeping   and
maintenance.The  leae in its current  form would expire  December 31, 2004,  and
includes an option to renew for an additional five years.  The Company  believes
that these premises are adequate for its current and anticipated needs.

Mount Regis Center

     The Company owns the Mount Regis facility,  which consists of a three-story
wooden  building  located on an  approximately  two-acre  site in a  residential
neighborhood. The building consists of over 14,000 square feet and is subject to
a mortgage in the approximate amount of $460,000.  The facility is used for both
inpatient and outpatient services.  The Company believes that these premises are
adequate for its current and anticipated needs.

Psychiatric Facilities

     The Company owns or leases premises for each of its psychiatric facilities.
Harmony,  Total  Concept,  NPP and BSC each lease  their  premises.  The Company
believes that each of these premises is leased at fair market value and coule be
replaced without significant time or expense if necessary.  The Company believes
that all of these premises are adequate for its current and anticipated needs.

     The Company  owns the building in which  Harbor Oaks  operates,  which is a
single  story brick and wood frame  structure  comprising  approximately  32,000
square feet  situated  on an  approximately  three acre site.  The Company has a
$1,600,000  mortgage on this property.  The Company believes that these premises
are adequate for its current and anticipated needs.


ITEM 3.           LEGAL PROCEEDINGS.

     As a consequence of Franvale's  bankruptcy and subsequent  receivership,  a
number of claims  have been  asserted  against  the  Company or may be  asserted
against the Company in the future. To date, such claims are as follows:

     The  Commonwealth of  Massachusetts  named Franvale,  the Company and Bruce
Shear as party  defendants in the  Commonwealth  receivership  action,  C.A. No.
98-2783 in the Superior Court,  Suffolk  County.  On June 28, 1999, the Superior
Court entered a judgment of dismissal, dismissing the case without prejudice and
without  costs,  as of September  16,  1998.  The Company  understands  that the
facility has been closed,  all patients  transferred  and that the  Commonwealth
receiver has resigned.

     The Commonwealth of Massachusetts  may institute a claim seeking to recover
any expenses  incurred but not recovered by the Commonwealth as a consequence of
Franvale's receivership. The Commonwealth has a receivership statute that allows
the  Commonwealth  to  seek  indemnification  for  receivership   expenses  from
"licensee[s],  persons  responsible  for the  affairs  of the  licensee,  or the
owner." Under  Commonwealth law, the Commonwealth could seek to hold the Company
liable as a "licensee" or "a person  responsible for the affairs of the licensee
[Franvale]."  Management  believes that there are defenses to any such claim. At
this time the potential claim does not appear to be a material  issue,  however,
the Company understands that Franvale's  collectible accounts receivable are far
in excess of the operating  expenses and the receiver's  fees that were incurred
during the receivership.

     On  or  about  September  14,  1998,  the  Company  and  its  wholly  owned
subsidiary,  Franvale,  were each served with  document  subpoenas in connection
with an on-going  investigation of Franvale being conducted by the Massachusetts
Medicaid  Fraud Control Unit. The focus of the  investigation  appears to be the
quality of patient  care  provided by  Franvale  during the period of early 1997
until the facility was placed into  receivership  in June 1998.  The Company has
cooperated fully with the  investigation  including the production of documents.
While no specific dollar demand has yet been asserted by the state, the Attorney
General's  office has  indicated  that a payment will be required to settle this
action.  Preliminary  negotiations  between  the Company and the State are under
way.

     The  Company  has  been  named as a  defendant  in a  proceeding  captioned
Healthcare  Services Group, Inc. v. Quality Care Centers of Massachusetts,  Inc.
and PHC,  Inc.,  C.A. No. 98-132 (Sup.  Ct.,  Suffolk Co.,  MA). The  plaintiff,
supplier of housekeeping and laundry services to Franvale, alleges two causes of
action against the Company in the Substitute First Amended  Complaint.  In Count
III (Accord and Satisfaction), plaintiff seeks $51,845 for the Company's alleged
breach of an  agreement  to pay  plaintiff  the  money it was owed.  In Count IV
(Guaranty), plaintiff alleges that the Company agreed to pay Franvale's debt but
did not do so;  plaintiff  seeks a judgment  of $67,412.  The  Company  filed an
answer  contesting   plaintiff's  claims.   Plaintiff  propounded  requests  for
admissions  to which the  Company  responded.  Plaintiff  recently  noticed  two
depositions  and served the Company with a request for documents.  Discovery was
set to close  September  1, 1999,  but has been  extended  by the consent of the
parties.  At this  time it is not  possible  for the  Company  to  evaluate  the
likelihood of an unfavorable outcome or to predict the Company's potential loss.
Based on the ad damnum clause of the  Substitute  First Amended  Complaint,  the
maximum  potential loss to the Company is alleged to be $67,412,  plus costs and
interest from the date of demand.

     On or about  November  4, 1998,  Mellon US  Leasing,  a division  of Mellon
Leasing  Corporation,  a successor in interest to US Capital  Corp.  ("Mellon"),
brought a lawsuit  against the Company in the Superior  Court for Essex  County,
Massachusetts,  C.A. No. 98-2116. Mellon alleged that the Company had guaranteed
a lease  agreement  entered into by Quality Care  Centers of  Massachusetts,  on
which  Quality Care had  defaulted.  Mellon  sought  damages of  $222,005,  plus
interest costs and reasonable  attorney's  fees. Since the company did guarantee
of this debt of the  subsidiary  at the  inception of the lease on or about July
28, 1999, the Company and Mellon reached an agreement in principle,  although no
documents have yet been signed  memorializing  the settlement.  The terms of the
settlemen are that the Company will pay Mellon the sum of $150,000 over a period
of 36  months  at the  interest  rate of 9  percent  per  year in  exchange  for
didmissal of the lawsuit and the execution of releases.



<PAGE>

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters  were  submitted  to a vote of the  Company's  security  holders
during the fourth quarter of the fiscal year ended June 30, 1999.


PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The  Company's  Units,  Class A Common Stock and Class A Warrants have been
traded on the NASDAQ  National  Market  under the  symbols  "PIHCU,"  "PIHC" and
"PIHCW,"  respectively,  since the Company's  initial public  offering which was
declared  effective on March 3, 1994.  There is no public trading market for the
Company's Class B Common Stock.  The following table sets forth, for the periods
indicated, the high and low sale price of the Company's Class A Common Stock, as
reported by NASDAQ.


1998
        First Quarter              $ 3  9/16                 $ 2 1/4
        Second Quarter             $ 3                       $ 1 7/8
        Third Quarter              $ 2 13/16                 $ 1 7/8
        Fourth Quarter             $ 2  7/16                 $ 1 5/8

1999    First Quarter              $ 2                       $   5/8
        Second Quarter             $ 1  1/16                 $  9/16
        Third Quarter              $ 1   3/4                 $ 13/16
        Fourth Quarter             $ 1 15/32                 $ 13/16

2000
       First Quarter(through
       September 15, 1999)         $1   5/16                $  15/16

     On September  15, 1999,  the last reported sale price of the Class A Common
Stock was  $1.09375.  On September  15, 1999 there were 452 holders of record of
the  Company's  Class A Common Stock and 312 holders of record of the  Company's
Class B Common Stock.

DIVIDEND POLICY

     The Company has never paid any cash  dividends on its Common  Stock.  While
there are currently no restrictions  on the Company's  ability to pay dividends,
the Company anticipates that in the future,  earnings,  if any, will be retained
for  use  in  the  business  or  for  other  corporate  purposes,  and it is not
anticipated  that cash  dividends in respect of Common Stock will be paid in the
foreseeable  future.  Any decision as to the future  payment of  dividends  will
depend on the results of operations  and  financial  position of the Company and
such other factors as the Company's Board of Directors, in its discretion, deems
relevant.



<PAGE>

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     The following is a discussion  and analysis of the financial  condition and
results of operations of the Company for the years ended June 30, 1999 and 1998.
It should be read in conjunction with the consolidated  financial statements and
notes  thereto  appearing  elsewhere  herein.  During the fiscal  years  several
businesses were acquired or closed which makes  comparability  of period results
difficult.  See "Psychiatric  Service  Industry - Operating  Statistics" in Part
One, Item One of this report for further detail.

Overview

     The Company  presently  provides health care services through two substance
abuse treatment centers, a psychiatric hospital and seven outpatient psychiatric
centers (collectively called "treatment  facilities").  The profitability of the
Company is largely  dependent on the level of patient census at these  treatment
facilities.  The  Company's  administrative  expenses  do not vary  greatly as a
percentage of total  revenue but the  percentage  tends to decrease  slightly as
revenue  increases  because  of the  fixed  components  of these  expenses.  The
Company's most recent addition, Behavioral Health Online, Inc., is a provider of
behavioral health information and education through its web site.

     The healthcare  industry is subject to extensive  federal,  state and local
regulation governing,  among other things, licensure and certification,  conduct
of operations, audit and retroactive adjustment of prior government billings and
reimbursement.  In addition, there are ongoing debates and initiatives regarding
the  restructuring of the health care system in its entirety.  The extent of any
regulatory  changes  and their  impact on the  Company's  business  is  unknown.
Managed care has had a profound impact on the Company's operations,  in the form
of shorter lengths of stay, extensive certification of benefits requirements and
reduced payment for services.

Results of Operations

Years Ended June 30, 1999 and 1998

     The Company  experienced an increase in  profitability  from its continuing
operations.  Earnings before taxes, interest,  depreciation and amortization for
currently operating  facilities  increased by $1,351,169 for the year year ended
June  30,  1999 to  $845,747  from a loss for the year  ended  June 30,  1998 of
$505,422.  These  amounts  exclude  income  and  loss  for  both  years  for the
California, Rhode Island, and Virginia operations.  Although net revenue for the
operating facilities decreased by 2%, approximately $337,000, for the year ended
June 30,  1999,  many  changes  toward  more  efficient  operations  resulted in
non-proportional  decreases in many operating  expenses.  Total  consultant fees
related to patient care  decreased 16% to $2,273,601 for the year ended June 30,
1999 from  $2,721,960  for the year  ended June 30,  1998.  While  patient  care
related payroll expense  increased only 2% to $5,507,138 for the year ended June
30, 1999 from $5,417,628 for the year ended June 30, 1998. This is a combined 4%
reduction  in the cost of  salaries  related to patient  care as a result of the
more  efficient use of salaried  employees  time and the reduction in the use of
non-employee  therapists for patient care. More efficient  ordering has resulted
in a decrease of 62% in the cost of hospital supplies excluding food, laboratory
fees and pharmacy, which also decreased. A change in laboratory service provider
and more  efficient  management  of  requests  for lab tests  resulted in a 37%,
approximately  $76,000,  decrease in laboratory fees expense for the fiscal year
ended June 30, 1999. A change in pharmacy and a shift in some  pharmacy  billing
from our  facilities  to the vendor  resulted  in a 7%,  approximately  $14,000,
decrease in  pharmacy  costs for the  operating  facilities.  Savings  were also
evident in administrative expenses for the operating facilities.  More efficient
ordering also  resulted in a decrease of 10.8%,  approximately  $25,000,  in the
cost of general office  supplies and expense.  Consolidating  marketing  efforts
contributed  toward  a  24%,  approximately  $74,000,   decrease  in  marketing,
promotion,  and travel  expenses.  More  efficient  staffing  in  administrative
positions   resulted  in  a  decrease  of  17%,   approximately   $458,000,   in
administrative  payroll,  while  the  cost of  administrative  consultants  also
decreased 26% or  approximately  $63,000.  Bad debt expenses also decreased 27%,
approximately  $775,000,  due to the considerable  charge to bad debt expense in
the previous year and the current decline in accounts  receivable.  Because most
of the changes  outlined  above were in place for all of the year ended June 30,
1999,  the Company does not expect to experience  the same decreases in expenses
in  future  years  but  intends  to work at  maintaining  the  current  level of
expenses. The Company will, however, continue to evaluate operations looking for
less expensive alternatives to provide the same quality service.

     The Company  reduced its total loss by $5,090,703 for the fiscal year ended
June 30, 1999  compared to June 30, 1998.  The Company also  continued to divest
itself of facilities  operating at a loss. The remaining  Pioneer  Counseling of
Virginia clinic was closed in January 1999 resulting in  approximately  $300,000
in expenses to write-down intangible assets. The total loss recorded for Pioneer
Counseling of Virginia,  including this expense was approximately  $810,000. The
final cost of the release from two of the Michigan  outpatient  clinic leases is
also reflected in the current  fiscal year. The Company also  experienced a loss
of    approximately    $160,000    through   its   start   up   operations   for
Behavioralhealthonline.com.  The web site produces  minimal  revenues during the
development stages when operating costs are high. The web site is expected to be
fully operational in the third quarter of the fiscal year 2000.

     In the fiscal year ended June 30, 1998 the Company  experienced a loss from
the  discontinued  operations of Franvale Nursing and  Rehabilitation  Center of
approximately $2,200,000.

     The  environment  the  Company   operates  in  today  makes  collection  of
receivables,  particularly  older  receivables,  more difficult than in previous
years.   Accordingly,   the  Company  has  increased  staff,  standardized  some
procedures  for  collecting   receivables   and  instituted  a  more  aggressive
collection  policy,  which has  resulted in an overall  decrease in its accounts
receivable.  Although  the  Company's  receivables  have  decreased, the Company
continues  to reserve  for bad debts  based on  managed  care  denials  and past
difficulty in collections.

     Total  patient  care  revenue  from  all   facilities,   decreased  10%  to
$19,139,496 for the year ended June 30, 1999 from $21,246,189 for the year ended
June 30, 1998. This decline in revenue is due primarily to the decline in census
and closure of Good Hope Center in Rhode Island. Net inpatient care revenue from
psychiatric services decreased 12% to $11,955,143 for the fiscal year ended June
30,  1999  compared  to  $13,640,801  for the year ended  June 30,  1998 and net
outpatient  care revenue  decreased 7% to $5,574,835 for the year ended June 30,
1999 from  $6,008,552  for the year ended June 30, 1998.  Revenues from Practice
Management and Pioneer Development and Support Services ("PDSS") increased 3% to
$1,519,518  for the year ended June 30, 1999 from  $1,476,836 for the year ended
June 30, 1998.

     Total patient care expenses for all facilities  decreased 12% to $9,384,070
for the year ended June 30,  1999 from  $10,706,639  for the year ended June 30,
1998.  This decrease in patient care expenses is largely a result of the closure
of Good Hope Center and the Virginia clinics. The Company expects these expenses
to decline in fiscal  2000 as  compared  to fiscal  1999.  Total  administrative
expenses for all facilities  decreased 17% to $7,865,013 for the year ended June
30, 1999 from  $9,488,631  for the year ended June 30,  1998.  This  decrease in
administrative  expense is due largely to the one-time  charges  recorded in the
fiscal year ended June 30,  1998.  Expenses  for the closure of Good Hope Center
and the Blacksburg Clinic were among these one-time charges.


Year 2000 Compliance

     The Company was unable to reach an agreement with its  Information  Systems
Vendor to upgrade its current  accounts  receivable  software to  accommodate  a
four-digit  year. The Company has  identified  alternative  software  solutions,
which are year 2000  compliant.  The software  installation is anticipated to be
operational by the deadline; however, as a precaution, the Company has contacted
each of its facilities' fiscal  intermediaries and has been granted an extension
of time beyond the HCFA  deadline  for year 2000  compliance.  In the event that
installation  of the  software is  delayed,  each  facility  is making  plans to
complete the billing  process by adding the  four-digit  year manually for those
bills that are not currently  processed through a third party electronic biller.
Although  this is a time  consuming  and costly  alternative,  it will allow the
Company to continue  processing  bills.  The Company  has already  upgraded  the
network  software at the  corporate  offices and most of its  facilities  and is
currently upgrading hardware to accommodate all required software upgrades.

     The  Company is  currently  in the process of  contacting  each third party
payor of accounts receivable, financial institution, major supplier of essential
products  and utility to request the status of their year 2000  compliance.  The
company has received  responses from approximately 60% of all vendors contacted.
All operation critical equipment,  telephones,  elevators, etc., has been tested
and found to be  compliant.  There  are a few  suppliers  of goods and  services
critical  to  operations  that have not yet  responded.  The  Company  is in the
process of identifying alternate sources for these goods and services.

     To date the Company has expended approximately $60,000 on items relating to
the year 2000  issues  and  anticipates  approximately  $165,000  in  additional
expenses relating to the upgrade of Company's computer systems.

Liquidity and Capital Resources

     For the two fiscal years ended June 30, 1999, the Company met its cash flow
needs  through  accounts  receivable  financing  and by issuing  debt and equity
securities as follows:
<PAGE>

<TABLE>
<S>          <C>                   <C>          <C>          <C>           <C>           <C>

  DATE      TRANSACTION TYPE         NUMBER       PROCEEDS     MATURITY     TERMS           STATUS
                                       OF                        DATE
                                     SHARES
   9/97     Common Stock             172,414      $500,000        N/A      Issued with     Common
                                                                           warrants at     Stock Sold
                                                                           a 3.3% discount
                                                                           outstanding
   9/97     Warrant issued as part    86,207            --   09/30/2002    exercise price
            of the units in the                                            $2.90
            Private Placement of
            Common Stock
   9/97     Warrant issued in        150,000            --   05/31/2002    exercise price  outstanding
            exchange for cash                                              $2.50
            and financial advisory
            services
  12/97     Mortgage advance              --      $500,000   10/31/2001    Prime Plus 5%   outstanding
   3/98     Warrant issued as a        3,000            --    03/10/2003    exercise price  outstanding
            penalty for late                                               $2.90
            registration of
            Private Placement
            Common Stpck
   3/98     Note Payable                  --      $350,000     05/10/99    Prime Plus 3.5% outstanding
                                                              as extended
   3/98     Warrants issued as        52,500            --    03/10/2003   exercise price  outstanding
            additional interest                                            $2.38
            on 3/98 debt
   3/98     Common Stock issued to   227,347      $534,265     N/A          N/A               N/A
            the former owners of
            BSC-NY, Inc. for the
            earn out agreement in
            lieu of cash
   3/98     Convertible Preferred        950       $950,000    03/18/2000  6% Interest per outstanding
            Stock                                                          year convertible
                                                                           at 80% of 5 day
                                                                           average bid price
   3/98     Warrants issued           49,990             --    03/18/2001  exercise price  outstanding
            in connection                                                  $2.31
            with the Private
            Placement of
            Convertible
            Preferred Stock
            on 3/98
   5/98     Note  Payable -               --       $50,000     on demand   12% annual      outstanding
            Related Party                                                  interest rate

   6/98     Note  Payable -               --       $50,000     on demand   12% annual      outstanding
            Related Party                                                  interest rate
   7/98     Warrants issued as        52,500            --     07/10/2003  exercise price  outstanding
            additional interest                                            $1.81
            on extension of 3/98
            debt
   7/98     Warrants issued as        20,000            --     07/10/2003  exercise price  outstanding
            additional interest                                            $1.81
            on extension of 3/98
            debt
   8/98     Warrants issued for       50,000            --     08/15/2001  exercise price  outstanding
            services                                                       $1.75
   8/98     Note Payable -                --      $100,000     on demand   12% annual      outstanding
            Related Party                                                  interest rate
  12/98     Shares issued for        304,097            --            --           --      outstanding
            price guarantee
  12/98     Convertible Debentures        --      $500,000     12/02/2004  12% annual      outstanding
                                                                           interest
                                                                           convertible at
                                                                           $2.00 in $1,000
                                                                           increments
  12/98     Warrants issued in       165,000                   06/2004     issued from Dec outstanding
            Private Placement                                              thru June;
                                                                           exercisable at
                                                                           $1.00 to $2.00
  01/99     Warrants for services     94,000                   05/2004     issued from Jan outstanding
                                                                           thru June;
                                                                           exercisable at
                                                                           $1.00 to $1.45
</TABLE>
<PAGE>

     A  significant  factor in the liquidity and cash flow of the Company is the
timely collection of its accounts  receivable.  Accounts receivable from patient
care,  net of allowance  for doubtful  accounts,  decreased  14.6% to $6,938,227
during the year ended  June 30,  1999 from  $8,126,972  at June 30,  1998.  This
decrease in accounts  receivable is largely the result of the  write-down of the
accounts receivable for closed facilities,  increased staff,  standardization of
some  procedures for collecting  receivables  and a more  aggressive  collection
policy.  The increased  staff has allowed the company to  concentrate on current
accounts   receivable   and  resolve  any  problem  issues  before  they  become
uncollectable.  At the same time, the Company continues to increase reserves for
bad  debt  based  on  potential   insurance   denials  and  past  difficulty  in
collections.  In February 1998 the Company  entered into an accounts  receivable
funding  revolving credit agreement with Healthcare  Financial  Partners-Funding
II, L.P.  ("HCFP"),  on behalf of five of its  subsidiaries,  which provides for
funding of up to $4,000,000  based on outstanding  receivables.  The outstanding
balance  on this  receivables  financing  on June  30,  1999  was  approximately
$1,669,830.

     The Company believes that it has sufficient  financing available to sustain
existing  operations  for the  foreseeable  future.  The Company also intends to
renew the  expansion of its existing  operations  through new product  lines and
expansion  of  contracts.  The  Company  will also  expand  through its web site
operations offering the behavioral health professional goods and services unique
and specific to their needs for a fee.

     The  liquidation of the assets and  liabilities of Franvale may result in a
non-cash financial  statement gain of approximately  $2,000,000.  In the quarter
ended  December  31,  1998 the  company  was  relieved  of the HUD  mortgage  of
approximately  $6,741,000 and  surrendered  the underlying  assets  amounting to
approximately  $4,329,000.  The  recognition of the gain has been deferred until
final resolution of all contingent liabilities.


<PAGE>

ITEM 7.           FINANCIAL STATEMENTS.

                                                                 AT PAGE

Index                                                            F-1
Independent auditors' report                                     F-2
Consolidated balance sheets                                      F-3
Consolidated statements of operations                            F-4
Consolidated statements of changes in stockholders' equity       F-5
Consolidated statements of cash flows                            F-6, F-7
Consolidated notes to financial statements                       F-8


PART III

ITEM 9.     Directors, Executive Officers, Promoters and Control Persons

    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  directors  and  officers  of the  Company  as of June 30,  1999 are as
follows:

    Name                  Age                 Position

Bruce A. Shear             44   Director, President and Chief Executive Officer

Robert H. Boswell          50   Senior Vice President

Paula C. Wurts             50   Controller, Assistant Clerk and Assistant
                                Treasurer

Gerald M. Perlow, M.D.     61   Director and Clerk

Donald E. Robar (1)(2)     62   Director and Treasurer

Howard W. Phillips         69   Director

William F. Grieco (1)      45   Director

(1)  Member of Audit Committee.
(2)  Member of Compensation 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 ten 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.

     ROBERT H.  BOSWELL has served as the Senior Vice  President  of the Company
since  February  1999 and as Executive  Vice  Prisident of the Company from 1992
until  1999.  From 1989  until  the  spring  of 1994 Mr.  Boswell  served as the
Administrator  of the Company's  Highland  Ridge  Hospital  facility where he is
based.  Mr. Boswell is principally  involved with the Company's  substance abuse
facilities.  From 1981 until 1989, he served as the Associate  Administrator  at
the Prevention  Education  Outpatient  Treatment  Program--the  Cottage Program,
International.  Mr. Boswell  graduated from Fresno State  University in 1975 and
from 1976 until 1978 attended Rice University's  doctoral program in philosophy.
Mr. Boswell is a Board Member of the National  Foundation for Responsible Gaming
and the Chair for the National Center for Responsible Gaming.

     PAULA C. WURTS has served as the  Controller  of the Company since 1989 and
as Assistant Treasurer since 1993 and as Assistant Clerk since January 1996. 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.

     GERALD M. PERLOW,  M.D.  has served as a Director of the Company  since May
1993 and as Clerk since February  1996. Dr. Perlow is a cardiologist  in private
practice in Lynn,  Massachusetts,  and has been Associate  Clinical Professor of
Cardiology at the Tufts University  School of Medicine since 1972. Dr. Perlow is
a Diplomat of the National Board of Medical  Examiners and the American Board of
Internal Medicine (with a subspecialty in  cardiovascular  disease) and a Fellow
of the American  Heart  Association,  the American  College of  Cardiology,  the
American College of Physicians and the Massachusetts  Medical Center.  From 1987
to  1990,  Dr.  Perlow  served  as the  Director,  Division  of  Cardiology,  at
AtlantiCare  Medical  Center in Lynn,  Massachusetts.  From  October 30, 1996 to
March 1, 1997,  Dr.  Perlow  served as  President  and  Director of  Shliselberg
Physician Services, P.C. formerly Perlow Physicians, P.C. which has a management
contract  with  BSC.  Dr.  Perlow  currently  holds  no  ownership  interest  in
Shliselberg Physician Services,  P.C. Dr. Perlow received compensation of $8,333
for the period.  Dr. Perlow  received a B.A. from Harvard College in 1959 and an
M.D. from Tufts University School of Medicine in 1963.

     DONALD E. ROBAR has served as a Director of the  Company  since 1985 and as
the Treasurer since  February,  1996. He served as the Clerk of the Company from
1992 to 1996.  Dr. Robar has been a professor  of  Psychology  since 1961,  most
recently  at  Colby-Sawyer  College in New  London,  New  Hampshire.  Dr.  Robar
received an Ed.D.  from the  University of  Massachusetts  in 1978, an M.A. from
Boston College in 1968 and a B.A. from the University of Massachusetts in 1960.

     HOWARD W. PHILLIPS has served as a Director of the Company since August 27,
1996 and has been employed by the Company as a public relations specialist since
August 1, 1995.  From 1982 until October 31, 1995, Mr. Phillips was the Director
of Corporate  Finance for D.H. Blair  Investment Corp. From 1969 until 1981, Mr.
Phillips  was  associated  with  Oppenheimer  & Co.  where he was a partner  and
Director of Corporate  Finance.  Mr. Phillips currently is a member of the Board
of Directors of Food Court Entertainment  Network, Inc., an operator of shopping
mall television networks, and Telechips Corp., a manufacturer of visual phones.

     WILLIAM F. GRIECO has served as a Director of the  Company  since  February
18, 1997. Since August 1999 Mr. Grieco has been a self-employed  law consultant.
From November  1995 to July 1999 he served as Senior Vice  President and General
Counsel for Fresenius  Medical Care North  America.  From 1989 until November of
1995, Mr. Grieco was a partner at Choate, Hall & Stewart.  Mr. Grieco received a
BS from  Boston  College in 1975,  an MS in Health  Policy and  Management  from
Harvard University in 1978 and a JD from Boston College Law School in 1981.

Compliance With Section 16(A) Of The Exchange Act

     Based on a review of Forms 3 and 4 furnished to the company, all directors,
officers and  beneficial  owners of more than ten percent of any class of equity
securities of the Company  registered  pursuant to Section 12 of the  Securities
Exchange Act filed on a timely basis  reports  required by Section  16(a) of the
Exchange Act during the most recent fiscal year.

ITEM 10.    Executive compensation.  Employment agreements

     The  Company  has not  entered  into  any  employment  agreements  with its
executive officers.  The Company owns and is the beneficiary on a $1,000,000 key
man life insurance policy on the life of Bruce A. Shear.

Executive Compensation

     Two executive  officers of the Company  received  compensation  in the 1999
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 1999,1998, and 1997:

                           Summary Compensation Table
                                                        Long Term
                                                       Compensation
                            Annual Compensation            Awards
                            ___________________        _____________

(a)               (b)   (c)       (d)   (e)           (g)             (i)
Name and                                Other Annual  Securities   All Other
Principal       Year    Salary   Bonus  Compensation  Underlying   Compensation
Position                                              Options/SARs
                           $       $         $            #             $
_______________________________________________________________________________

Bruce A. Shear    1999 $300,195(1)  --  $ 6,490(2)    50,000       $21,622
President and     1998 $309,167(1)  --  $ 8,363(3)    50,000       $51,256
Chief Executive   1997 $294,167(1)  --  $12,633(4)    --           --
Officer

Robert H. Boswell 1999 $111,083   $800  $ 7,955(5)    65,000       $29,753
Senior Vice       1998 $102,750     --  $ 7,836(6)    15,000       $14,149
President         1997 $ 92,750     --  $ 6,687(7)     5,000       $ 6,821

(1)  Although the last Board of Director   authorized base salary effective July
     1, 1995, $310,000 base salary was drawn as listed above.

(2)  This  amount  represents  (i)  $1,341  contributed  by the  Company  to the
     Company's  Executive  Employee  Benefit Plan on behalf of Mr.  Shear,  (ii)
     $2,792 in premiums  paid by the Company with respect to life  insurance for
     the benefit of Mr.  Shear   and (iii) $2,357  personal use of a Company car
     held by Mr. Shear

(3)  This  amount  represents  (i)  $1,341  contributed  by the  Company  to the
     Company's  Executive  Employee  Benefit Plan on behalf of Mr.  Shear,  (ii)
     $4,768 in premiums  paid by the Company with respect to life  insurance for
     the benefit of Mr.  Shear   and (iii) $2,254  personal use of a Company car
     held by Mr. Shear.

(4)  This  amount  represents  (i)  $2,687  contributed  by the  Company  to the
     Company's  Executive  Employee  Benefit Plan on behalf of Mr.  Shear,  (ii)
     $6,769 in premiums  paid by the Company with respect to life  insurance for
     the benefit of Mr.  Shear   and (iii) $3,177  personal use of a Company car
     held by Mr. Shear.

(5)  This  amount  represents  (i)  $6,000  automobile   allowance,   (ii)  $357
     contributed by the Company to the Company's Executive Employee Benefit Plan
     on behalf of Mr. Boswell   (iii) $704 in other benefits paid by the Company
     on behalf of Mr. Boswell and (vi) $894 in benefit derived from the purchase
     of shares through the employees stock purchase plan.

(6)  This  amount  represents  (i)  $6,000  automobile   allowance,   (ii)  $408
     contributed by the Company to the Company's Executive Employee Benefit Plan
     on behalf of Mr. Boswell   (iii) $408 in other benefits paid by the Company
     on  behalf  of Mr.  Boswell  (iv)  $115 in Class A Common  Stock  issued to
     employees  and (v) $905 in  benefit  derived  from the  purchase  of shares
     through the employees stock purchase plan.

(7)  This amount represents (i) an automobile allowance and (ii) $897 in benefit
     derived from the purchase of shares  through the employees  stock  purchase
     plan.

COMPENSATION OF DIRECTORS

     Directors  who are  employees of the Company  receive no  compensation  for
services as members of the Board. Directors who are not employees of the Company
receive  $2,500  stipend per year and $1,000 for each Board meeting they attend.
In  addition,  directors of the Company are  entitled to receive  certain  stock
option grants under the Company's  Non-Employee  Director Stock Option Plan (the
"Director  Plan").

COMPENSATION COMMITTEE

     The  Compensation  Committee  consists of Mr.  Donald Robar and Dr.  Gerald
Perlow.  The compensation  Committee met once during fiscal 1999. Mr. Shear does
not participate in discussions concerning, or vote to approve, his salary.

OPTION PLANS

Stock Plan

     The Board of Directors  adopted the Company's Stock Plan on August 26, 1993
and the  stockholders of the Company approved the plan on November 30, 1993. The
Stock Plan provides for the issuance of a maximum of 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 and
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, 1999, the Company  issued  additional
options to purchase  212,500 shares of Class A Common Stock under the 1993 Stock
Plan at a price per share  ranging from $1.03 to $1.25.  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.

     During the fiscal  years  ended June 30,  1998 and June 30, 1999 no options
were exercised.

     On November 17, 1997 the Board of  Directors  voted to amend the 1993 Stock
Plan to  increase  the number of shares of Class A Common  Stock  available  for
issuance under the plan from 300,000 shares to 400,000 shares.  The Stockholders
approved this amendment at the annual meeting on December 26, 1997. On September
15, 1998 the Board of  Directors  voted to amend the 1993 Stock Plan to increase
the number of shares of Class A Common Stock  available  for issuance  under the
plan from 400,000 shares to 1,000,000  shares.  The  Stockholders  approved this
amendment at the annual meeting on December 23, 1998.

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 shall 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.  An offering  period under the plan began on
February 1, 1997 and ended on January 31, 1998.  Twenty-four employees purchased
an aggregate of 14,743 shares of Class A Common Stock. A new offering  commenced
on February 1, 1998 and ended on January 31, 1999. Eleven employees purchased an
aggregate  of  15,475  shares  of Class A Common  Stock.  Eleven  employees  are
participating  in the current  offering  period  under the plan,  which began on
February 1, 1999 and will end on January 31, 2000.

     On  November  17,  1997 the Board of  Directors  voted to amend The Plan to
increase  the number of shares of Class A Common  Stock  available  for issuance
under the plan from 100,000 shares to 150,000 shares. The Stockholders  approved
this amendment to the plan at the annual meeting on December 26, 1997.

Non-Employee Director Stock Plan

     The Board of Directors  adopted the Company's  Non-Employee  Director Stock
Plan (the "Director  Plan") on October 18, 1995. The Stockholders of the Company
approved  the plan on December  15,  1995.  Non-qualified  options to purchase a
total of 30,000 shares of Class A Common Stock are available for issuance  under
the Director Plan.

     The Board of Directors or a committee of the Board administers the Director
Plan.  Under the Director Plan,  each director of the Company who was a director
at the time of adoption of the Director Plan and who was not a current or former
employee of the Company  received an option to purchase that number of shares of
Class A Common  Stock as equals 500  multiplied  by the years of service of such
director  as of the date of the  grant.  At the  first  meeting  of the Board of
Directors  subsequent to each annual meeting of stockholders,  each non-employee
director is granted under the Director  Plan an option to purchase  2,000 shares
of the Class A Common Stock of the  Company.  The option  exercise  price is the
fair market  value of the shares of the  Company's  Class A Common  Stock on the
date of grant.  The  options  are  non-transferable  and become  exercisable  as
follows:  25%  immediately  and 25% on  each  of the  first,  second  and  third
anniversaries  of the grant date.  If an  optionee  ceases to be a member of the
Board of Directors 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.

     On February 18, 1997,  the Company  issued options to purchase 6,000 shares
of Class A Common  Stock under the Director  Plan at an exercise  price of $3.50
per share.  On January 22, 1998,  the Company  issued  options to purchase 6,000
shares of Class A Common Stock under the Director  Plan at an exercise  price of
$2.06. On February 23, 1999, the Company issued options to purchase 6,000 shares
of Class A Common Stock under the Director  Plan at an exercise  price of $1.03.
As of June 30, 1999, none of the options issued had been exercised.

     On November  17, 1997 the Board of  Directors  voted to amend the  Director
Plan to  increase  the number of shares of Class A Common  Stock  available  for
issuance  under the plan from 30,000 shares to 50,000 shares.  The  Stockholders
approved the amendment to the plan at the annual meeting on December 26, 1997.

     The following table provides information about options granted to the named
executive  officers during fiscal 1999 under the Company's Stock Plan,  Employee
Stock Purchase Plan and Non-Employee Director Stock Plan.

                     Individual Grants
                    ____________________
(a)                 (b)            (c)             (d)           (e)
                    Number of      % of Total
                    Securities     Options/SARs
                    Underlying     Granted to     Exercise or
                    Options/SARs   Employees      Base Price     Expiration
                    Granted        in Fiscal Year ($/Share)      Date
Name                   #
_________________  _____________  ______________  ___________   ___________
Bruce A. Shear      50,000         23.5%           $1.17         3/15/2004
Robert H. Boswell   50,000         23.5%           $1.25         9/15/2003
                    15,000          7.0%           $1.20         2/23/2004

All Directors and  183,000         83.8%       $1.03-$1.25   9/15/2003-2/23/0224
  Officers as a
  group (7 persons)

     The following  table provides  information  about options  exercised by the
named executive  officers during fiscal 1999 and the number and value of options
held at the end of fiscal 1999.

(a)                (b)            (c)           (d)                   (e)
                                                Number of
                                                Securities         Value of
                                                Underlying         Unexercised
                                                Unexercised        In-the-Money
                                                Options/SARs at    Options/SARs
                    Shares                      FY-End (#)         FY-End ($)
                    Acquired on    Value        Exercisable/       Exercisable/
Name                Exercise (#)   Realized ($) Unexercisable      Unexercisable
____                ____________   ____________  ______________   _____________
Bruce A. Shear      --             --            37,500/62,500            $0/$0
Robert H. Boswell   --             --            69,000/45,000            $0/$0

All Directors and
Officers as a group
(7 persons)         --             --           198,000/163,250           $0/$0

     In  February  1997,  all  95,375  shares  underlying  the then  outstanding
employee  stock  options were repriced to the current  market  price,  using the
existing  exercise  durations.  In  September  1998,  all 21,875  options due to
expire,  were extended for an additional five years. Also in September 1998, all
183,875  shares  underlying  the then  outstanding  employee  stock options were
repriced to the current market price, using the existing exercise durations.


<PAGE>

                    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 capital stock of the Company currently outstanding) as of August
15, 1999 by (i) each person known by the Company to  beneficially  own more than
5% of any class of the Company's  voting  securities,  (ii) each director of the
Company,  (iii)  each of the  named  executive  officers  as  defined  in 17 CFR
228.402(a)(2)  and (iv) all  directors  and  officers of the Company as a group.
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:



                         Name and Address       Amount and Nature    Percent of
Tital of Class           of Beneficial Owner    of Beneficial Owner  Class (12%)

Class A Common Stock     Gerald M. Perlow             27,750(1)             *
                         c/o PHC, Inc.
                         200 Lake Street
                         Peabody, MA  01960

                         Donald E. Robar                22,750(2)           *
                         c/o PHC, Inc.
                         200 Lake Street
                         Peabody, MA  01960

                         Bruce A. Shear                 58,000(3)          1.0%
                         c/o PHC, Inc.
                         200 Lake Street
                         Peabody, MA  01960

                         Robert H. Boswell              83,844(4)          1.5%
                         c/o PHC, Inc.
                         200 Lake Street
                         Peabody, MA  01960

                         Howard W. Phillips             11,750(5)           *
                         P. O. Box 2047
                         East Hampton, NY  11937

                         William F. Grieco              71,030(6)(7)      1.3%
                         115 Marlborough Street
                         Boston, MA 02116

                         J. Owen Todd                   59,280(7)         1.1%
                         c/o Todd and Weld
                         1 Boston Place
                         Boston, MA  02108

                         ProFutures Special Equities   751,082(9)         12.1%
                         Fund, LP
                         11612 Bee Cave Rd - STE 100
                         Austin  TX  78734

                         All Directors and Officers    311,285(8)          5.3%
                         as a Group (7 persons)

Class B Common Stock (10)Bruce A. Shear                671,259(11)        92.8%
                         c/o PHC, Inc.
                         200 Lake Street
                         Peabody, MA  01960

                         All Directors and Officers    671,259            92.8%
                         as a Group (7 persons)

 *   Less than 1%.
(1)  Includes 17,750 shares  issuable  pursuant to currently  exercisable  stock
     options or stock options which will become  exercisable  within sixty days,
     having an exercise price range of $1.03 to $6.63 per share.
(2)  Includes 21,250 shares  issuable  pursuant to currently  exercisable  stock
     options or stock options which will become  exercisable  within sixty days,
     having an exercise price range of $1.03 to $6.63 per share.
(3)  Includes  50,000  shares  of  Class A Common  Stock  issuable  pursuant  to
     currently  exercisable  stock  options,  having an exercise  price range of
     $1.17 to 2.63 per share.  Excludes an aggregate of 59,280 shares of Class A
     Common Stock owned by the Shear  Family  Trust and the NMI Trust,  of which
     Bruce A. Shear is a remainder beneficiary.
(4)  Includes an  aggregate of 71,500  shares of Class A Common  Stock  issuable
     pursuant to currently  exercisable stock options at an exercise price range
     of $1.20 to $1.25 per share.
(5)  Includes 11,750 shares  issuable  pursuant to currently  exercisable  stock
     options having an exercise price range of $1.03 to $3.50 per share.
(6)  Includes  11,750  shares  of  Class A Common  Stock  issuable  pursuant  to
     currently  exercisable  stock  options,  having an exercise  price range of
     $1.03 to $3.50 per share.
(7)  Messrs.  Todd  and  Grieco  are  the  two  trustees  of  the  Trusts  which
     collectively hold 59,280 shares of the Company's  outstanding Common Stock.
     Gertrude Shear, Bruce A. Shear's mother, is the lifetime beneficiary of the
     Trusts.  In addition  to the shares held by the Trusts,  to the best of the
     Company's  knowledge,  Gertrude  Shear  currently  owns less than 1% of the
     Company's outstanding Class B Common Stock.
(8)  Includes an  aggregate  of 215,500  shares  issuable  pursuant to currently
     exercisable stock options.  Of those options,  5,500 have an exercise price
     of $6.63 per  share,  10,000  have an  exercise  price of $5.00 per  share,
     19,500 have an exercise  price of $3.50 per share,  37,500 have an exercise
     price of $2.63 per share,  3,000 have an exercise price of $2.06 per share,
     119,250 have an exercise  price of $1.25 per share,  6,250 have an exercise
     price of $1.20 per share,  12,500 have an exercise price of $1.17 per share
     and 2,000 have an exercise price of $1.03 per share.
(9)  Includes  458,750  shares  estimated as issuable upon the conversion of 367
     shares of series B preferred  stock and 165,522  shares  issuable  upon the
     exercise  of warrants  issued in  connection  with  various  financing  and
     private placement transactions.
(10) Each share of Class B Common Stock is convertible into one share of Class A
     Common Stock  automatically upon any sale or transfer or at any time at the
     option of the holder.
(11) Includes  56,369  shares of Class B Common Stock pledged to Steven J. Shear
     of 2 Addison Avenue,  Lynn,  Massachusetts 01902, Bruce A. Shear's brother,
     to secure the purchase  price  obligation  of Bruce A. Shear in  connection
     with his purchase of his brother's  stock in the Company in December  1988.
     In the absence of any default under this obligation, Bruce A. Shear retains
     full voting power with respect to these shares.
(12) Represents percentage of equity of class, based on numbers of shares listed
     under the column headed "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).

     By  virtue of the fact that  class B  shareholders  have the right to elect
three of the five  members of the Board of  Directors  and Mr. Shear owns 92% of
the class B shares, Mr. Shear has the right to elect the nominees and therefore,
control the Board of Directors.

     Based on the number of shares  listed under the column  headed  "Amount and
Nature of  Beneficial  Ownership,"  the  following  persons  or groups  held the
following  percentages  of voting rights for all shares of common stock combined
as of August 15, 1999:

               Bruce A. Shear ........................................36.72%
               J. Owen Todd............................................0.64%
               William F. Grieco.......................................0.77%
               ProFutures Special Equities Fund, LP....................7.61%
               All Directors and Officers as a Group
               (7 persons)............................................38.75%


<PAGE>

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.

Related Party Indebtedness

     For  approximately  the last ten years,  Bruce A. Shear, a director and the
President and Chief Executive Officer of the Company, and persons affiliated and
associated with him have made a series of unsecured loans to the Company and its
subsidiaries  to  enable  them  to  meet  ongoing  financial  commitments.   The
borrowings  generally  were entered into when the Company did not have financing
available from outside sources and, in the opinion of the Company,  were entered
into at market rates given the financial  condition of the Company and the risks
of repayment at the time the loans were made.  As of June 30, 1999,  the Company
owed an aggregate of $200,000 to related parties.

     During the period  ended June 30,  1999,  the  Company  paid Mr.  Shear and
affiliates  approximately  $157,600  in  principal  and accrued  interest  under
various notes.  As of June 30, 1999, the Company owed Bruce A. Shear $100,000 on
a promissory note, which is dated August 13, 1998, bears interest at the rate of
12% per year and is payable on demand and Tot Care,  Inc., an affiliate of Bruce
A. Shear, $100,000 on promissory notes dated May 28, 1998 and June 9, 1998 which
bear interest at the rate of 12% per year and are payable on demand.



<PAGE>


ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K.

   Exhibit No.                                                 Description

3.1  Restated Articles of Organization of the Registrant,  as amended. (Filed as
     exhibit 3.1 to the Company's Registration Statement on March 2, 1994)
3.1.1Articles of Amendment filed with the Commonwealth of Massachusetts.  (Filed
     with the 10-QSB dated May, 1997.)
3.2  By-laws  of the  Registrant,  as  amended.  (Filed  as  exhibit  3.2 to the
     Company's  Post-Effective  Amendment  No.  2 on  Form  S-3 to  Registration
     Statement on Form SB-2 under the  Securities Act of 1933 dated November 13,
     1995. Commission file number 333-71418).
3.3  Certificate of Vote of Directors establishing a Series of a Class of stock.
     (Filed with the SB-2/A dated June 3, 1997.
4.1  Form  of  Warrant  Agreement.  (Filed  as  exhibit  4.1  to  the  Company's
     Registration Statement on March 2, 1994)
4.2  Form of Unit  Purchase  Option.  (Filed  as  exhibit  4.4 to the  Company's
     Registration Statement on March 2, 1994)
4.3  Form of  warrant  issued to  Robert  A.  Naify,  Marshall  Naify,  Sarah M.
     Hassanein  and Whitney  Gettinger.  (Filed as exhibit 4.6 to the  Company's
     Registration  Statement  on Form 3 dated March 12,  1996.  Commission  file
     number 333-71418).
4.4  Form of Warrant Agreement by and among the Company, American Stock Transfer
     & Trust Company and AmeriCorp Securities,  Inc. executed in connection with
     the Private Placement.  (Filed as exhibit 4.8 to the Company's Registration
     Statement  on  Form  3  dated  March  12,  1996.   Commission  file  number
     333-71418).
4.5  Form of  Warrant  Agreement  issued to Alpine  Capital  Partners,  Inc.  to
     purchase  25,000  Class A Common  shares dated  October 7, 1996.  (Filed as
     exhibit 4.15 to the Company's  Current  Report on Form 8-K,  filed with the
     Securities and Exchange Commission November 5, 1996. Commission file number
     0-23524).
4.6  Form of  Warrant  Agreement  issued  to Barrow  Street  Research,  Inc.  to
     purchase  3,000 Class A Common  shares dated  February 18, 1997.  (Filed as
     exhibit  4.17 to the  Company's  Registration  Statement on Form SB-2 dated
     April 15, 1997. Commission file number 333-25231).
4.7  Form of Consultant Warrant Agreement by and between PHC, Inc., and C.C.R.I.
     Corporation  dated March 3, 1997 to purchase  160,000 shares Class A Common
     Stock. (Filed as an exhibit to the Company's Registration Statement on Form
     SB-2 dated April 15, 1997. Commission file number 333-25231).
4.8  Warrant Agreement by and between PHC, Inc. and ProFutures  Special Equities
     Fund,  L.P. for 50,000 shares of Class A Common Stock dated 6/4/97.  (Filed
     as exhibit 4.22 to the Company's  Registration Statement on Form SB-2 dated
     April 15, 1997. Commission file number 333-25231).
4.9  Warrant Agreement by and between PHC, Inc. and ProFutures  Special Equities
     Fund,  L.P. for up to 86,207 shares of ClassA Common Stock dated  09/19/97.
     (Filed as exhibit 4.25 to the  Company's  report on Form 10-KSB, filed with
     the Securities and Exchange Commission on October 14, 1997. Commission file
     number 0-23524).
4.10 Transfer from Seacrest  Capital  Securities of PHC, Inc. and  securities to
     Summit  Capital  Limited  dated  12/19/97.  (Filed as  exhibit  4.26 to the
     Company's  report on Form 10-KSB, filed with the  Securities  and  Exchange
     Commission on October 14, 1997. Commission file number 0-23524).
4.11 Warrant Agreement by and between PHC, Inc. and ProFutures  Special Equities
     Fund, LP for 3,000 shares of Class A Common  Stock.  (Filed as exhibit 4.27
     to the Company's  Current Report on Form 8-K, filed with the Securities and
     Exchange Commission on April 29, 1998. Commission file number 0-23524).
4.12 Subscription  Agreements  and Warrants for Series B  Convertible  Preferred
     Shares and Warrants by and between PHC, Inc.,  ProFutures  Special Equities
     Fund, L.P., Gary D. Halbert, John F. Mauldin and Augustine Fund, L.P. dated
     March 16, 1998.  (Filed as exhibit 4.28 to the Company's  Current Report on
     Form 8-K, filed with the  Securities  and Exchange  Commission on April 29,
     1998. Commission file number 0-23524).
4.13 Warrant  to  purchase  up to 52,500  shares of Class A Common  Stock by and
     between PHC, Inc., and HealthCare Financial Partners,  Inc. dated March 10,
     1998.  (Filed as exhibit 4.16 to the  Company's  Registration  Statement on
     Form SB-2 dated July 24, 1998. Commission file number 333-59927.)
4.14 Warrant  to  purchase  up to 52,500  shares of Class A Common  Stock by and
     between PHC, Inc., and HealthCare  Financial Partners,  Inc. dated July 10,
     1998.  (Filed as exhibit 4.15 to the  Company's  Registration  Statement on
     Form SB-2 dated July 24, 1998. Commission file number 333-59927.)
4.15 Warrant  Agreement  by and  between  Joan  Finsilver  and PHC,  Inc.  dated
     07/31/98  for 60,000  shares  common  stock.  (Filed as exhibit 4.16 to the
     Company's   report  on  10-KSB  filed  with  the  Securities  and  Exchange
     Commission on October 13, 1998.  Commission file number  0-23524.  Replaces
     exhibit  4.23  to the  Company's  report on Form  10-KSB.  Filed  with  the
     Securities  and Exchange  Commission on October 14, 1997.  Commission  file
     number 0-23524).
4.16 Warrant  Agreement by and between  Brean  Murray and Company and PHC,  Inc.
     dated  07/31/98 for 90,000 shares  common stock.  (Filed as exhibit 4.17 to
     the  Company's  report on 10-KSB  filed  with the Securities  and  Exchange
     Commission  on October 13, 1998.  Replaces  exhibit  4.23 to the  Company's
     report on Form 10-KSB, filed with the Securities and Exchange Commission on
     October 14, 1997. Commission file number 0-23524).
4.17 Warrant Agreement by and between HealthCare  Financial  Partners,  Inc. and
     its subsidiaries  (collectively  "HCFP" and PHC, Inc. dated July 10, 1998 -
     Warrant No. 3 for 20,000 shares of Class A Common Stock.  (Filed as exhibit
     4.18 to the Company's  report on Form 10-KSB, filed with the Securities and
     Exchange Commission on October 14, 1997. Commission file number 0-23524).
4.18 Warrant Guaranty  Agreement for Common Stock Purchase  Warrants issuable by
     PHC,  Inc.  dated  August 14,  1998 for  Warrants No 2 and No. 3. (Filed as
     exhibit  4.19  to the  Company's  report  on Form  10-KSB, filed  with  the
     Securities  and Exchange  Commission on October 14, 1997.  Commission  file
     number 0-23524.)
4.19 12%  Convertible  Debenture by and between PHC, Inc., and Dean & Co., dated
     December 3, 1998 in the amount of  $500,000.  (Filed as exhibit 4.20 to the
     Company's  report on Form 10-QSB dated  February 12, 1999. Commission  file
     number 0-23524).
4.20 Securities Purchase Agreement for 12% Convertible  Debenture by and between
     PHC, Inc. and Dean & Co., a Wisconsin nominee partnership for Common Stock.
     (Filed  as  exhibit  4.21 to the  Company's  report  on Form  10-QSB  dated
     February 12, 1999. Commission file number 0-23524).
4.21 Warrant  Agreement to purchase up to 25,000  shares of Class A Common Stock
     by and between PHC, Inc., and Dean & Co., dated December 3, 1998. (Filed as
     exhibit  4.22 to the  Company's  report on Form 10-QSB  dated  February 12,
     1999. Commission file number 0-23524).
4.22 Warrant  Agreement  by and  between  PHC,  Inc.,  and  National  Securities
     Corporation  dated  January 5, 1999 to  purchase  37,500  shares of Class A
     Common Stock. (Filed as exhibit 4.23 to the Company's report on Form 10-QSB
     dated February 12, 1999. Commission file number 0-23524).
4.23 Warrant  Agreements  by and  between  PHC,  Inc.,  and George H. Gordon for
     10,000 shares, 15,000 shares, 5,000 shares, 5,000 shares, 50,000 shares and
     10,000 shares of Class A Common Stock dated December 31, 1998; 5,000 shares
     of Class A Common Stock dated  December 1, 1998;  10,000  shares of Class A
     Common  Stock dated  January 1, 1999;  and 10,000  shares of Class A Common
     Stock  dated  February  1, 1999.  (Filed as exhibit  4.24 to the  Company's
     report on Form 10-QSB  dated  February  12, 1999.  Commission  file  number
     0-23524).
4.24 Warrant  Agreement by and between PHC, Inc., and Barrow Street Research for
     3,000 shares of Class A Common  Stock  dated February  23, 1999.  (Filed as
     exhibit  4.24 to the  Company's  Registration  Statement  on Form S-3 dated
     April 13, 1999. Commission file number 333-76137).
4.25 Warrant Agreement by and between PHC, Inc., and George H. Gordon for 10,000
     shares of Class A Common Stock dated March 1, 1999.  (Filed as exhibit 4.25
     to the Company's  Registration  Statement on Form S-3 dated April 13, 1999.
     Commission file number 333-76137).
4.26 Warrant Agreement by and between PHC, Inc., and George H. Gordon for 10,000
     shares of Class A Common Stock dated April 1, 1999.  (Filed as exhibit 4.26
     to the Company's  Registration  Statement on Form S-3 dated April 13, 1999.
     Commission file number 333-76137).
4.27 Warrant  Agreements  by and  between  PHC,  Inc.,  and George H. Gordon for
     10,000 shares of Class A Common Stock dated May 1, 1999.  (Filed as exhibit
     4.27 to the Company's  report on Form 10-QSB dated May 14, 1999. Commission
     file number 0-23524).
*4.28 Warrant  Agreements  by and  between  PHC,  Inc., and George H. Gordon for
     10,000  shares  of Class A Common  Stock  dated  April 1,  1999.  (Filed as
     exhibit to the  Company's  report on Form 10-KSB  dated  October 13,  1999.
     Commission file number 0-23524).
*4.29 Warrant  Agreements  by and  between  PHC,  Inc., and George H. Gordon for
     10,000 shares of Class A Common Stock dated July 1, 1999. (Filed as exhibit
     to the Company's  report on Form 10-KSB dated October 13, 1999,  Commission
     file number 0-23524).
*4.30 Warrant  Agreements  by and  between  PHC,  Inc., and George H. Gordon for
     10,000 shares of Class A Common Stock dated June 1, 1999. (Filed as exhibit
     to the Company's  report on Form 10-KSB dated October 13, 1999.  Commission
     file number 0-23524).
*4.31 Warrant  to purchase  up to 37,500  shares of Class A Common  Stock by and
     between PHC, Inc., and National Securities Corporation dated April 5, 1998.
     (Filed as exhibit to the Company's  report on Form 10-KSB dated October 13,
     1999. Commission file number 0-23524.)
*4.32 Warrant  to  purchase  up to 37,500  shares of Class A Common Stock by and
     between PHC, Inc., and National Securities  Corporation dated July 5, 1998.
     (Filed as exhibit to the Company's  report on Form 10-KSB dated October 13,
     1999. Commission file number 0-23524.)
*4.33 Subscription  Agreement and Warrants Series B Convertible Preferred Shares
     and Warrants by and between PHC, Inc.,  ProFutures  Special  Equities Fund,
     L.P.,  Gary D. Halbert John F. Mauldin and Augustine  Fund L.P. dated March
     16, 1998.
10.1 1993 Stock Purchase and Option Plan of PHC,  Inc., as amended  December 26,
     1997. (Filed as exhibit 10.1 to the Company's  Post-Effective Amendment No.
     2 on Form S-3 to  Registration  Statement on Form SB-2 under the Securities
     Act of 1933 dated November 13, 1995. Commission file number 333-71418).
10.2 Form of  Warrant  Agreement  for  Bridge  financing  with  List  of  bridge
     investors holding warrant  agreements and  corresponding  numbers of bridge
     units for which  warrant  is  exercisable.  (Filed as  exhibit  10.6 to the
     Company's  Registration  Statement  on  Form  SB-2  dated  March  2,  1994.
     Commission file number 333-71418).
10.3 Lease Agreement between  Palmer-Wells  Enterprises and AIHS, Inc. and Edwin
     G. Brown, dated September 23, 1983, with Addendum dated March 23, 1989, and
     Renewal of  Addendum  dated April 7, 1992.  (Filed as exhibit  10.14 to the
     Company's  Registration  Statement  on  Form  SB-2  dated  March  2,  1994.
     Commission file number 333-71418).
10.4 Note of PHC of  Virginia,  Inc.  in favor of  Himanshu S. Patel and Anna H.
     Patel,  dated April 1, 1995,  in the amount of  $10,000.  (Filed as exhibit
     10.29  to the  Company's  annual  report  on Form 10-KSB.  Filed  with  the
     Securities  and  Exchange  on  October  2,  1995.  Commission  file  number
     0-23524).
10.5 Note of PHC of  Virginia,  Inc.  in favor of Mukesh P. Patel and Falguni M.
     Patel,  dated April 1, 1993,  in the amount of  $10,000.  (Filed as exhibit
     10.30 to the Company's  Registration  Statement on Form SB-2 dated March 2,
     1994. Commission file number 333-71418).
10.6 Deed of Trust Note of Mount Regis Center  Limited  Partnership  in favor of
     Douglas  M.  Roberts,  dated  July 28,  1987,  in the  amount of  $560,000,
     guaranteed by PHC, Inc., with Deed of Trust executed by Mount Regis Center,
     Limited  Partnership  of even date.  (Filed as  exhibit  10.33 to Form SB-2
     dated March 2, 1994).  Assignment  and  Assumption  of Limited  Partnership
     Interest, by and between PHC of Virginia Inc. and each assignor dated as of
     June 30,  1994.  (Filed as  exhibit 10.57 to Form 10-KSB on  September  28,
     1994.)
10.7 Security  Agreement  Note of PHC of Virginia,  Inc. in favor of Mount Regis
     Center, Inc., dated July 28, 1987, in the amount of $90,000,  guaranteed by
     PHC,  Inc.,  with Security  Agreement,  dated July 1987.  (Filed as exhibit
     10.34 to the Company's  Registration  Statement on Form SB-2 dated March 2,
     1994. Commission file number 333-71418).
10.8 Copy of Note of Bruce A. Shear in favor of Steven J. Shear,  dated December
     1988, in the amount of $195,695;  Pledge  Agreement by and between Bruce A.
     Shear and  Steven  J.  Shear,  dated  December  15,  1988;  Stock  Purchase
     Agreement by and between Steven J. Shear and Bruce A. Shear, dated December
     1, 1988. (Filed as exhibit 10.52 to the Company's Registration Statement on
     Form SB-2 dated March 2, 1994. Commission file number 333-71418).
10.9 Lease Agreement by and between  Conestoga  Corp. and PHC, Inc.,  dated July
     11, 1994.  (Filed as exhibit 10.69 to the  Company's  annual report on Form
     10-KSB, filed with the Securities and Exchange  Commission on September 28,
     1994. Commission file number 0-23524).
10.10 Renewal of Lease  Addendum  between  Palmer Wells  Enterprises  and PHC of
     Utah,  Inc.,  executed  February 20, 1995.  (Filed as exhibit  10.73 to the
     Company's  annual  report on Form  10-KSB, filed  with the  Securities  and
     Exchange on October 2, 1995. Commission file number 0-23524)
10.11 1995 Employee Stock Purchase Plan.(Filed as exhibit 10.74 to the Company's
     Post-Effective  Amendment  No. 2 on Form S-3 to  Registration  Statement on
     Form  SB-2  under the  Securities  Act of 1933  dated  November  13,  1995.
     Commission  file number  333-71418.  As amended on Form S-8 dated March 12,
     1999. Commission File number 333-74373).
10.12 1995  Employee  Stock  Purchase  Plan. (Filed  as  exhibit  10.74  to  the
     Company's  Post-Effective  Amendment  No.  2 on  Form  S-3 to  Registration
     Statement on Form SB-2 under the  Securities Act of 1933 dated November 13,
     1995. Commission file number 333-71418.  As amended on Form S-8 dated March
     12, 1999. Commission File number 333-74373).
10.13 1995  Non-Employee Director Stock Option Plan.  (Filed as exhibit 10.75 to
     the Company's  Post-Effective  Amendment No. 2 on Form S-3 to  Registration
     Statement on Form SB-2 under the  Securities Act of 1933 dated November 13,
     1995. Commission file number 333-71418.  As amended on Form S-8 dated March
     12, 1999. Commission File number 333-74373).
10.14 Note of PHC of Nevada,  Inc., in favor of LINC Anthem  Corporation,  dated
     November 7, 1995;  Security  Agreement of PHC,  Inc.,  PHC of Rhode Island,
     Inc., and PHC of Virginia, Inc., in favor of LINC Anthem Corporation, dated
     November 7, 1995;  Loan and Security  Agreement of PHC of Nevada,  Inc., in
     favor of LINC Anthem Corporation,  dated November 7, 1995; Guaranty of PHC,
     Inc., in favor of LINC Anthem  Corporation,  dated November 7, 1995;  Stock
     Pledge  and  Security  Agreement  of PHC,  Inc.,  in favor  of LINC  Anthem
     Corporation,  dated  November  7,  1995.  (Filed  as  exhibit  10.76 to the
     Company's  Post-Effective  Amendment  No.  2 on  Form  S-3 to  Registration
     Statement on Form SB-2 under the  Securities Act of 1933 dated November 13,
     1995. Commission file number 333-71418).
10.15 Secured Promissory  Note in the amount of  $750,000  by and between PHC of
     Nevada, Inc. and LINC Anthem Corp. (Filed as exhibit 10.77 to the Company's
     Post-Effective  Amendment  No. 2 on Form S-3 to  Registration  Statement on
     Form  SB-2  under the  Securities  Act of 1933  dated  November  13,  1995.
     Commission file number 333-71418).
10.16 Stock Pledge by and between PHC, Inc. and Linc Anthem  Corporation. (Filed
     as exhibit  10.81 to the  Company's  report on Form  10-KSB, filed with the
     Securities and Exchange Commission on September 28, 1994.)
10.17 Custodial Agreement by and between LINC Anthem  Corporation  and PHC, Inc.
     and Choate,  Hall and Stewart dated July 25, 1996.  (Filed as exhibit 10.85
     to the Company's quarterly report on Form 10-QSB, filed with the Securities
     and  Exchange  Commission  on February  25,  1997.  Commission  file number
     0-23524)
10.18 Loan and Security  Agreement  by and between  Northpoint-Pioneer  Inc. and
     LINC Anthem Corporation dated July 25, 1996. (Filed as exhibit 10.86 to the
     Company's  quarterly  report on Form 10-QSB, filed with the  Securities and
     Exchange Commission on December 5, 1996. Commission file number 0-23524).
10.19 Coporate Guaranty  by  PHC,  Inc.,  PHC of  Rhode  Island,  Inc.,  PHC of
     Virginia,  Inc., PHC of Nevada, Inc. and LINC Anthem Corporation dated July
     25,  1996 for North  Point-Pioneer,  Inc.  (Filed as  exhibit  10.87 to the
     Company's  quarterly  report on Form 10-QSB, filed with the  Securities and
     Exchange Commission on December 5, 1996. Commission file number 0-23524).
10.20 Stock Pledge and  Security  Agreement  by and between  PHC,  Inc. and LINC
     Anthem  Corporation.  (Filed as exhibit  10.88 to the  Company's  quarterly
     report on Form 10-QSB, filed with the Securities and Exchange Commission on
     December 5, 1996. Commission file number 0-23524).
10.21Secured  Promissory  Note of  North  Point-Pioneer,  Inc.  in favor of LINC
     Anthem Corporation dated July 25, 1996 in the amount of $500,000. (Filed as
     exhibit 10.89 to the Company's  quarterly report on Form 10-QSB, filed with
     the Securities and Exchange Commission on December 5, 1996. Commission file
     number 0-23524).
10.22 Lease  Agreement by and  between  PHC,  Inc.  and 94-19  Associates  dated
     October 31, 1996 for BSC-NY,  Inc. (Filed as exhibit 10.90 to the Company's
     quarterly  report on Form 10-QSB, filed with the  Securities  and  Exchange
     Commission on December 5, 1996. Commission file number 0-23524).
10.23 Note by and between PHC Inc. and Yakov Burstein in the amount of $180,000.
     (Filed as exhibit  10.91 to the Company's  quarterly report on Form 10-QSB,
     filed with the  Securities  and  Exchange  Commission  on December 5, 1996.
     Commission file number 0-23524).
10.24 Note  by and  between  PHC,  Inc.  and  Irwin Mansdorf  in the  amount  of
     $570,000. (Filed as exhibit 10.92 to the Company's quarterly report on Form
     10-QSB, filed with the  Securities  and Exchange  Commission on December 5,
     1996. Commission file number 0-23524).
10.25 Employment Agreement by and between BSC-NY,  Inc. and Yakov Burstein dated
     November 1, 1996. (Filed as exhibit 10.93 to the Company's quarterly report
     on Form 10-QSB,  filed  with the  Securities  and  Exchange  Commission  on
     December 5, 1996. Commission file number 0-23524).
10.26 Consulting  Agreement by and between BSC-NY, Inc. and Irwin Mansdorf dated
     November 1, 1996. (Filed as exhibit 10.94 to the Company's quarterly report
     on Form 10-QSB,  filed  with the  Securities  and  Exchange  Commission  on
     December 5, 1996. Commission file number 0-23524).
10.27 Agreement and  Plan of  Merger  by and  among  PHC,  Inc.,  BSC-NY,  Inc.,
     Behavioral Stress Centers,  Inc., Irwin Mansdorf,  and Yakov Burstein dated
     October 31, 1996. (Filed as exhibit 10.95 to the Company's quarterly report
     on Form 10-QSB,  filed  with the  Securities  and  Exchange  Commission  on
     December 5, 1996. Commission file number 0-23524).
10.28 Employment  Agreement  by and between Perlow  Physicians,  P.C.  and Yakov
     Burstein dated  November 1, 1996.  (Filed as exhibit 10.98 to the Company's
     quarterly  report on Form 10-QSB, filed with the  Securities  and  Exchange
     Commission on December 5, 1996. Commission file number 0-23524).
10.29 Agreement  for Purchase  and  Sale  of  Assets  by  and  between  Clinical
     Associates and Clinical  Diagnostics and PHC, Inc.,  BSC-NY,  Inc.,  Perlow
     Physicians,  P.C.,  Irwin  Mansdorf,  and Yakov  Burstein dated October 31,
     1996.  (Filed as exhibit  10.99 to the Company's  quarterly  report on Form
     10-QSB, filed with the  Securities  and Exchange  Commission on December 5,
     1996. Commission file number 0-23524).
10.30 Consulting Agreement  by and between  Perlow  Physicians,  P.C.  and Irwin
     Mansdorf dated November 1, 1996.  (Filed as exhibit 10.100 to the Company's
     quarterly  report on Form 10-QSB, filed with the  Securities  and  Exchange
     Commission on December 5, 1996. Commission file number 0-23524).
10.31 Mortgage by and between PHC of Michigan,  Inc. and HCFP Funding Inc. dated
     January 13, 1997 in the amount of  $2,000,000.  (Filed as exhibit 10.106 to
     the Company's  quarterly  report on Form 10-QSB,  filed with the Securities
     and  Exchange  Commission  on  February  25,  1997  Commission  file number
     0-23524).
10.32 Employment Agreement for Dr. Himanshu Patel; Employment Agreement for Dr.
     Mukesh Patel; and Fringe Benefit Exhibit for both of the Patels' Employment
     Agreements.  (Filed as exhibit 10.107 to the Company's  quarterly report on
     Form 10-QSB, filed with the Securities and Exchange  Commission on February
     25, 1997. Commission file number 0-23524).
10.33 Unconditional Guaranty of Payment and performance by and between PHC, Inc.
     in favor of HCFP.  (Filed  as  exhibit  10.112 to the  Company's  quarterly
     report on Form 10-QSB, filed with the Securities and Exchange Commission on
     February 25, 1997. Commission file number 0-23524).
10.34 Amendment number 1 to Loan  and Security Agreement  dated May 21, 1996 by
     and between PHC, of Utah,  Inc. and HCFP Funding  providing collateral for
     the PHC of Michigan, Inc. Loan and  Security Agreement.  (Filed as exhibit
     10.113 to the Company's quarterly  report on Form 10-QSB, filed  with  the
     Securities and  Exchange   Commission  on  February  25,  1997  Commission
     file number 0-23524).
10.35 Employment  Agreement  by and between  Perlow  Physicians  P.C. and Nissan
     Shliselberg,  M.D  dated  March  1997.  (Filed  as  exhibit  10.114  to the
     Company's  Registration  Statement  on Form  SB-2  dated  April  15,  1997.
     Commission file number 333-25231).
10.36 Option  and  Indemnity  Agreement by and  between  PHC,  Inc.  and  Nissan
     Shliselberg,  M.D dated  February  1997.  (Filed as  exhibit  10.115 to the
     Company's  Registration  Statement  on Form  SB-2  dated  April  15,  1997.
     Commission file number  333-25231).
10.37 Secured  Term Note by and  between PHC of  Michigan,  Inc. and  Healthcare
     Financial  Partners - Funding II, L.P.  in the amount of  $1,100,000  dated
     March  1997.  (Filed  as  exhibit  10.116  to  the  Company's  Registration
     Statement  on Form  SB-2  dated  April 15,  1997.  Commission  file  number
     333-25231).
10.38 Mortgage between PHC of Michigan, Inc. and Healthcare Financial Partners -
     Funding II, L.P. in the amount of  $1,100,000  dated March 1997 for Secured
     Term Note. (Filed as exhibit 10.117 to the Company's Registration Statement
     on Form SB-2 dated April 15, 1997. Commission file number 333-25231).
10.39 Submission  of Lease  between PHC,  Inc. and Conestoga  Corporation  dated
     11/09/95  for space at 200 Lake  Street,  Suite  101b,  Peabody,  MA 01960.
     (Filed as exhibit  10.119 to the Company's  Registration  Statement on Form
     SB-2 dated April 15, 1997. Commission file number 333-25231).
10.40 Master Equipment Lease Agreement by and between PHC, Inc. and LINC Capital
     Partners dated March 18, 1997 in the amount of $200,000.  (Filed as exhibit
     10.121 to the Company's Registration Statement on Form SB-2 dated April 15,
     1997. Commission file number 333-25231).
10.41 Agreement  between  Family Independence  Agency and Harbor  Oaks  Hospital
     effective January 1, 1997. (Filed as exhibit 10.122 to the Company's report
     on Form 10-KSB,  with the Securities and Exchange Commission on October 14,
     1997. Commission file number 0-23524).
10.42 Master Contract by and between Family  Independence Agency and Harbor Oaks
     Hospital  effective  January  1,  1997.  (Filed  as  exhibit  10.122 to the
     Company's  report on Form 10-KSB, filed with the  Securities  and  Exchange
     Commission on October 14, 1997. Commission file number 0-23524).
10.43 Deed, Deed of Trust and Deed Trust Note in the amount of  $540,000  by and
     between Dillon and Dillon  Associates  and Pioneer  Counseling of Virginia,
     Inc. (Filed as exhibit 10.124 to the Company's report on Form 10-KSB, filed
     with the Securities and Exchange Commission on October 14, 1997. Commission
     file number 0-23524).
10.44 Financial  Advisory  Agreement,  Indemnification  Agreement  and  Form  of
     Warrant by and between Brean Murray & Compay and PHC, Inc. dated  06/01/97.
     (Filed as exhibit 10.125 to the Company's report on Form 10-KSB, filed with
     the Securities and Exchange Commission on October 14, 1997. Commission file
     number 0-23524).
10.45 Secured Term Note; Mortgage; Environmental  Indemnity;  Agreement Guaranty
     by PHC,  Inc.;  and  Amendment  No. 2 Loan and  Security  Agreement  by and
     between  Healthcare  Financial;  and PHC, Inc. of Michigan  dated  December
     1997. (Filed as exhibit 10.129 to the Company's  Registration  Statement on
     Form SB-2 dated January 8, 1997. Commission file number 333-25231).
10.46First  Amendment  to  Sale  and  Purchase  Agreement  by and  between  LINC
     Financial  Services,  Inc.,  LINC Finance  Corporation VII and PHC of Rhode
     Island dated January 20, 1995 and Sale and Purchase  Agreement  dated March
     6, 1995.  (Filed as exhibit  10.132 to the Company's  10-QSB dated February
     17, 1998).
10.47 Agreement by and between PHC,  Inc., and Irwin Mansdorf and Yakov Burstein
     dated  March 2, 1998.  (Filed as exhibit  10.135 to the  Company's  Current
     Report on Form 8-K,  filed with the  Securities  and  Exchange  Commission.
     Commission file number 0-23524 on April 29, 1998).
10.48 Secured  Bridge Loan to be made to PHC,  Inc. by HCFP  Funding II, Inc. in
     the amount of $350,000  dated March 10, 1998.  (Filed as exhibit  10.136 to
     the Company's  Current  Report on Form 8-K,  filed with the  Securities and
     Exchange Commission. Commission file number 0-23524 on April 29, 1998).
10.49 First Amendment  to  Mortgage  between  PHC of  Michigan,  Inc.  and  HCFP
     Funding, Inc. (Filed as Exhibit 10.137 to the Company's 10-QSB filed on May
     15, 1998. Commission file number 0-23524).
10.50 Secured Unconditional  Guaranty of Payment and  performance by and between
     BSC-NY, Inc. and HCFP Funding II, Inc. in the amount of $350,000. (Filed as
     exhibit  10.58 to the Company's  Registration  Statement on Form SB-2 dated
     July 24, 1998. Commission file number 333-59927).
10.51 Loan and Security Agreement by and among HCFP  Funding,  Inc.,  and PHC of
     Michigan,  Inc.,  PHC of Utah,  Inc.,  PHC of Virginia,  Inc., PHC of Rhode
     Island, Inc., and Pioneer Counseling of Virginia, Inc. dated as of February
     18, 1998. (Filed as exhibit 10.59 to the Company's  Registration  Statement
     on Form SB-2 dated July 24, 1998. Commission file number 333-59927).
10.52 Credit Line Deed of Trust by and between PHC of  Virginia,  Inc., and HCFP
     Funding II, Inc. dated July 1998.  (Filed as exhibit 10.60 to the Company's
     Registration  Statement on Form SB-2 dated July 24, 1998.  Commission  file
     number 333-59927).
10.53 Amendment No. 1 to Secured  Bridge Note dated July 10, 1998 by and between
     PHC,  Inc.  and HCFP  Funding  II,  Inc.  (Filed  as  exhibit  10.61 to the
     Company's  Registration  Statement  on  Form  SB-2  dated  July  24,  1998.
     Commission file number 333-59927).
10.54 Promissory  Note for $50,000  dated May 18, 1998 by and between  PHC, Inc.
     and Tot Care,  Inc.  (Filed as exhibit 10.62 to the Company's  Registration
     Statement  on Form  SB-2  dated  July  24,  1998.  Commission  file  number
     333-59927).
10.55 Promissory  Note for $50,000  dated June 9, 1998 by and between  PHC, Inc.
     and Tot Care,  Inc.  (Filed as exhibit 10.63 to the Company's  Registration
     Statement  on Form  SB-2  dated  July  24,  1998.  Commission  file  number
     333-59927).
10.56 Letter  Agreement dated May 31, 1998 by and between NMI Realty,  Inc.  and
     PHC of Rhode  Island,  Inc.  to  terminate  the Lease and Option  Agreement
     entered  into  March 16,  1994.  (Filed as exhibit  10.64 to the  Company's
     Registration  Statement on Form SB-2 dated July 24, 1998.  Commission  file
     number 333-59927).
10.57 Amendment  No.  1  to Loan  and  Security   Agreement  in  the  amount  of
     $4,000,000.00 by and among HCFP Funding,  Inc., and PHC of Michigan,  Inc.,
     PHC of Utah,  Inc., PHC of Virginia,  Inc., PHC of Rhode Island,  Inc., and
     Pioneer Counseling of Virginia,  Inc. dated as of February 18, 1998. (Filed
     as exhibit  10.65 to the  Company's report on Form 10-KSB dated October 13,
     1998. Commission file number 0-23524).
10.58 Promissory Note by and between  PHC,  Inc. and Bruce A. Shear dated August
     13,  1998,  in the  amount  of  $100,000.  (Filed as  exhibit  10.66 to the
     Company's report on Form 10-QSB  dated  November 3, 1998.  Commission  file
     number 0-23524).
10.59 Amendment to Overline Letter  Agreement  pursuant to the Loan and Security
     Agreement by and among HCFP Funding,  Inc., and PHC of Michigan,  Inc., PHC
     of Utah,  Inc.,  PHC of Virginia,  Inc.,  PHC of Rhode  Island,  Inc.,  and
     Pioneer  Counseling  of Virginia,  Inc.  dated June 8, 1998  extending  the
     maturity  date from  November 10, 1998 to May 10,  1999.  (Filed as exhibit
     10.67 to the Company's report on Form 10-QSB filed with the  Securities and
     Exchange Commission on February 12, 1999. Commission file number 0-23524).
10.60 The Overline Letter agreement pursuant to the Loan and Security  Agreement
     by and among HCFP Funding,  Inc.,  and PHC of Michigan,  Inc., PHC of Utah,
     Inc.,  PHC of  Virginia,  Inc.,  PHC of Rhode  Island,  Inc.,  and  Pioneer
     Counseling of Virginia,  Inc.  dated as of February 18, 1998  extending the
     maturity  date from  November 10, 1998 to May 10,  1999.  (Filed as exhibit
     10.68 to the Company's Registration Statement on Form 10-QSB dated February
     12, 1999. Commission file number 0-23524).
10.61 Financial  Advisory and  Consultant  Agreement  by  and  between  National
     Securities Corporation and PHC, Inc. dated 01/05/99 (Filed as exhibit 10.69
     to the Company's report on Form 10-Q-SB dated February 12, 1999. Commission
     file number 0-23524).
10.62 Agreementfor  Purchase and Sale of Pioneer Counseling of Virginia, Inc. to
     Dr. Mukesh Patel and Dr. Himanshu Patel dated February 15, 1999.  (Filed as
     exhibit  10.62  to the  Company's  Report  on Form  10-QSB  filed  with the
     Securities and Exchange Commission on May 14, 1999.  Commission file number
     0-23524).
10.63 Letter Agreement  by and between PHC,  Inc.  and Dr.  Mukesh Patel and Dr.
     Himanshu  Patel  dated  March 3, 1999  regarding  the  transfer of minority
     ownership in Pioneer  Counseling of Virginia,  Inc. to PHC, Inc.  (Filed as
     exhibit  10.63  to the  Company's  Report  on Form  10-QSB  filed  with the
     Securities and Exchange Commission on May 14, 1999.  Commission file number
     0-23524).

10.64 Seller's Settlement Statement related to the sale of the real estate owned
     by Pioneer  Counseling of Virginia,  Inc.  dated March 15, 1999.  (Filed as
     exhibit  10.64  to the  Company's  Report  on Form  10-QSB  filed  with the
     Securities and Exchange Commission on May 14, 1999.  Commission file number
     0-23524).

*10.65 This amendment no. 2 to secured bridge note (the  "Amendment")  is hereby
     entered  into as of the 10th  day of May 1999 by and  among  PHC,  INC.,  a
     Massachusetts  corporation  ("Borrower"),  and HCFP  FUNDING  II,  INC.,  a
     Delaware  corporation  ("Lender").  (Filed as an exhibit  to the  Company's
     report on Form  10-KSB  dated  October  13,  1999.  Commission  file number
     0-23524).
*10.66 Loan and Security  Agreement by and between  Heller  Healthcare  Finance,
     Inc. f/k/a HCFP Funding,  Inc. and PHC of Michigan,  Inc. PHC of Utah, Inc.
     PHC of Virginia,  Inc. PHC of Rhode Island,  Inc. and Pioneer Counseling of
     Virginia, Inc. dated August 11, 1999. (Filed as an exhibit to the Company's
     report on Form  10-KSB  dated  October  13,  1999.  Commission  file number
     0-23524).
*10.67 Amendment   number 3 to Secured  Bridge  Note  dated May 10,  1999 by and
     between  PHC,  Inc. and HCFP (Filed as exhibit to the  Company's  report on
     Form 10-KSB,  filed with the Securities and Exchange  Commission on October
     13, 1999. Commission file number 0-23524).
16.1 Letter on Change in Independent Public Accountants. (Filed as an exhibit to
     the Company's report on Form 10-KSB, filed with the Securities and Exchange
     Commission  on  September  28,  1994 and as exhibit  16.1 in the  Company's
     Current  Report  on Form  8-K,  filed  with  the  Securities  and  Exchange
     Commission.  Commission file number 0-23524 on April 29, 1998).
*21.1 List of Subsidiaries. (Filed as an exhibit to the Company's report on Form
     10-KSB dated October 13, 1999. Commission file number 0-23524).
23.1 Consent of Independent Auditors.
27   Financial Data Schedule
99.1 Cautionary  Statement for Purposes of the "Safe  Harbor"  Provisions of the
     Private Securities Litigation Reform Act of 1995.

      * Filed herewith

(b)  REPORTS ON FROM 8-K

     The Company  filed no reports on Form 8-K during the  Quarater  ended June
30, 1999.

<PAGE>

                                   SIGNATURES


     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934,  the  registrant  caused  this  report to be  signed on its  behalf by the
undersigned, thereunto duly authorized.


                                    PHC, INC.


Date:    October 13, 1999           By: /s/   Bruce A. Shear, President and
                                              Chief Executive Officer


     In  accordance  with the  Securities  Exchange Act of 1934,  the  following
persons  on  behalf of the  registrant  and in the  capacities  and on the dates
indicated have signed this report below.



/s/  Bruce A. Shear        President, Chief Executive        October 13  , 1999
                           Officer and Director
                           (principal executive officer)


/s/ Paula C. Wurts         Controller and Assistant           October 13 , 1999
                           Treasurer (principal financial
                           and accounting officer)


/s/  Gerald M. Perlow      Director                           October 13 , 1999


/s/  Donald E. Robar       Director                           October 13 , 1999

__________________         Director
Howard Phillips

/s/ William F. Grieco      Director                           October 13 , 1999




<PAGE>


PHC, INC. AND SUBSIDIARIES

        Contents

        Consolidated Financial Statements

          Independent auditors' report                                    F-2

          Consolidated balance sheets                                     F-3

          Consolidated statements of operations                           F-4

          Consolidated statements of changes in stockholders' equity      F-5

          Consolidated statements of cash flows                        F-6, F-7

          Consolidated notes to financial statements                      F-8












                                                                         F-1


<PAGE>


INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
PHC, Inc.
Peabody, Massachusetts


We have audited the  accompanying Consolidated  balance  sheets of PHC, Inc. and
subsidiaries  as of  June  30,  1999  and  1998  and  the  related  consolidated
statements of operations,  changes in stockholders'  equity,  and cash flows for
the years then ended.  These financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial position of PHC,
Inc.  and  subsidiaries  at June 30,  1999 and  1998  and the  results  of their
operations  and their cash flows for the years  then  ended in  conformity  with
generally accepted accounting principles.

The consolidated  financial statements referred to above as of June 30, 1998 and
for the year then ended have been restated (See Note P).



                                                        BDO Seidman, LLP

Boston, Massachusetts
September 10, 1999
                                                                           F2



<PAGE>

PHC, INC.  AND SUBSIDIARIES

Consolidated Balance Sheets
                                                            June 30,
                                                      1999               1998
                                                                   (as restated)
                                                      ____          ___________
ASSETS (Notes C and D)
 Current assets:
 Cash and cash equivalents (Note A)               $  381,170        $  227,077
    Accounts receivable, net of allowance for
     doubtful accounts of $3,647,848 at June 30,
     1999 and $3,488,029 at June 30, 1998
     (Notes A, L and M)                            6,343,227         7,441,972
Prepaid expenses                                     101,865           156,695
Other receivables and advances                       334,155           127,064
Deferred income tax asset (Note F)                   459,280           515,300
Other receivables, related party                      53,517            64,065
                                                  ___________       ___________
  Total current assets                             7,673,214         8,532,173

Accounts receivable, noncurrent                      595,000           685,000
Other receivables, noncurrent, related party,
  net of allowance for doubtful accounts of
  $782,000 in 1999 and $382,000 in 1998(Note K)    2,908,113         2,941,402
Other receivables                                    109,165           426,195
Property and equipment, net (Notes A, B and D)     1,483,319         2,128,273
Deferred income tax asset (Note F)                   154,700           154,700
Deferred financing costs, net of amortization
  of $64,041 and $18,065 at June 30, 1999 and
  1998, respectively                                  45,067            53,608
Goodwill, net of accumulated amortization of
  $116,900 and $307,707 at June 30, 1999 and 1998,
  respectively (Note A)                            1,761,075         2,011,613
Other assets (Note A)                                297,781            19,386
                                                 ___________       ___________
      Total assets                               $15,027,434       $16,952,350
                                                 ___________       ___________

LIABILITIES
Current liabilities:
Accounts payable                               $   1,832,750       $ 2,346,213
Notes payable - related parties (Note E)             200,000           159,496
Current maturities of long-term debt (Note C)      1,286,318         1,107,167
Revolving credit note (Note C)                     1,669,830         1,683,458
Current portion of obligations under capital
 leases (Note D)                                      60,815            67,492
Accrued payroll, payroll taxes and benefits          333,955           729,194
Accrued expenses and other liabilities             1,459,290         1,004,763
Deferred Gain (Note A and I)                       2,641,537         2,641,537
                                                 ___________       ___________
Total current liabilities                          9,484,495         9,739,320

Long-term debt, less current maturities (Note C)   1,730,230         2,850,089
Obligations under capital leases (Note D)             51,657            93,747
Convertible debentures (Note C)                      500,000                --
                                                 ___________       ___________
Total noncurrent liabilities                       2,281,887         2,943,836
                                                 ___________       ___________
Total liabilities                                 11,766,382        12,683,156
                                                 ___________       ___________
Commitments and contingent liabilities
  (Notes A, D, G, H, J, and K)

STOCKHOLDERS' EQUITY (Notes H, J and K)
Convertible Preferred stock, $.01 par value;
  1,000,000 shares authorized, 813 and 950
  shares issued and outstanding June 30, 1999
  and 1998 respectively                                    8                10
Class A common stock, $.01 par value; 20,000,000
  shares authorized, 5,612,930 and 4,935,267
  shares issued June 30,1999 and 1998, respectively   56,129            49,353
Class B common stock, $.01 par value; 2,000,000
  shares authorized, 727,210 and 727,328
  issued and outstanding  June 30, 1999 and 1998,
  respectively, convertible into one share of
  Class A common stock                                 7,272             7,273
Additional paid-in capital                        15,967,176        15,485,895
Treasury stock, 2,776 common shares at cost June
  30, 1999 and 1998                                  (12,122)          (12,122)
Accumulated deficit                              (12,757,411)      (11,261,215)
                                                  ___________       ____________
Total stockholders' equity                         3,261,052         4,269,194
                                                  ___________       ___________
     Total liabilities and stockholders' equity  $15,027,434       $16,952,350
                                                 ___________       ___________
See notes to financial statements


                                                                           F-3
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Consolidated Statements of Operations
                                                  For the Year Ended June 30,
                                                  1999                 1998
                                                                 (as restated)
Revenues:
     Patient care, net (Note A)             $ 17,529,978          $ 19,649,353
     Management fees (Note K)                    666,881               833,750
     Other                                       942,637               763,086

         Total revenues                       19,139,496            21,246,189

Operating expenses:
    Patient care expenses                      9,384,070            10,706,639
     Cost of management contracts                259,012               467,065
     Provision for doubtful accounts           2,183,139             3,684,452
     Administrative expenses                   7,865,013             9,488,631

         Total operating expenses             19,691,234            24,346,787
                                             ___________          _____________

Loss from operations                           (551,738)            (3,100,598)

Other income (expense):
     Interest income                            451,271                391,353
     Interest expense                        (1,258,314)            (1,289,642)
     Other income, net                           64,129                 58,583
                                            ___________           _____________

          Total other expense, net            (742,914)               (839,706)

Loss before income taxes                    (1,294,652)             (3,940,304)
Income taxes (Note F)                           59,434                 219,239

Loss from continuing operations             (1,354,086)             (4,159,543)

Loss from discontinued operations
 (Notes A and I)                                    --              (2,220,296)

             Net loss                       (1,354,086)             (6,379,839)

Dividends (Note J)                            (142,110)               (207,060)

Loss applicable to common shareholders   $  (1,496,196)           $ (6,586,899)

Basic and diluted loss per common share
 (Note A):
    Continuing operations                $        (.25)           $       (.84)
    Discontinued operations                         --                    (.42)
      Total                              $        (.25)           $      (1.26)
Basic and diluted weighted average
  number of shares outstanding                6,008,263              5,237,168

See notes to financial statements.
                                                                             F-4


<PAGE>

PHC, INC.  AND SUBSIDIARIES
<TABLE>

<S>                           <C>          <C>         <C>          <C>         <C>        <C>         <C>

Consolidated Statements of Changes In Stockholders' Equity (See Notes A, C, H, J, K and N)

                                Class        A       Class     B        Class     C
                                Common       Stock   Common    Stock    Common    Stock    Preferred   Stock
                                Shares       Amount  Shares    Amount   Shares    Amount    Shares     Amount

Balance - June 30, 1997         2,877,836  $28,778   730,360  $ 7,304   199,816  $ 1,998     500       $  5
Conversion of debt              1,331,696   13,317
Conversion of preferred stock
  series A                        246,305    2,463                                          (500)        (5)
Issuance of shares with
  acquisition                      41,024      410
Issuance private placement
   shares                         172,414    1,724
Conversion of shares                3,032       31    (3,032)     (31)
Cancel class C common stock                                            (199,816)  (1,998)
Issue warrants for services
Issuance of shares with
   consulting agreement            20,870      209
Issuance of shares with
   earn out agreement             227,347    2,274
Issuance of employee stock purchase
   plan shares                     14,743      147
Issuance of preferred stock Series B                                                         950         10
Adjustment related to beneficial
   conversion feature of convertible
   preferred stock
Warrant issued with debt
Treasury stock issued to employees
Dividends on preferred stock
Costs related to private placements
Net Loss - year ended June 30, 1998    --       --        --       --        --       --      --         --
                                   _______   _______   _______  _______  ______  ________   ______     ______

Balance -June 30, 1998
       (as restated)            4,935,267  $49,353   727,328   $7,273         0       $0     950        $10

Costs related to private placement
Conversion of preferred stock     248,129    2,481                                          (190)        (3)
Price guarantee shares            304,097    3,041
Issue warrants for services
Issuance of shares with consulting
     agreement                     56,470      564
Issuance of shares with earn out
     agreement                     53,374      534
Issuance of employee stock
     purchase plan shares          15,475      155
Issue warrants for financing
Conversion from class B to class A    118        1      (118)      (1)
Dividends on preferred stock                                                                  53          l
Net Loss - year ended June 30, 1999    --       --        --       --        --       --      --         --
                                   _______   _______   _______  _______  ______  ________   ______     ______

Balance - June 30, 1999         5,612,930  $56,129   727,210   $7,272         0      $ 0     813        $ 8


See notes to financial statements.
</TABLE>

<PAGE>

PHC, INC.  AND SUBSIDIARIES (con't)

Consolidated  Statements of Changes In Stockholders'  Equity (See Notes A, C, H,
J, K and N)


                      Additional
                      Paid-in
                      Capital,
                      Common      Treasury   Shares   Accumulated
                      Stock        Shares    Amount     Deficit       Total
                    _____________  ________  ______   ____________    _____

Balance - June 30,
   1997                $10,398,630  8,656  $(37,818)  $(4,674,316)   $5,724,581
Conversion of debt       2,696,789                                    2,710,106
Conversion of preferred
  stock series A           (2,458)                                            0
Issuance of shares with
  acquisition              79,605                                        80,015
Issuance private placement
  shares                  498,276                                       500,000
Conversion of shares                                                         -0-
Cancel class C common
  stock                     1,998                                            -0-
Issue warrants for
  services                184,523                                       184,523
Issuance of shares with
  consulting agreement     36,249                                        36,458
Issuance of shares with
  earn out agreement      531,991                                       534,265
Issuance of employee
  stock purchase plan
  shares                   35,750                                        35,897
Issuance of preferred
  stock series B          949,990                                       950,000
Adjustment related to
  beneficial conversion
  feature of convertible
  preferred stock         190,000                        (190,000)           -0-
Warrant issued with debt   48,809                                        48,809
Treasury stock issued to
  employees                        (5,880)   25,696                      25,696
Dividends on preferred stock                              (17,060)      (17,060)
Costs related to private
  placements             (164,257)                                     (164,257)
Net loss-year ended June
  30, 1998                     --      --        --    (6,379,839)   (6,379,839)
                      _____________  ________  ______   ____________  _________

Balance - June 30,
  1998 as restated)   $15,485,895   2,776  $(12,122) $(11,261,215)  $ 4,269,194

Costs related to private
  placement               (56,565)                                      (56,565)
Conversion of preferred
  stock                    91,959                         (92,569)        1,868
Price guarantee shares    117,076                                       120,117
Issue warrants for
  services                108,354                                       108,354
Issuance of shares with
  consulting agreement     38,436                                        39,000
Issuance of shares with
  earn out agreement       59,513                                        60,047
Issuance of employee
  stock purchase plan
  shares                   18,261                                        18,415
Issue warrants for
  financing                51,248                                        51,248
Conversion from class B
  to class A
Dividends on preferred
  stock                    52,999                         (49,541)        3,460
Net Loss-year ended June
  30, 1999                     --      --        --    (1,354,086)   (1,354,086)
                      _____________ ________  ________ ____________  __________
Balance-June 30, 1999  15,967,176   2,776   ($2,122) $(12,757,411)   $3,261,052


See notes to financial statements
                                                                             F-5


<PAGE>
PHC, INC.  AND SUBSIDIARIES

Consolidated Statements of Cash Flows

                                                 For the Year Ended June 30,
                                                    1999             1998
                                                    ____             ____
                                                                 (as restated)
Cash flows from operating activities:
  Net loss                                      $(1,354,086)      $(6,379,839)
  Adjustments to reconcile net loss to
    net cash provided by (used in)
    operating activities:
  Depreciation and amortization                     325,764           674,162
  Compensatory stock options and
    stock and warrants issued
    for obligations                                 279,719           269,790
  Changes in:
     Accounts receivable                          1,188,745         1,544,791
     Prepaid expenses and other
       current assets                              (141,713)          257,173
     Other assets                                   693,275          (257,941)
     Accounts payable                              (513,463)         (182,913)
     Accrued expenses and other liabilities          59,288           758,072
     Net liabilities of discontinued operations          --         1,161,903
                                                ____________      _____________
       Net cash provided by (used in)
        operating activities                        537,529        (2,154,802)
                                               ____________      _____________
Cash flows from investing activities:
     Acquisition of property and equipment
       and intangibles                             (115,254)         (212,492)
     Loan receivable                                     --           152,749
                                               ____________      _____________

       Net cash (used in) investing
        activities                                 (115,254)          (59,743)
                                                ____________      _____________
Cash flows from financing activities:
     Revolving debt, net                             13,628           (106,513)
     Proceeds from borrowings                       485,829            950,000
     Payments on debt                            (1,274,969)          (557,883)
     Deferred financing costs                            --              6,967
     Preferred stock dividends                       (7,681)           (17,060)
     Issuance of capital stock                       15,011          1,321,640
     Convertible debt                               500,000                 --
                                                ____________      _____________
       Net cash provided by (used in)
         financing activities                      (268,182)         1,597,151
                                                ____________      _____________
Net increase (decrease) in cash and
   cash equivalents                                 154,093           (617,394)
Beginning balance of cash and cash equivalents      227,077            844,471
                                               ____________      _____________
Ending balance of cash and cash equivalents      $  381,170        $   227,077
                                               ____________       _____________
Supplemental cash flow information:
     Cash paid during the period for:
     Interest                                    $1,227,628         $1,567,763
     Income taxes                                $  189,027         $  130,290


See notes to financial statements
                                                                             F-6
<PAGE>


  Supplemental disclosures of noncash investing and financing
       activities:
Stock issued for acquisitions and earn-out agreement       $ 60,047    $614,280
Capital leases                                               25,010      83,082
Conversion of preferred stock                               190,000     500,000
Beneficial conversion feature of preferred stock                --      190,000
 Warrant Valuations                                         159,602     233,332
Conversion of Debt to Common Stock                              --    2,710,106
Issuance of Preferred Stock in lieu of cash for
   Dividends due                                             53,000          --
Issuance of Common Stock in lieu of Preferred Stock
  Dividends                                                  81,429          --












































See notes to financial statements                                           F-7

<PAGE>

PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and consolidation:

PHC, Inc. ("PHC" or the "Company") operates substance abuse treatment centers in
several  locations in the United States, a psychiatric  hospital in Michigan and
psychiatric  outpatient  facilities  in Nevada,  Kansas and  Michigan.  PHC also
manages a  psychiatric  practice in New York,  operates an  outpatient  facility
through a  physicians  practice,  and  operates  behavioral  health  centers and
maintains a behavioral  health web site.  PHC of Utah,  Inc.  ("PHU") and PHC of
Virginia,  Inc.  ("PHV") provide  treatment of addictive  disorders and chemical
dependency.  PHC of Michigan,  Inc.  ("PHM")  provides  inpatient and outpatient
psychiatric  care. PHC of Nevada,  Inc. ("PHN") and PHC of Kansas,  Inc. ("PHK")
provide psychiatric treatment on an outpatient basis. North Point-Pioneer,  Inc.
("NPP")  operates four  outpatient  behavioral  health centers under the name of
Pioneer  Counseling  Centers.  Behavioral Stress Centers,  Inc. ("BSC") provides
management  and  administrative  services  to  psychotherapy  and  psychological
practices  (see  Note  K).  Behavioral  Health  Online,  Inc.  ("BHO")  provides
behavioral health  information and education through its web site.  Quality Care
Centers of  Massachusetts,  Inc.  ("Quality  Care")  operated a  long-term  care
facility known as the Franvale Nursing and  Rehabilitation  Center (see Note I).
The consolidated  financial  statements  include PHC and its  subsidiaries.  All
significant  intercompany  transactions  and balances  have been  eliminated  in
consolidation.

Until January 1999, the Company  operated Pioneer  Counseling of Virginia,  Inc.
("PCV"),  an 80% owned subsidiary which provided  outpatient  services through a
physicians practice.  Until May 31, 1998, the Company operated Good Hope Center,
a substance  abuse  treatment  facility in West  Greenwich,  Rhode Island ("Good
Hope").  Until June 1, 1998 the Company also operated a subacute  long-term care
facility, Franvale Nursing and Rehabilitation Center ("Franvale"),  in Braintree
Massachusetts.  On June 1, 1998 Franvale was placed into state receivership.  On
October 5, 1998  Franvale  filed for  protection  under the Chapter 7 Bankruptcy
code.  All financial  information  for Franvale is reported in the  accompanying
financial statements as discontinued  operations.  The liquidation of the assets
and liabilities of Franvale may result in a non-cash financial statement gain of
approximately $2,000,000. In the quarter ended December 31, 1998 the company was
relieved of the HUD mortgage of  approximately  $6,741,000 and  surrendered  the
underlying assets amounting to approximately $4,329,000.  The recognition of the
gain has been deferred until final resolution of all contingent liabilities.

During the year ended June 30,  1999,  the  Company  recorded an increase in its
accounts  receivable  reserve in line with its more  aggressive  reserve  policy
established last year and reserved for the remaining accounts receivable balance
for the closed  Rhode  Island  facility  and the closed  Pioneer  Counseling  of
Virginia facilities.

Revenues  and  accounts  receivable:  Patient  care  revenues  are  recorded  at
established  billing rates or at the amount  realizable  under  agreements  with
third-party payors, including Medicaid and Medicare.  Revenues under third-party
payor  agreements  are  subject  to  examination  and  adjustment,  and  amounts
realizable  may change due to periodic  changes in the  regulatory  environment.
Provisions  for  estimated  third party payor  settlements  are  provided in the
period the  related  services  are  rendered.  Differences  between  the amounts
accrued and  subsequent  settlements  are recorded in  operations in the year of
settlement.







                                                                             F-8




<PAGE>

PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenues and accounts receivable (continued)

Medicaid  reimbursements  are currently based on established  rates depending on
the  level  of  care   provided   and  are  adjusted   prospectively.   Medicare
reimbursements  are  currently  based on  provisional  rates  that are  adjusted
retroactively  based on annual cost reports filed by the Company with  Medicare.
The Company's cost reports to Medicare are routinely audited on an annual basis.
The Company  periodically reviews its provisional billing rates and provides for
estimated Medicare adjustments. The Company believes that adequate provision has
been made in the financial statements for any adjustments that might result from
the outcome of Medicare audits.

The Company has $585,714 of  receivables  from Medicaid and Medicare at June 30,
1999,  which  constitute  a  concentration  of credit risk should  Medicaid  and
Medicare defer or be unable to make reimbursement payments as due.

Charity care amounted to approximately $242,000 and $504,000 for the years ended
June 30, 1999 and 1998, respectively,  and is classified as patient care revenue
and an  equal  amount  of  cost is  charged  to  patient  care  expenses  in the
statements of operations.

Property and equipment:

Property and  equipment  are stated at cost.  Depreciation  is provided over the
estimated  useful  lives  of the  assets  using  accelerated  and  straight-line
methods. The estimated useful lives are as follows:


                    Assets                         Estimated Useful Life
                    Buildings                       39 years
                    Furniture and equipment          3 through 10 years
                    Motor vehicles                   5 years
                    Leasehold improvements           Term of Lease

Other assets:

Other assets are primarily deposits and deferred expenses.

Goodwill, net of accumulated amortization:

The  excess of the  purchase  price  over the fair  market  value of net  assets
acquired is being amortized on a straightline basis over twenty years.





                                                                            F-9


<PAGE>

PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE A-THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basic and diluted loss per share:

The loss per  share is  computed  by  dividing  the loss  applicable  to  common
shareholders,  net of dividends  charged directly to retained  earnings,  by the
weighted  average number of shares of common stock  outstanding  for each fiscal
year.  No common stock  equivalents  have been  included in the  calculation  of
diluted loss per share because their effect would be anti-dilutive.

In 1997, the Financial  Accounting  Standards Board (FASB) issued  Statement No.
128,  Earnings per share.  Statement 128 replaced the calculation of primary and
fully  diluted  earnings  per share with basic and diluted  earnings  per share.
Unlike  primary  earnings  per share,  basic  earnings  per share  excludes  any
dilutive  affects of options,  warrants  and  convertible  securities.  Dilutive
earnings per share is similar to the previously  reported fully diluted earnings
per share.

Estimates and assumptions:

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amount  of  assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

Cash equivalents:
Cash  equivalents are short-term  highly liquid  investments  with maturities of
less than three months, when purchased.

Fair value of financial instruments:
The carrying amounts of cash, trade receivables,  other current assets, accounts
payable, notes payable and accrued expenses approximate fair value.

Impairment of long-lived assets:

During the year ended June 30, 1999 the Company wrote off the carrying  value of
goodwill for Pioneer Counseling of Virginia,  Inc.,  approximately $305,000, and
wrote down the  remaining  balance of accounts  receivable  for the  facility of
approximately $43,000. During the year ended June 30, 1998 the Company wrote off
the carrying  value of goodwill  for PHC of Rhode  Island,  Inc.,  approximately
$23,000, and wrote off equipment and the land and building assets related to the
capital lease from that facility aggregating  approximately  $1,240,000 in total
assets and the related liability of approximately  $1,300,000.  Also in 1998 the
Company wrote down the remaining  balance of accounts  receivable  from a closed
California  facility,  approximately  $92,000,  and the equipment,  goodwill and
additional  closing costs  recorded for the Blacksburg  facility,  approximately
$136,000,  which was closed in fiscal year 1999 to consolidate operations in the
Salem, Virginia.

In accordance  with FASB statement no. 121,  long-lived  assets are reviewed for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of an asset may not be  recoverable.  For purposes of evaluating
the recoverability of long-lived  assets,  the recoverability  test is performed
using undiscounted net cash flows related to the long-lived assets.

                                                                            F-10
<PAGE>

PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE A-THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-based compensation:

The Company accounts for its employee stock-based  compensation under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".  In
October  1995,  the Financial  Accounting  Standards  Board issued  Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation"  ("SFAS No. 123").  SFAS No. 123  establishes  a  fair-value-based
method of accounting for stock-based compensation plans. The Company adopted the
disclosure only alternative,  which requires disclosure of the pro forma effects
on loss and loss per  share  as if SFAS  No.  123 had been  adopted,  as well as
certain other information.

Recent Accounting Pronouncements:

In June 1998 and July 1999,  the  Financial  Accounting  Standards  Board issued
Statements of Financial  Accounting  Standards No. 133 and 137. ("SFAS No. 133),
"Accounting for Derivative  Instruments and Hedging  Activities," and ("SFAS No.
137"),  "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective  Date of FASB Statement No. 133." SFAS No. 133 and SFAS No. 137
require  companies to recognize all derivative  contracts at their fair value as
either assets or  liabilities on the balance  sheet.  If certain  conditions are
met, a derivative may be  specifically  designated as a hedge,  the objective of
which  is to  match  the  timing  of  gain or loss  recognition  on the  hedging
derivative  with the  recognition  of (1) the  changes  in the fair value of the
hedged asset or liability  that are  attributable  to the hedged risk or (2) the
earnings  effect of the hedged  forecasted  transaction.  For a  derivative  not
designated as a hedging instrument,  the gain or loss is recognized in income in
the period of change.  These statements are effective for all quarters beginning
after July 15, 1999.

Historically,  the Company has not entered into derivative  contracts  either to
hedge existing risks or for speculative purposes.  Accordingly, the Company does
not expect the adoption of the new standard to affect its financial statements.

NOTE B - PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following:


                                                             June 30,
                                                        1999           1998
                                                        ____           ____
         Land                                      $   69,259       $  119,859
         Buildings                                  1,136,963        1,676,963
         Furniture and equipment                      868,722          839,972
         Motor vehicles                                41,444           41,444
         Leasehold improvements                       358,207          354,687
                                                  ___________       ___________
                                                    2,474,595        3,032,925

        Less accumulated depreciation and
          amortization                                991,276          904,652
                                                  ___________       ___________
                                                   $1,483,319       $2,128,273
                                                  ___________       ___________




                                                                            F-11
<PAGE>

PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE C - NOTES PAYABLE AND LONG-TERM DEBT

Long-term debt is summarized as follows:
                                                                 June 30,
                                                             1999      1998
                                                             ____      ____
Note payable with interest at 9% requiring monthly
  payments of $1,150 through May 2001.                   $  23,509      $34,636
9% mortgage note due in monthly installments
  of $4,850, including interest through July 1,
  2012, when the remaining principal balance is
  payable.                                                 462,814      478,582
Note payable due in monthly installments of $21,506
    including interest at 10.5% through November 1,
    1999 when the remaining principal balance is
    payable, collateralized by all assets of PHN and
    certain receivables. Interest only payments were
    made from May 1998 through October 1998 per
    subsequent agreement.                                  261,802      374,190
Note payable due in monthly installments of $26,131
    including interest at 11.5% through June 2000 when
    the remaining principal balance is payable,
    collateralized by all assets of NPP.  Interest
    only payments were made from May 1998 through
    October 1998 per subsequent agreement.                  471,297     598,848
Note payable due in monthly installments of $5,558
    including interest at 9.25% through May 2012 when
    the remaining principal balance is payable,
    collateralized by real estate.                                0     521,000
Term mortgage note payable with interest only payments
    through March 1998 principal due in monthly
    installments of $9,167 beginning April 1998
    through February 2001.  A balloon payment of
    approximately $1,300,000 plus interest is due March
    2001, interest at prime plus 5% (12.75% at June 30,
    1999) collateralized by all assets of PHM.            1,433,333   1,600,000
Note payable bearing interest at prime plus 3 1/2%
    (11.25% at June 30, 1999) with the principal due
    on November 10, 1998 as extended and collateralized
    by MRC's real property and BSC's accounts receivable
    and cross-collateralized with the revolving credit
    note referred to below.                                 324,730     350,000
Note payable due in monthly installments of $2,378
    including interest at 12% through October 1999.           9,278           0
Note payable due in monthly installments of $7,633
    including interest at 12% through October 1999.          29,785           0
                                                          __________  _________
                                                          3,016,548   3,957,256

Less current maturities                                   1,286,318   1,107,167
                                                          __________  _________
Noncurrent maturities                                   $ 1,730,230 $ 2,850,089
                                                          __________  _________

                                                                            F-12

<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE C - LONG-TERM DEBT (CONTINUED)

Maturities of long-term debt are as follows as of June 30, 1999:

                         Year Ending
                         June 30,                Amount
                         ____________            ______________
                         2000                    $1,286,318
                         2001                     1,303,527
                         2002                        20,634
                         2003                        22,570
                         2004                        24,687
                         Thereafter              $  358,812
                                                 ______________
                                                 $3,016,548
                                                 ______________


The Company has a revolving  credit note under which a maximum of $4,000,000 may
be  outstanding  at any  time.  At June 30,  1999 the  outstanding  balance  was
$1,669,830.  Advances are made based on a percentage of accounts  receivable and
principal  is payable  upon  receipt of  proceeds  of the  accounts  receivable.
Interest  is payable  monthly at prime  plus 2.25% (10% at June 30,  1999).  The
agreement is automatically  renewable for one-year periods unless  terminated by
either party. Upon expiration,  all remaining principal and interest is due. The
notes are  collateralized  by  substantially  all of the assets of the Company's
subsidiaries excluding Franvale and guaranteed by PHC.

On December 7, 1998 the Company issued $500,000 in 12% convertible debentures to
private investors. These debentures are convertible in $1,000 increments for 500
shares of PHC, Inc. Class A Common Stock and expire December 2, 2004.

NOTE D - CAPITAL LEASE OBLIGATION

At June 30, 1999,  the Company was obligated  under various  capital  leases for
equipment providing for monthly payments of approximately $5,000 for fiscal 2000
and terms expiring from July 1999 through July 2003.

The  carrying  value of assets  under  capital  leases  included in property and
equipment is as follows:

                                                     June 30,
                                                 1999          1998
                                                 ____          ____
Equipment and improvements                   $  528,820    $  511,517
Less accumulated amortization                  (259,564)     (225,703)
                                             $  269,256    $  285,814


                                                                           F-13


PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE D - CAPITAL LEASE OBLIGATION (CONTINUED)

Future minimum lease  payments  under the terms of the capital lease  agreements
are as follows at June 30, 1999:

         Year Ending
         June 30,
         ____________
         2000                                       $ 65,327
         2001                                         47,302
         2002                                         11,201
         2003                                          2,821
         Thereafter                                      235
                                                    _________
         Total future minimum lease payments         126,886
         Less amount representing interest            14,414
                                                    _________
         Present value of future minimum
              lease payments                         112,472

         Less current portion                         60,815

         Long-term obligations under capital lease   $51,657
                                                    _________
NOTE E - NOTES PAYABLE - RELATED PARTIES

Related party debt is summarized as follows:                  June 30,
                                                        1999            1998
                                                        ____            ____
Note payable, President and principal stockholder,
  interest at 8%, due in installments through
  December 1998                                      $    -0-         $ 39,496
Notes payable, Tot Care, Inc., Company owned by the
  President and principal stockholder, interest at
  12% payable on demand                              100,000           100,000
Note payable, President and principal stockholder,
  interest at 12% payable on demand                  100,000                -0-
Notes payable, other related parties, interest at
  12% and payable on demand                               -0-           20,000
                                                    _________         _________
 Total                                            $  200,000         $ 159,496
                                                    _________         _________

                                                                           F-14
<PAGE>

PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE F - INCOME TAXES

The Company has the following  deferred tax assets included in the  accompanying
balance sheets:

                                                            Year Ended
                                                              June 30,
                                                       1999           1998
                                                       ____           ____
   Temporary differences attributable to:
      Allowance for doubtful accounts               $1,546,000      $1,315,000
      Facility Closing Costs                           198,000          85,000
      Depreciation                                     237,000         225,000
      Other                                             86,000           2,000
   Operating loss carryforward                       1,542,000       1,650,000
                                                   ___________     ___________
         Total deferred tax asset                    3,609,000       3,277,000
   Less:
      Valuation allowance                           (2,995,000)     (2,607,000)
                                                    ___________     ___________
   Subtotal                                            614,000         670,000
      Current portion                                 (459,300)       (515,300)
                                                    ___________     ___________
         Long-term portion                          $  154,700      $  154,700
                                                    ___________     ___________

The Company had no deferred tax liabilities at June 30, 1999 and 1998.

Income tax expense is as follows:                            Year Ended
                                                              June 30,
                                                         1999           1998
                                                         ____           ____
         Current state income taxes                  $  59,434      $  219,239

Reconciliations  of the statutory  U.S.  Federal income taxes based on a rate of
34% to actual income taxes is as follows:

                                                             Year Ended
                                                              June 30,
                                                         1999           1998
                                                         ____           ____

         Income tax benefit at statutory rate       $ (440,200)     $(2,044,400)
         State income taxes, net of federal
           benefit                                      39,000          144,700
         Increase in valuation allowance               388,000        1,780,000
         Increase due to nondeductible items,
           primarily penalties and travel and
           entertainment expenses                       37,000          161,231
         Other                                          35,634          177,708
                                                      __________       ________
                                                    $   59,434      $   219,239

At June 30,1999 the Company had a net operating loss  carryforward  amounting to
approximately $4,500,000 which expires at various dates through 2019.

If the Company has significant  sales of stock in future years,  the utilization
of the net operating  loss  carryforward  in any given year may be limited under
provisions of the Internal Revenue Code.

                                                                            F-15
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE G - COMMITMENTS AND CONTINGENT LIABILITIES

Operating leases:

The Company  leases office and treatment  facilities and furniture and equipment
under operating  leases expiring on various dates through January 31, 2004. Rent
expense for the years ended June 30,  1999 and 1998 was  approximately  $784,000
and $882,000,  respectively.  Rent expense  includes  certain short term rentals
and, in 1998,  additional rent expense  associated with the closing of Good Hope
Center.  Minimum future rental payments under  noncancelable  operating  leases,
having remaining terms in excess of one year as of June 30, 1999 are as follows:

                             Year Ending
                             June 30,               Amount
                             ____________           ____________
                             2000                   $ 606,854
                             2001                     562,243
                             2002                     552,339
                             2003                     504,989
                             2004                     562,320
                             Thereafter                14,584
                                                     ___________
                                                  $ 2,803,329
Litigation and contingency:

In connection with the  liquidation of Franvale,  some vendors allege that there
are amounts due for services  which are the  obligation of PHC, Inc. At June 30,
1999 total claims pending amounted to approximately $67,000.

In September  1998,  the Company and Franvale were each served with subpoenas in
connection  with an on-going  investigation  of Franvale being  conducted by the
Attorney General of the Commonwealth of Massachusetts.  The focus is the quality
of patient care  provided by Franvale  during the period of early 1997 until the
facility was placed into  receivership  in June 1998. The Company is cooperating
fully with the  investigation  and  currently is engaged in producing  documents
requested  in the  subpoenas.  The Company does not believe that it has violated
any laws and does not believe that any monetary  payments required in connection
with this  matter  will be  material  to the  financial  position  or results of
operations of the Company.

In addition,  the  Commonwealth of  Massachusetts  may institute a claim against
PHC,  Inc.  to  recover  expenses   incurred  as  a  consequence  of  Franvale's
receivership.  The Company believes that it has valid defenses to any such claim
and, in any event, it believes that there will be adequate  assets  remaining in
Franvale to satisfy any receivership expenses.

NOTE H - STOCK PLANS

[1]     Stock plans:

          The Company has three stock plans:  a stock  option plan,  an employee
          stock purchase plan and a nonemployee directors' stock option plan.

                                                                           F-16

<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE H - STOCK PLANS (CONTINUED)

    [1]   Stock plans: (continued)

          The stock  option  plan  provides  for the  issuance  of a maximum  of
          1,000,000  shares of Class A common  stock of the Company  pursuant to
          the grant of incentive  stock  options to  employees  or  nonqualified
          stock options to employees,  directors,  consultants  and others whose
          efforts are  important to the success of the  Company.  Subject to the
          provisions of this plan,  the  compensation  committee of the Board of
          Directors  has the authority to select the optionees and determine the
          terms of the options 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  will not 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.

          The employee  stock purchase plan provides for the purchase of Class A
          common stock at 85 percent of the fair market value at specific dates,
          to encourage stock ownership by all eligible  employees.  A maximum of
          150,000 shares may be issued under this 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, 1999, options for 23,500 shares
          were granted under this plan. A maximum of 50,000 shares may be issued
          under  this  plan.  Each  outside  director  is  granted  an option to
          purchase  2,000 shares of Class A common stock at fair market value on
          the date of  grant,  vesting  25%  immediately  and 25% on each of the
          first three anniversaries of the grant.

          In February  1997, all 95,375 shares  underlying the then  outstanding
          employee  stock  options were  repriced to the current  market  price,
          using the existing exercise  durations.  In September 1998, all 21,875
          options due to expire,  were  extended for an  additional  five years.
          Also in  September  1998,  all  183,875  shares  underlying  the  then
          outstanding employee stock options were repriced to the current market
          price, using the existing exercise durations.

          Under the above plans, at June 30, 1999, 601,580 shares were available
          for future grant or purchase.

                                                                           F-17

<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE H - STOCK PLANS (CONTINUED)

     The Company had the following activity in its stock option plans for fiscal
     1999 and 1998:
                                                             Weighted-
                                                  Number     Average
                                                   of        Exercise Price
                                                  Shares     Per Share
                                                 _________   _____________
        Option plans:
            Balance - June 30, 1997               205,375        $4.27
            Granted                               210,000        $2.37
            Cancelled                             (40,000)       $3.21
                                                 _________
            Balance - June 30, 1998               375,375        $3.32
            Granted                               218,500        $1.21
            Cancelled                             (71,000)       $1.95
            Repriced Options
              Original                           (183,875)       $2.96
              Repriced                            183,875        $1.25
                                                 _________
            Balance - June 30 ,1999               522,875        $2.02
                                                 _________
[2]     Stock-based compensation:

          Options  for  252,000  shares are  exercisable  as of June 30, 1999 at
          exercise  prices  ranging  from $1.03 to $6.63 and a  weighted-average
          exercise   price   of   approximately   $3.08   per   share,   with  a
          weighted-average  remaining  contractual life of  approximately  three
          years.

          The exercise prices of options outstanding at June 30, 1999 range from
          $1.03 to $6.63 per share and have a weighted-average exercise price of
          approximately  $2.02  per  share,  with a  weighted-average  remaining
          contractual life of approximately four years.

          The Company has adopted  the  disclosure-only  provisions  of SFAS No.
          123,  but  applies  Accounting  Principles  Board  Opinion  No. 25 and
          related  interpretations  in  accounting  for its plans.  There was no
          compensation  expense  recognized  in 1999 or 1998. If the Company had
          elected to recognize compensation cost for the plans based on the fair
          value at the grant date for awards granted, consistent with the method
          prescribed  by SFAS No. 123, loss per share would have been changed to
          the pro forma amounts indicated below:




                                                                            F-18

<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE H - STOCK PLANS (CONTINUED)
                                                         Year Ended
                                                          June 30,
                                                     1999               1998
                                                     ____               ____

    Loss applicable     As reported
      to common          Continuing Operations     $(1,496,196)     $(4,366,603)
      shareholders       Discontinued Operations            --       (2,220,296)

                        Pro forma
                         Continuing Operations      (1,595,475)      (4,494,930)
                         Discontinued Operations            --       (2,220,296)

    Loss per share      As reported
                         Continuing Operations            (.25)            (.84)
                         Discontinued Operations            --             (.42)

                        Pro forma
                         Continuing Operations            (.27)            (.86)
                         Discontinued Operations            --             (.42)

The fair value of the Company's stock options used to compute pro forma loss and
loss per share  disclosures  is the estimated  present value at grant date using
the  Black-Scholes  option-pricing  model  with the  following  weighted-average
assumptions for 1999 and 1998: dividend yield of 0%; expected volatility of 30%;
a risk-free interest rate of 6.5%; and an expected holding period of five years.

The per share  weighed-average  grant-date  fair value of options granted during
the years ended June 30, 1999 and 1998 was $.48 and $.87, respectively.





                                                                           F-19
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE I - OPERATIONS HELD FOR SALE AND DISCONTINUED OPERATIONS


On May 26, 1998,  PHC,  Inc.'s  wholly owned  subsidiary,  Quality  Care,  which
operates  Franvale filed for  reorganization  under Chapter 11. On May 29, 1998,
the Bankruptcy Court terminated the Chapter 11 proceeding determining that there
was no  likelihood  of  reorganization  since the  prospective  acquirer  of the
facility was now imposing certain terms  unacceptable to all interested  parties
and that the transfer of patients and  liquidation of assets could be as readily
effectuated in a state court  receivership  under the aegis of the Massachusetts
Health Care Statutes and  accordingly  dismissed the Chapter 11 case. On June 1,
1998, a receiver  was  appointed to transfer the patients and close the facility
expeditiously.  The Company has recorded the losses of Franvale  through May 31,
1998 in the accompanying financial statements.

The Company's Bankruptcy Attorney was notified that effective September 30, 1998
the patient care  receivership for Quality Care had been terminated.  On October
5, 1998, in response to the termination of the State  Receivership,  the Company
filed for protection under Chapter 7.

Although  the full  extent  of the  financial  impact  on PHC,  Inc.  cannot  be
determined at this time,  the  management of PHC, Inc. does not believe that the
liquidation  of  the  assets  and  liabilities  of  Quality  Care  will  have  a
substantial  negative  impact on PHC's  financial  position  or the  results  of
operations.  The  Company is  subject to a  guarantee  signed by PHC,  Inc.  for
furniture and  equipment  purchased by Quality Care during the fiscal year ended
June  30,  1996.  The  amount  of this  debt  recorded  by  Quality  Care in the
accompanying financial statements is approximately  $150,000. The liquidation of
the assets  and  liabilities  of  Franvale  may  result in a non-cash  financial
statement gain of  approximately  $2,000,000.  In the quarter ended December 31,
1998 the company was  relieved of the HUD mortgage of  approximately  $6,741,000
and surrendered the underlying assets amounting to approximately $4,329,000. The
recognition  of the  gain  has  been  deferred  until  final  resolution  of all
contingent liabilities.


                                                                           F-20

<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE J - CERTAIN CAPITAL TRANSACTIONS

In addition to the outstanding options under the Company's stock plans (Note H),
the Company has the following options and warrants outstanding at June 30, 1999:

                                  Number of           Exercise      Expiration
Description                        Shares              Price          Date
______________
IPO warrants                   1,792,862 shares   $5.90 per share  March 2000
Private placement warrants       746,662 shares   $3.71 per share  January 2001
Bridge warrants                   37,002 shares   $6.94 per share  February 2001
Warrant for services              25,000 shares   $2.00 per share  October 2001
Warrant for services               3,559 shares   $2.95 per share  February 2002
Consultant warrant                80,000 shares   $2.62 per share  March 2002
Convertible debenture warrants   150,000 shares   $2.00 per share  March 2002
Preferred stock warrant           50,000 shares   $2.75 per share  June 2000
Warrant for services             150,000 shares   $2.50 per share  May 2002
Private Placement                 86,207 shares   $2.90 per share  Sept 2002
Private Placement                  3,000 shares   $2.90 per share  March 2003
Debt Service                      52,500 shares   $2.38 per share  March 2003
Private Placement                 49,990 shares   $2.31 per share  March 2001
Debt Service                      52,500 shares   $1.82 per share  July 2003
Debt Service                      20,000 shares   $1.50 per share  July 2003
Private Placement                 25,000 shares   $1.00 per share  Dec 2004
Private Placement                 60,000 shares   $1.00 per share  Dec 2003
Private Placement                 10,000 shares   $2.00 per share  Dec 2003
Private Placement                 15,000 shares   $1.50 per share  Dec 2003
Private Placement                 10,000 shares   $1.00 per share  Dec 2003
Private Placement                 10,000 shares   $1.00 per share  Jan 2004
Private Placement                 10,000 shares   $1.00 per share  Jan 2004
Private Placement                 10,000 shares   $1.00 per share  Feb 2004
Private Placement                 10,000 shares   $1.00 per share  March 2004
Private Placement                 10,000 shares   $1.00 per share  April 2004
Private Placement                 10,000 shares   $1.00 per share  May 2004
Private Placement                 10,000 shares   $1.00 per share  June 2004
Warrant for Services              37,500 shares   $1.45 per share  Jan 2004
Warrant for Services              37,500 shares   $1.45 per share  Apr 2004
Warrant for Services               3,000 shares   $1.20 per share  Feb 2004
Warrant for Services               5,000 shares   $1.00 per share  April 2004
Warrant for Services               5,000 shares   $1.00 per share  April 2004
Warrant for Services               5,000 shares   $1.00 per share  April 2004
Warrant for Services               1,000 shares   $1.00 per share  May 2004

Warrants issued for services or in connection with debt are valued at fair value
at grant date using the  Black-Scholes  pricing  model and charged to operations
consistent  with the  underlying  reason the warrants  were  issued.  Charges to
operations in connection with these warrants amounted to approximately  $160,000
and $233,000 in fiscal 1999 and 1998 respectively.

In February 1998, the Company received  $950,000 in exchange for the issuance of
Series B convertible  preferred  stock and warrants to purchase 49,990 shares of
Class A common stock. The warrants are exercisable at $2.31 per share and expire
in 2001.  The number of shares of Class A common stock into which the  preferred
stock may be  converted  is equal to 80% of the closing bid price of the Class A
common  stock as  reported  by  NASDAQ  for the five  trading  days  immediately
preceding  the  conversion  which  resulted in a deemed  dividend of $190,000 in
fiscal 1998. Cumulative preferred dividends are at the rate of $60 per share per
year, payable quarterly. Dividends are payable in cash or in shares of preferred
stock at $1,000 per share.  For the year ended June 30, 1999 and 1998  dividends
amounted  to $ 142,110 and  $17,060  respectively.  During the fiscal year ended
June 30,  1999 the  Company  issued 53 shares  of  series B  preferred  stock in
payment of dividends in lieu of cash.

                                                                           F-21
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE J - CERTAIN CAPITAL TRANSACTIONS (CONTINUED)

Under  existing  dilution  agreements  with other  stockholders  the issuance of
common stock under  agreements other than the employee stock purchase and option
plans will  increase  the number of shares  issuable  and  decrease the exercise
price of certain of the above warrant agreements based on the difference between
the then  current  market  price and the price at which the new common  stock is
being  issued.  The dilutive  effect of  transactions  through June 30, 1999 are
reflected in the table above.

During fiscal 1998, the Class C common stock was canceled and retired because of
restrictions on the release of the stock, due to earnings targets which were not
achieved.

NOTE K - ACQUISITIONS

In  September  1996,  the  Company  purchased  the  assets  of seven  outpatient
behavioral  health  centers  located  in  Michigan  ("NPP").  The  centers  were
purchased  for $532,559 and 15,000  shares of Class A common stock of PHC,  Inc.
valued at $5.04 per share. The Company borrowed $900,000 (see Note C) to finance
the purchase and to provide working capital for the centers.

Concurrent  with the asset  purchase  agreement,  NPP entered into an employment
agreement with a former owner which requires an annual salary of $150,000 and an
annual bonus.  The  agreement is effective  for four years and is  automatically
extended for successive one year terms unless  terminated.  The salary and bonus
are subject to adjustment based on collected  billings.  NPP also entered into a
management  agreement  whereby  $1,500 per month would be paid for five years to
the former  owners.  During  fiscal 1998 in connection  with the asset  purchase
agreement, the Company issued 15,000 unregistered shares of Class A common stock
which was accounted for as additional purchase price

On  November 1, 1996,  BSC-NY,  Inc.  ("BSC"),  merged  with  Behavioral  Stress
Centers,  Inc.,  a  provider  of  management  and  administrative   services  to
psychotherapy  and  psychological   practices  in  the  greater  New  York  City
Metropolitan  Area. In connection  with the merger,  the Company  issued 150,000
shares of PHC,  Inc.  Class A common  stock to the former  owners of  Behavioral
Stress  Centers,  Inc. Also, in connection  with the merger,  another entity was
formed,  Shliselberg Physician Services,  P.C. formerly Perlow Physicians,  P.C.
("Shliselberg"),  to acquire  the assets of the  medical  practices  theretofore
serviced by BSC. The Company  advanced  Shliselberg  the funds to acquire  those
assets  and at June 30,  1999  Shliselberg  owed the  Company  $3,690,113  which
includes in addition to  acquisition  costs,  management  fees of  approximately
$1,657,500 and interest on the advances of approximately $576,300. During fiscal
1998 the Company  established a reserve against this receivable in the amount of
$382,000. The Company increased the reserve to $782,000 in the fiscal year ended
June 30, 1999.  It is expected that  collections  will be received over the next
several years and accordingly, these amounts have been classified as noncurrent.
The Company has no ownership interest in Shliselberg.

                                                                            F-22
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE K - ACQUISITIONS (CONTINUED)

The merger agreement requires additional purchase price to be paid by BSC to the
former owners of Behavioral  Stress Centers,  Inc. for the three years following
the merger date.  The  additional  purchase  price is based on the income of BSC
before taxes and is to be paid in PHC stock,  at market value up to $200,000 and
the  balance,  if any, in cash.  On March 26, 1998 the  Company  issued  227,347
shares of the Company's  Class A Common Stock to the former owners of Behavioral
Stress Centers, Inc. now BSC-NY, Inc. in full payment for the earn-out due to be
paid to them for the  year  ended  October  31,  1997  resulting  in  additional
goodwill.  Of the 227,347  shares issued 127,924 were issued in lieu of cash and
were subject to a price guarantee of $2.35,  payable in shares.  Under the price
guarantee the Company issued an additional 304,097 shares of Common Stock in the
fiscal year ended June 30, 1999.

BSC also entered into a management agreement with Shliselberg whereby management
fees are required of Shliselberg on a monthly basis over a five-year period with
an automatic renewal for an additional  five-year period. The management fee was
calculated at 25% of the total  monthly  expenses of  Shliselberg  and effective
January 1, 1998 the management agreement was amended to provide for a management
fee of 20% of the total monthly  expenses of  Shliselberg.  In November 1998 the
management  fee was  further  reduced to 18% of the total  monthly  expenses  of
Shliselberg.

On November 1, 1996, BSC entered into a lease agreement for its facilities.  The
lease payments are due in equal monthly  installments  over a three-year  period
with an option to extend annually for three additional years. The lease is to be
paid by Shliselberg in accordance with the management agreement.

Summary,  unaudited financial information for Shliselberg as of and for the year
ended June 30, 1999 is as follows:

                          Total assets                       $  3,580,000
                          Stockholder's deficit              $   (782,000)
                          Net revenue                        $  2,930,000
         .                Net loss                           $   (400,349)

Effective  January 1, 1997, the Company entered into a Stock Exchange  Agreement
with a Virginia  corporation owned by two individuals to whom the Company has an
outstanding  note  payable.  The  corporation  consists of private  practices of
psychiatry.  The Stock Exchange  Agreement provided that in exchange for $50,000
in cash and  64,500  shares of  restricted  Class A common  stock,  the  Company
received an 80% ownership interest in the Virginia corporation. The Company also
paid $80,444 in legal fees in connection with the Agreement. Concurrent with the
Stock  Exchange  Agreement  the two  owners  of the  Virginia  corporation  each
executed  Employment   Agreements  with  the  Virginia  corporation  to  provide
professional  services and each was granted an option to purchase  15,000 shares
of Class A common  stock at an  exercise  price of $4.87 per share.  The options
expire on April 1, 2002.  Each  agreement  requires an annual salary of $200,000
and expires in five years.  Further, a Plan and Agreement of Merger was executed
whereby the Virginia corporation was merged into PCV.

                                                                            F-23
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE K - ACQUISITIONS (CONTINUED)

On January 17,  1997 PCV  entered  into a purchase  and sale  agreement  with an
unrelated  general  partnership,  to purchase  real estate  with  buildings  and
improvements utilized by the Virginia Corporation for approximately  $600,000 of
which $540,000 was paid through the issuance of a note (Note C).

In  accordance  with the agreement the two owners will be paid a finders fee for
all subsequently  acquired medical practices within a 200 mile radius of PCV and
those  medical  practices  identified by the owners  wherever the location.  The
finders fee is payable in Class A common stock and in cash.

On October 1, 1997 PCV purchased the assets of a clinic  located in  Blacksburg,
Virginia  in exchange  for  $50,000 in cash and 26,024  shares of Class A Common
Stock.  The company  entered into a lease with the former  owners for the clinic
property and an employment agreement with one of the owners.

In  accordance  with the above  agreements  the purchase  price was allocated as
follows:
                Fixed Assets                  10,000
                Covenant not to compete       50,000
                Goodwill                      38,632
                                             ________
                                            $ 98,632
                                             ________

During fiscal 1998 the Company  consolidated  the  operations of the  Blacksburg
clinic with the Salem, Virginia clinic to enhance profitability.  The closure of
the Blacksburg clinic, including the write down of related assets and buy out of
the lease, is reflected in the June 30, 1998 financial statements.

During fiscal 1999 the Company decided to close the remaining Pioneer Counseling
of Virginia clinic located in Salem, Virginia. Since the Company was required by
contract  to give  30-days  notice to  contract  therapists  before  closing the
clinic,  in January 1999 the Company closed its 80% owned outpatient  operations
in  Virginia,  Pioneer  Counseling  of  Virginia,  Inc.  The  Company  sold this
business,  excluding accounts  receivable and most fixed assets, to the minority
owners in exchange for their shares of stock in Pioneer  Counseling of Virginia,
Inc. approximately  $25,000,  release from the first mortgage on the property of
approximately  $506,000 and release from notes payable to the minority owners of
$20,000. The closure of this clinic resulted in a loss of approximately $300,000
which was charged to  administrative  expenses in the accompanying  statement of
operations.

Information is not available to present pro forma financial information relating
to the October  1997  acquisition.  The Company so advised  the  Securities  and
Exchange Commission and received a no action letter with respect to this matter.
Had the Blacksburg  acquisition  made during the fiscal year ended June 30, 1998
(October 1,  1997),  been made as of July 1, 1997,  the pro forma  effect on the
Company's results of operations would have been immaterial and therefore are not
shown.


                                                                           F-24
<PAGE>
PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE L - SALE OF RECEIVABLES

The Company had a sale and purchase  agreement whereby  third-party  receivables
were sold at a discount with recourse. In February 1998 the Company entered into
a finance  agreement with  Healthcare  Financial  Partners,  Inc. to provide for
receivables  funding and liquidate the debt due to the above referenced sale and
purchase agreement and provide  receivables  funding for PHC of Virginia,  Inc.,
PHC of Rhode Island, Inc. and Pioneer Counseling of Virginia, Inc.

NOTE M - FOURTH QUARTER ADJUSTMENTS

The Company  recorded  significant  adjustments  in the fourth quarter of fiscal
1998 related to the closure of Good Hope Center,  the write down of  receivables
of the  closed  California  facility,  the write down of the amount due BSC from
Shliselberg,  the closure of the Blacksburg facility and an increase in accounts
receivable reserves of the other facilities.

In the  quarter  ended  December  31,  1998  the  Company  recognized  a gain of
approximately  $1,100,000 in its form 10-QSB  related to the  liquidation of the
assets  and  liabilities  of  Franvale  (See Note I). The  Company  subsequently
determined that it was more  appropriate to defer  recognition of any gain until
final  resolution of all potential  liabilities.  Accordingly,  the Company will
amend its  December  31,  1998 10-QSB to  reversed  recognition  of this gain in
fiscal 1999.

NOTE N - EVENTS SUBSEQUENT TO JUNE 30, 1999

On July 1, 1999 the Company  issued  warrants to purchase  10,000 shares of PHC,
Inc. Class A Common Stock,  exercisable at $1.00 per share,  to George H. Gordon
as part of the December 1998 private placement agreement.

On July 5, 1999 the Company  issued  warrants to purchase  37,500 shares of PHC,
Inc. Class A Common Stock, Class A Common Stock, exercisable at $1.45 per share,
to National Securities Corporation as part of a service agreement.

On August 1, 1999 the Company issued  warrants to purchase 10,000 shares of PHC,
Inc. Class A Common Stock,  exercisable at $1.00 per share,  to George H. Gordon
as part of the December 1998 private placement agreement.

On August 11,  1999 the  Company  borrowed  approximately  $310,000  from Heller
Healthcare  Finance,  Inc. f/k/a HCFP Funding,  Inc. through an extension of the
February 18, 1989 Loan and Security Agreement.

NOTE O - BUSINESS SEGMENT INFORMATION

The Company's operations are conducted in one business segment, the operation of
behavioral health treatment centers.  All of the Company's operations are in the
United States.

                                                                            F-25

<PAGE>

PHC, INC.  AND SUBSIDIARIES

Notes to Financial Statements
June 30, 1999 and 1998

NOTE P - RESTATEMENT OF FINANCIAL STATEMENTS

The Company has restated its  financial  statements  as of June 30, 1998 and for
the year then ended. The restatement  related to the Company's  accounting for a
beneficial conversion feature of a preferred stock issuance and the amortization
of the  value of  warrants  issued  to a  financial  advisor.  The  Company  has
determined that the beneficial conversion feature, amounting to $190,000, should
have been recorded in the 1998 financial  statements as a dividend.  The Company
also determined  that the value of the warrants issued to the financial  advisor
should have been fully amortized in 1998,  resulting in an additional expense in
1998 of $147,618. The table below reflects the impact of the restatement.

                                                AS REPORTED         AS RESTATED

         Loss from continuing operations        $(4,011,925)     $  (4,159,543)
         Loss from discontinued operations       (2,220,296)        (2,220,296)
                                                ____________     ______________
         Loss                                    (6,232,221)        (6,379,839)

         Dividends                                  (17,060)          (207,060)
                                                ____________     ______________
         Loss applicable to common
           shareholders                         $(6,249,281)     $  (6,586,899)
                                                ____________     ______________
         Basic and diluted loss per
           common share:

           Continuing operations                $     (0.77)     $       (0.84)
           Discontinued operations                    (0.42)             (0.42)
                                                ____________     ______________
                      Total                     $     (1.19)     $       (1.26)
                                                ____________     ______________



                                                                            F-26

<PAGE>

EXHIBIT INDEX


*4.28 Warrant  Agreements  by and  between  PHC,  Inc., and George H. Gordon for
     10,000  shares  of Class A Common  Stock  dated  April 1,  1999.  (Filed as
     exhibit to the  Company's  report on Form 10-KSB  dated  October 13,  1999.
     Commission file number 0-23524).
*4.29 Warrant  Agreements  by and  between  PHC,  Inc., and George H. Gordon for
     10,000 shares of Class A Common Stock dated July 1, 1999. (Filed as exhibit
     to the Company's  report on Form 10-KSB dated October 13, 1999,  Commission
     file number 0-23524).
*4.30 Warrant  Agreements  by and  between  PHC,  Inc., and George H. Gordon for
     10,000 shares of Class A Common Stock dated June 1, 1999. (Filed as exhibit
     to the Company's  report on Form 10-KSB dated October 13, 1999.  Commission
     file number 0-23524).
*4.31 Warrant  to purchase  up to 37,500  shares of Class A Common  Stock by and
     between PHC, Inc., and National Securities Corporation dated April 5, 1998.
     (Filed as exhibit to the Company's  report on Form 10-KSB dated October 13,
     1999. Commission file number 0-23524.)
*4.32 Warrant  to  purchase  up to 37,500  shares of Class A Common Stock by and
     between PHC, Inc., and National Securities  Corporation dated July 5, 1998.
     (Filed as exhibit to the Company's  report on Form 10-KSB dated October 13,
     1999. Commission file number 0-23524.)
*4.33 Subscription  Agreement and Warrants Series B Convertible Preferred Shares
     and Warrants by and between PHC, Inc.,  ProFutures  Special  Equities Fund,
     L.P.,  Gary D. Halbert John F. Mauldin and Augustine  Fund L.P. dated March
     16, 1998.
*10.65 This amendment no. 2 to secured bridge note (the  "Amendment")  is hereby
     entered  into as of the 10th  day of May 1999 by and  among  PHC,  INC.,  a
     Massachusetts  corporation  ("Borrower"),  and HCFP  FUNDING  II,  INC.,  a
     Delaware  corporation  ("Lender").  (Filed as an exhibit  to the  Company's
     report on Form  10-KSB  dated  October  13,  1999.  Commission  file number
     0-23524).
*10.66 Loan and Security  Agreement by and between  Heller  Healthcare  Finance,
     Inc. f/k/a HCFP Funding,  Inc. and PHC of Michigan,  Inc. PHC of Utah, Inc.
     PHC of Virginia,  Inc. PHC of Rhode Island,  Inc. and Pioneer Counseling of
     Virginia, Inc. dated August 11, 1999. (Filed as an exhibit to the Company's
     report on Form  10-KSB  dated  October  13,  1999.  Commission  file number
     0-23524).
*10.67 Amendment   number 3 to Secured  Bridge  Note  dated May 10,  1999 by and
     between  PHC,  Inc. and HCFP (Filed as exhibit to the  Company's  report on
     Form 10-KSB,  filed with the Securities and Exchange  Commission on October
     13, 1999. Commission file number 0-23524).
*21.1 List of Subsidiaries. (Filed as an exhibit to the Company's report on Form
     10-KSB dated October 13, 1999. Commission file number 0-23524).

<PAGE>

EXHIBIT 21.1

                                                                     STATE
   NAME OF                     DOING BUSINESS AS (NAME)                OF
  SUBSIDIARY                                                     INCORPORATION

PHC, Inc.                     Pioneer Behavioral Health          Massachusetts
                              Pioneer Healthcare
                              PDS2

PHC of Utah, Inc.             Highland Ridge Hospital            Massachusetts

PHC of Virginia, Inc.         Mount Regis                        Massachusetts
                              Center
                              Changes

PHC of  Rhode Island, Inc.    Good Hope Center                   Massachusetts

PHC of Michigan, Inc.         Harbor Oaks Hospital               Massachusetts

PHC of  Nevada, Inc.          Harmony Healthcare                 Massachusetts

Harmony Behavioral                                               Nevada
Healthcare

Northpoint-Pioneer, Inc.      Pioneer Counseling Center          Massachusetts

PHC of Kansas, Inc.           Total Concept EAP                  Massachusetts

Quality Care Centers of       Franvale Nursing and               Massachusetts
Massachusetts, Inc.           Rehabilitation Center

Pioneer Counseling of         Counseling Associates of           Massachusetts
Virginia, Inc.                  Virginia, Inc.
                              Counseling Associates of           MassachusettS
                                Virginia

BSC-NY, Inc.                  Behavioral Stress Center           New York

Professional Health                                              New York
Associates, Inc.

Shliselberg Physicians                                           New York
Services, PC

<PAGE>


Exhibit 23.1



                         CONSENT OF INDEPENDENT AUDITORS


We  hereby  consent  to the  incorporation by  reference  in  the  Registration
Statement on Form S-8 of PHC, Inc. (the "Company")of our report dated September
10,  1999,  relating to the  consolidated financial  statements  of the Company
appearing in the Company's Annual Report on Form 10-KSB for the year ended June
30, 1999.



BDO Seidman, LLP



Boston, Massachusetts
October 13, 1999





<PAGE>

Exhibit 4.28

THE SECURITIES  REPRESENTED  BY THIS WARRANT (AND THE SECURITIES  ISSUABLE UPON
EXERCISE OF THIS WARRANT) HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT
OF 1933, OR ANY STATE  SECURITIES  STATUTE.  THE SECURITIES  HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO  DISTRIBUTION  OR RESALE,  AND MAY NOT BE
SOLD,  MORTGAGED,  PLEDGED,  HYPOTHECATED OR OTHERWISE  TRANSFERRED  WITHOUT AN
EFFECTIVE  REGISTRATION  STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT
OF 1933 AND ANY APPLICABLE  STATE  SECURITIES  STATUTE,  OR UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE THEREUNDER.


      Shares Issuable Upon Exercise:  Up to 10,000 shares of the Class A Common
                                      Stock, $.01 par value, of PHC, Inc.

                              WARRANT TO PURCHASE
                         SHARES OF CLASS A COMMON STOCK

                              Expires June 1, 2004

           THIS  CERTIFIES  THAT,  for  value  received,  George  H.  Gordon is
entitled to  subscribe  for and purchase  that number of shares (the  "Shares")
of the fully  paid and  nonassessable  Class A Common  Stock,  $.01 par  value,
(the "Class A Common Stock") of PHC,  Inc., a  Massachusetts  corporation  (the
"Company"),  for a price of $1.00 per Share (the "Warrant  Price"),  subject to
the  provisions  and upon the terms and conditions  hereinafter  set forth.  As
used herein,  the term "Shares" shall mean the Company's  Class A Common Stock,
or any stock  into or for which such  Class A Common  Stock  shall have been or
may   hereafter  be  converted  or  exchanged   pursuant  to  the  Articles  of
Incorporation  of the  Company as from time to time  amended as provided by law
and in such Articles  (hereinafter  the  "Charter"),  and the term "Grant Date"
shall mean June 1, 1999.

      1.   Term.  Subject  to the  provisions  of this  Warrant,  the  purchase
right  represented by this Warrant is exercisable,  in whole or in part, at any
time and from time to time  from and after the Grant  Date and prior to June 1,
2004.

           Notwithstanding  anything to the contrary contained herein,  neither
this Warrant nor any rights  hereunder may be  transferred  or assigned  except
to  an  Assignee  who  is  an  "accredited  investor"  within  the  meaning  of
Regulation D of the General  Rules and  Regulations  of the  Securities  Act of
1933.

      2.   Method of Exercise.  The purchase right  represented by this Warrant
may be  exercised  by the holder  hereof,  in whole or in part and from time to
time,  by either,  at the  election of this  holder,  (a) the  surrender of the
Warrant (with the notice of exercise  form attached  hereto as Exhibit A-1 duly
executed)  at the  principal  office of the  Company  and by the payment to the
Company by certified or bank check or by wire  transfer,  of an amount equal to
the then  applicable  Warrant  Price  multiplied  by the number of shares  then
being  purchased or (b) if in connection  with a registered  public offering of
the Company's  securities  (provided  that such offering  includes the shares),
the  surrender  of this  Warrant  (with the notice of  exercise  form  attached
hereto as Exhibit A-2 duly  executed)  at the  principal  office of the Company
together with notice of  arrangements  reasonably  satisfactory  to the Company
and  any  underwriter,  in  the  case  of  an  underwritten  registered  public
offering,  for payment to the Company  either by  certified or bank check or by
wire  transfer  of from the  proceeds  of the sale of  Shares to be sold by the
holder  in such  public  offering  of an  amount  equal to the then  applicable
Warrant  Price  per  Share  multiplied  by the  number  of  Shares  then  being
purchased.   The  person  or  persons  in  whose  name(s)  any   certificate(s)
representing  Shares  which shall be  issuable  upon  exercise of this  Warrant
shall be  deemed to have  become  the  holder(s)  of  record  of,  and shall be
treated for all  purposes as the record  holder(s)  of, the shares  represented
thereby  (and such  shares  shall be deemed  to have been  issued)  immediately
prior to the close of  business  on the date or dates upon  which this  Warrant
is exercised  and the then  applicable  Warrant Price paid. In the event of any
exercise  of the  rights  represented  by this  Warrant,  certificates  for the
shares of stock so purchased  shall be  delivered to the holder  hereof as soon
as  possible  and in any event  within ten (10) days of receipt of such  notice
and payment of the then  applicable  Warrant Price and, unless this Warrant has
been fully  exercised  or expired,  a new Warrant  representing  the portion of
the Shares,  if any,  with  respect to which this  Warrant  shall not then have
been  exercised  shall also be issued to the holder  hereof as soon as possible
and in any event within such ten-day period.

      3.   Stock  Fully  Paid;  Reservation  of Shares.  All shares that may be
issued upon the  exercise of the rights  represented  by this Warrant will upon
issuance,  be fully paid and nonassessable,  and free from all taxes, liens and
charges  with  respect to the issue  thereof.  During the period  within  which
the rights  represented  by the Warrant may be  exercised,  the Company will at
all times  have  authorized  and  reserved  for the  purpose of  issuance  upon
exercise  of the  purchase  rights  evidenced  by this  Warrant,  a  sufficient
number of shares of Class A Common  Stock to provide  for the  exercise  of the
rights represented by this Warrant.

      4.   Adjustment  of Warrant  Price and  Number of Shares.  The number and
kind of securities  purchasable upon the exercise of the Warrant  Agreement and
the  Warrant  Price shall be subject to  adjustment  from time to time upon the
occurrence of certain events, as follows:

           4.1 Reclassification.  In case of any  reclassification,  change  or
conversion  of the  Company's  Class A Common Stock (other than a change in par
value,  or from par value to no par  value,  or from no par value to par value,
or as a result of a subdivision or combination),  the Company,  shall execute a
new Warrant  Agreement (in form and substance  reasonably  satisfactory  to the
Holder)  providing  that the Holder of this  Warrant  Agreement  shall have the
right to  exercise  such new  Warrant  Agreement  and upon  such  exercise  and
payment  of the  then  applicable  Warrant  Price to  receive,  in lieu of each
Share theretofore  issuable upon exercise of this Warrant  Agreement,  the kind
and  amount  of  shares  of  stock,   other  securities,   money  and  property
receivable  upon  such  reclassification  or change by a holder of one share of
Class  A  Common  Stock.   Such  new  Warrant   Agreement   shall  provide  for
adjustments  that shall be as nearly  equivalent as may be  practicable  to the
adjustments  provided for in this Section 4.1. The  provisions  of this Section
4.1 shall similarly apply to successive reclassifications and changes.

           4.2  Subdivision  or  Combination  of Shares.  If the Company at any
time while this Warrant  remains  outstanding  and unexpired shall subdivide or
combine its Class A Common  Stock,  the Warrant  Price and the number of Shares
issuable upon exercise hereof shall be equitably adjusted.

           4.3  Stock  Dividends.  If  the  Company  at  any  time  while  this
Warrant is  outstanding  and unexpired  shall pay a dividend  payable in shares
of Class A Common Stock (except any distribution  specifically  provided for in
the  foregoing  Sections  4.1  and  4.2),  then  the  Warrant  Price  shall  be
adjusted,  from and after the date of  determination  of shareholders  entitled
to  receive  such  dividend  or  distribution,  to  that  price  determined  by
multiplying  the  Warrant  Price in  effect  immediately  prior to such date of
determination  by a  fraction  (a) the  numerator  of which  shall be the total
number of  shares  of Class A Common  Stock  outstanding  immediately  prior to
such dividend or  distribution,  and (b) the  denominator of which shall be the
total number of shares of Class A Common Stock  outstanding  immediately  after
such  dividend  or  distribution  and the  number  of  Shares  subject  to this
Warrant shall be appropriately adjusted.

          4.4  No  Impairment.  The  Company  will not,  by  amendment  of its
Charter or through any  reorganization,  recapitalization,  transfer of assets,
consolidation,  merger,  dissolution,  issue or sale of securities or any other
voluntary  action,  avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed  hereunder  by the  Company,  but will
at all times in good faith  assist in the  carrying  out of all the  provisions
of this  Article 4 and in the taking of all such action as may be  necessary or
appropriate  in order to  protect  the  rights of the  Holder  of this  Warrant
Agreement against impairment.

           4.5  Notices  of  Record  Date.  In the  event of any  taking by the
Company  of a  record  of its  shareholders  for  the  purpose  of  determining
shareholders  who are  entitled  to receive  payment of any  dividend  or other
distribution,  or for the purpose of determining  shareholders who are entitled
to  vote in  connection  with  any  proposed  merger  or  consolidation  of the
Company  with or into any other  corporation,  or any proposed  sale,  lease or
conveyance  of all or  substantially  all of the assets of the Company,  or any
proposed  liquidation,  dissolution  or winding up of the Company,  the Company
shall mail to the holder of this  Warrant,  at least fifteen (15) days prior to
the date  specified  therein,  a notice  specifying  the date on which any such
record is to be taken for the purpose of such dividend,  distribution  or vote,
and the amount and character of such dividend, distribution or vote.

           4.6  Adjustment  to Number of Shares  and  Warrant  Price  Based on
Dilutive  Issuance If and  whenever  the  Company  should  issue  shares of its
Class A  Common  Stock at a price  per  share  less  than  the  average  of the
closing  of the bid and  asked  prices  for such  Class A Common  Stock for the
last trading day  immediately  prior to the issuance of such shares (other than
shares issued  pursuant to an employee  benefit plan  including  Class A Common
Stock  issued or  issuable to the  officers or  employees  or  directors  of or
consultants  to the Company and  approved  by a  disinterested  majority of the
directors  of the  Company),  then  the  Warrant  Price  shall be  adjusted  by
dividing  (1) the sum of (A) the  total  number  of  shares  of  Class A Common
Stock  outstanding  immediately  prior to such issuance  multiplied by the then
effective  Warrant  Price and (B) the value of the  consideration  received  by
the Company  upon such  issuances  as  determined  by the Board of Directors by
(2)  the  total  number  of  shares  of  Class  A  Common   Stock   outstanding
immediately  after such  issuance.  The holder of the Warrant shall  thereafter
be entitled to purchase,  at the Warrant Price resulting from such  adjustment,
the number of Shares  (calculated  to the  nearest  whole  share)  obtained  by
multiplying  the Warrant Price in effect  immediately  prior to such adjustment
by the number of shares  issuable upon the exercise  hereof  immediately  prior
to such  adjustment  and  dividing  the product  thereof by the  Warrant  Price
resulting  from such  adjustment.  For the  purpose of this  paragraph  (d) the
issuance of securities  convertible  into or exercisable for the Class A Common
Stock  shall be deemed the  issuance  of the number of shares of Class A Common
Stock into which such  securities are  convertible or for which such securities
are exercisable,  and the  consideration  received for such securities shall be
deemed to include the minimum  aggregate  amount  payable  upon  conversion  or
exercise of such  securities  expire  unexercised,  the Warrant Price of Shares
issuable upon the exercise hereof shall be readjusted accordingly.

      5.   Notice  of  Adjustments.  Whenever  the  Warrant  Price or number of
Shares shall be adjusted pursuant to the provisions  hereof,  the Company shall
within thirty (30) days of such  adjustments  deliver a  certificate  signed by
its chief financial  officer to the registered  holder(s)  hereof setting forth
in reasonable  detail,  the event requiring the  adjustment,  the amount of the
adjustment,  the  method  by which  such  adjustment  was  calculated,  and the
Warrant Price after giving effect to such adjustment.

      6.   Fractional   Shares.   No  fractional   Shares  will  be  issued  in
connection with any exercise  hereunder,  but in lieu of such fractional shares
the Company  shall make a cash payment  therefor  upon the basis of the Warrant
Price then in effect.

      7.   Compliance with Securities Act, Disposition of Shares.

           7.1  Compliance  with  Securities  Act. The holder of this  Warrant,
by acceptance hereof,  reconfirms the representations  made by the Purchaser in
a  letter  agreement  with  the  Company  as of the date  hereof  (the  "Letter
Agreement")  and agrees to the  placement of a restrictive  transfer  legend on
this Warrant and the certificates representing the shares.

           7.2  Disposition  of  Warrants  and  Shares.  With  respect  to  any
offer,  sale or  other  disposition  of this  Warrant  or any  Shares  acquired
pursuant  to the  exercise  of  this  Warrant  prior  to  registration  of this
Warrant or such Shares,  the holder hereof and each  subsequent  holder of this
Warrant   agrees  to  give  written   notice  to  the  Company  prior  thereto,
describing  briefly  the manner  thereof,  together  with a written  opinion of
such holder's  counsel,  if  reasonably  requested by the Company (and, in such
case,  such counsel and opinion must be reasonably  acceptable to the Company),
to the  effect  that  such  offer,  sale or other  disposition  my be  effected
without  registration or  qualification  (under the Securities Act of 1933 (the
"Act") as then in  effect  or any  federal  or state  law then in  effect)  and
indicating  whether or not under the Act  certificates for this Warrant or such
Shares to be sold or otherwise  disposed of require any  restrictive  legend as
to applicable  restrictions on  transferability  in order to insure  compliance
with the Act.  Each  certificate  representing  this Warrant or the Shares thus
transferred  (except a  transfer  pursuant  to Rule 144) shall bear a legend as
to  the  applicable   restrictions  on   transferability  in  order  to  ensure
compliance  with the Act,  unless in the  aforesaid  opinion of counsel for the
holder,   such legend is not  required in order to ensure  compliance  with the
Act. The Company may issue stop  transfer  instructions  to its transfer  agent
in connection with the foregoing restrictions.

      8.   Rights as  Shareholders.  No holder of the Warrant,  as such,  shall
be entitled to vote or receive  dividends  or be deemed the holder of Shares or
any other  securities  of the Company  which may at any time be issuable on the
exercise  thereof for any purpose,  nor shall  anything  contained  herein,  be
construed  to  confer  upon  the  holder  of this  Warrant,  as such any of the
rights of a  shareholder  of the Company or any right to vote for the  election
of  directors  or upon any matter  submitted  to  shareholders  at any  meeting
thereof,  or to receive  notice of meetings  (except as  otherwise  provided in
Section 4.5 of this warrant),  or to receive  dividends or subscription  rights
or  otherwise  until  this  Warrant  shall have been  exercised  and the Shares
purchasable  upon  the  exercise  hereof  shall  have  become  deliverable,  as
provided herein.

      9.   Representations   and   Warranties.   This  Warrant  is  issued  and
delivered on the basis of the following:

                9.1  Authorization  and  Delivery.  This  Warrant has been duly
authorized  and  executed by the Company and when  delivered  will be valid and
binding  obligation of the Company  enforceable  in accordance  with its terms;
and

                9.2  Shares.   The  Shares  have  been  duly   authorized   and
reserved  for  issuance  by  the  Company  and  when  issued  and  paid  for in
accordance  with the terms  hereof,  will be  validly  issued,  fully  paid and
nonassessable.

      10.  Modification  and Waiver.  This Warrant and any provision hereof may
be changed,  waived,  discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

      11.  Notices.   Any  notice,   request  or  other  document  required  or
permitted to be given or delivered  to the holder  hereof or the Company  shall
be delivered in the manner set forth in the Letter Agreement.

      12.  Binding  Effect of  Successors.  This Warrant  shall be binding upon
any corporation  succeeding the Company by merger of consolidation,  and all of
the  obligations  of the  Company  relating  to the  Shares  issuable  upon the
exercise of this  Warrant  shall be as set forth in the Letter  Agreement,  the
Company's  Charter  and the  Company's  by-laws  (each as amended  from time to
time) and shall  survive the exercise and  termination  of this Warrant and all
of the  covenants  and  agreements  herein  and in  such  other  documents  and
instruments  of the Company  shall inure to the benefit of the  successors  and
assigns of the holder  hereof.  The Company  will,  at the time of the exercise
of this  Warrant,  in whole or in part,  upon request of the holder  hereof but
at the Company's expense,  acknowledge in writing its continuing  obligation to
the holder hereof in respect of any rights (including without  limitation,  any
right  to  registration  of the  Shares)  to  which  the  holder  hereof  shall
continue to be entitled  after such exercise in  accordance  with this Warrant;
provided  that the failure of the holder  hereof to make any such request shall
not affect the  continuing  obligation  of the Company to the holder  hereof in
respect of such rights.

      13.  Lost Warrants or Stock  Certificates.  The Company  covenants to the
holder  hereof that upon  receipt of evidence  reasonable  satisfactory  to the
Company of the loss, theft,  destruction,  or mutilation of this Warrant or any
stock  certificates  and, in the case of any such loss,  theft or  destruction,
upon  receipt of an indemnity  reasonable  satisfactory  to the Company,  or in
the  case of any  such  mutilation  upon  surrender  and  cancellation  of such
Warrant or stock  certificate,  the Company will make and deliver a new Warrant
or stock  certificate,  or like tenor, in lieu of the lost,  stolen,  destroyed
or mutilated Warrant or stock certificate.

      14.  Descriptive  Headings.  The  descriptive  headings  of  the  several
paragraphs  of this  Warrant  are  inserted  for  convenience  only  and do not
constitute a part of this Warrant.

      15.  Governing  Law.  This  Warrant  shall be  construed  and enforced in
accordance  with,  and the rights of the parties shall be governed by, the laws
of the Commonwealth of Massachusetts.



                               PHC, INC.


                               By:  /s/  Bruce A. Shear, President
                               Date:     June 1, 1999



<PAGE>
                                   Exhibit A-1

                               Notice of Exercise

To:

      1.   The  undersigned  hereby elects to purchase  _______  Shares of PHC,
Inc.  pursuant  to the terms of the  attached  Warrant,  and  tenders  herewith
payment of the purchase price of such Shares in full.

      2.   Please issue a certificate or certificates  representing  the Shares
deliverable  upon the  exercise  set  forth in  paragraph  1 in the name of the
undersigned  or, subject to compliance  with the  restrictions  on transfer set
forth  in  Section  7 of the  Warrant,  in  such  other  name or  names  as are
specified below:

                      ____________________________________
                                     (Name)


                      _____________________________________

                      _____________________________________

                      _____________________________________
                                    (Address)

      3.   The  undersigned  represents  that the  aforesaid  shares  are being
acquired  for the  account of the  undersigned  for  investment  and not with a
view to, or for resale in connection  with, the  distribution  thereof and that
the  undersigned  has not present  intention of  distributing or reselling such
shares.



_______________________________
Signature


_______________________________
Date

<PAGE>
                                   Exhibit A-2

                               Notice of Exercise

To:

      1.   Contingent upon and effective  immediately prior to the closing (the
"Closing") of the Company's  public offering  contemplated by the  Registration
Statement  of  Form  S   _____________,   filed   ______________,   ______  the
undersigned  hereby  elects to  purchase  Shares of the Company (or such lesser
number of Shares as may be sold on behalf of the  undersigned  at the  Closing)
pursuant to the terms of the attached Warrant.

      2.   Please  deliver to the  custodian  for the  selling  shareholders  a
certificate representing the Shares being so purchased.

      3.   The  undersigned  has  instructed  the  custodian  for  the  selling
shareholders  to deliver to the Company $  _________________  of, if less,  the
net  proceeds  due the  undersigned  from the sales of Shares in the  aforesaid
public  offering.  If such net proceeds  are less than the  purchase  price for
such Shares,  the  undersigned  agrees to deliver the difference to the Company
prior to the Closing.



_______________________________
Signature


_______________________________
Date



warrants.dot


<PAGE>

Exhibit 4.29

THE SECURITIES  REPRESENTED  BY THIS WARRANT (AND THE SECURITIES  ISSUABLE UPON
EXERCISE OF THIS WARRANT) HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT
OF 1933, OR ANY STATE  SECURITIES  STATUTE.  THE SECURITIES  HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO  DISTRIBUTION  OR RESALE,  AND MAY NOT BE
SOLD,  MORTGAGED,  PLEDGED,  HYPOTHECATED OR OTHERWISE  TRANSFERRED  WITHOUT AN
EFFECTIVE  REGISTRATION  STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT
OF 1933 AND ANY APPLICABLE  STATE  SECURITIES  STATUTE,  OR UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE THEREUNDER.


      Shares Issuable Upon Exercise:  Up to 10,000 shares of the Class A Common
                                      Stock, $.01 par value, of PHC, Inc.

                               WARRANT TO PURCHASE
                         SHARES OF CLASS A COMMON STOCK

                              Expires July 1, 2004

           THIS  CERTIFIES  THAT,  for  value  received,  George  H.  Gordon is
entitled to  subscribe  for and purchase  that number of shares (the  "Shares")
of the fully  paid and  nonassessable  Class A Common  Stock,  $.01 par  value,
(the "Class A Common Stock") of PHC,  Inc., a  Massachusetts  corporation  (the
"Company"),  for a price of $1.00 per Share (the "Warrant  Price"),  subject to
the  provisions  and upon the terms and conditions  hereinafter  set forth.  As
used herein,  the term "Shares" shall mean the Company's  Class A Common Stock,
or any stock  into or for which such  Class A Common  Stock  shall have been or
may   hereafter  be  converted  or  exchanged   pursuant  to  the  Articles  of
Incorporation  of the  Company as from time to time  amended as provided by law
and in such Articles  (hereinafter  the  "Charter"),  and the term "Grant Date"
shall mean July 1, 1999.

      1.   Term.  Subject  to the  provisions  of this  Warrant,  the  purchase
right  represented by this Warrant is exercisable,  in whole or in part, at any
time and from time to time  from and after the Grant  Date and prior to July 1,
2004.

           Notwithstanding  anything to the contrary contained herein,  neither
this Warrant nor any rights  hereunder may be  transferred  or assigned  except
to  an  Assignee  who  is  an  "accredited  investor"  within  the  meaning  of
Regulation D of the General  Rules and  Regulations  of the  Securities  Act of
1933.

      2.   Method of Exercise.  The purchase right  represented by this Warrant
may be  exercised  by the holder  hereof,  in whole or in part and from time to
time,  by either,  at the  election of this  holder,  (a) the  surrender of the
Warrant (with the notice of exercise  form attached  hereto as Exhibit A-1 duly
executed)  at the  principal  office of the  Company  and by the payment to the
Company by certified or bank check or by wire  transfer,  of an amount equal to
the then  applicable  Warrant  Price  multiplied  by the number of shares  then
being  purchased or (b) if in connection  with a registered  public offering of
the Company's  securities  (provided  that such offering  includes the shares),
the  surrender  of this  Warrant  (with the notice of  exercise  form  attached
hereto as Exhibit A-2 duly  executed)  at the  principal  office of the Company
together with notice of  arrangements  reasonably  satisfactory  to the Company
and  any  underwriter,  in  the  case  of  an  underwritten  registered  public
offering,  for payment to the Company  either by  certified or bank check or by
wire  transfer  of from the  proceeds  of the sale of  Shares to be sold by the
holder  in such  public  offering  of an  amount  equal to the then  applicable
Warrant  Price  per  Share  multiplied  by the  number  of  Shares  then  being
purchased.   The  person  or  persons  in  whose  name(s)  any   certificate(s)
representing  Shares  which shall be  issuable  upon  exercise of this  Warrant
shall be  deemed to have  become  the  holder(s)  of  record  of,  and shall be
treated for all  purposes as the record  holder(s)  of, the shares  represented
thereby  (and such  shares  shall be deemed  to have been  issued)  immediately
prior to the close of  business  on the date or dates upon  which this  Warrant
is exercised  and the then  applicable  Warrant Price paid. In the event of any
exercise  of the  rights  represented  by this  Warrant,  certificates  for the
shares of stock so purchased  shall be  delivered to the holder  hereof as soon
as  possible  and in any event  within ten (10) days of receipt of such  notice
and payment of the then  applicable  Warrant Price and, unless this Warrant has
been fully  exercised  or expired,  a new Warrant  representing  the portion of
the Shares,  if any,  with  respect to which this  Warrant  shall not then have
been  exercised  shall also be issued to the holder  hereof as soon as possible
and in any event within such ten-day period.

      3.   Stock  Fully  Paid;  Reservation  of Shares.  All shares that may be
issued upon the  exercise of the rights  represented  by this Warrant will upon
issuance,  be fully paid and nonassessable,  and free from all taxes, liens and
charges  with  respect to the issue  thereof.  During the period  within  which
the rights  represented  by the Warrant may be  exercised,  the Company will at
all times  have  authorized  and  reserved  for the  purpose of  issuance  upon
exercise  of the  purchase  rights  evidenced  by this  Warrant,  a  sufficient
number of shares of Class A Common  Stock to provide  for the  exercise  of the
rights represented by this Warrant.

      4.   Adjustment  of Warrant  Price and  Number of Shares.  The number and
kind of securities  purchasable upon the exercise of the Warrant  Agreement and
the  Warrant  Price shall be subject to  adjustment  from time to time upon the
occurrence of certain events, as follows:

           4.1 Reclassification.  In case of any  reclassification,  change  or
conversion  of the  Company's  Class A Common Stock (other than a change in par
value,  or from par value to no par  value,  or from no par value to par value,
or as a result of a subdivision or combination),  the Company,  shall execute a
new Warrant  Agreement (in form and substance  reasonably  satisfactory  to the
Holder)  providing  that the Holder of this  Warrant  Agreement  shall have the
right to  exercise  such new  Warrant  Agreement  and upon  such  exercise  and
payment  of the  then  applicable  Warrant  Price to  receive,  in lieu of each
Share theretofore  issuable upon exercise of this Warrant  Agreement,  the kind
and  amount  of  shares  of  stock,   other  securities,   money  and  property
receivable  upon  such  reclassification  or change by a holder of one share of
Class  A  Common  Stock.   Such  new  Warrant   Agreement   shall  provide  for
adjustments  that shall be as nearly  equivalent as may be  practicable  to the
adjustments  provided for in this Section 4.1. The  provisions  of this Section
4.1 shall similarly apply to successive reclassifications and changes.

           4.2  Subdivision  or  Combination  of Shares.  If the Company at any
time while this Warrant  remains  outstanding  and unexpired shall subdivide or
combine its Class A Common  Stock,  the Warrant  Price and the number of Shares
issuable upon exercise hereof shall be equitably adjusted.

           4.3  Stock  Dividends.  If  the  Company  at  any  time  while  this
Warrant is  outstanding  and unexpired  shall pay a dividend  payable in shares
of Class A Common Stock (except any distribution  specifically  provided for in
the  foregoing  Sections  4.1  and  4.2),  then  the  Warrant  Price  shall  be
adjusted,  from and after the date of  determination  of shareholders  entitled
to  receive  such  dividend  or  distribution,  to  that  price  determined  by
multiplying  the  Warrant  Price in  effect  immediately  prior to such date of
determination  by a  fraction  (a) the  numerator  of which  shall be the total
number of  shares  of Class A Common  Stock  outstanding  immediately  prior to
such dividend or  distribution,  and (b) the  denominator of which shall be the
total number of shares of Class A Common Stock  outstanding  immediately  after
such  dividend  or  distribution  and the  number  of  Shares  subject  to this
Warrant shall be appropriately adjusted.


<PAGE>

           4.4  No  Impairment.  The  Company  will not,  by  amendment  of its
Charter or through any  reorganization,  recapitalization,  transfer of assets,
consolidation,  merger,  dissolution,  issue or sale of securities or any other
voluntary  action,  avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed  hereunder  by the  Company,  but will
at all times in good faith  assist in the  carrying  out of all the  provisions
of this  Article 4 and in the taking of all such action as may be  necessary or
appropriate  in order to  protect  the  rights of the  Holder  of this  Warrant
Agreement against impairment.

           4.5  Notices  of  Record  Date.  In the  event of any  taking by the
Company  of a  record  of its  shareholders  for  the  purpose  of  determining
shareholders  who are  entitled  to receive  payment of any  dividend  or other
distribution,  or for the purpose of determining  shareholders who are entitled
to  vote in  connection  with  any  proposed  merger  or  consolidation  of the
Company  with or into any other  corporation,  or any proposed  sale,  lease or
conveyance  of all or  substantially  all of the assets of the Company,  or any
proposed  liquidation,  dissolution  or winding up of the Company,  the Company
shall mail to the holder of this  Warrant,  at least fifteen (15) days prior to
the date  specified  therein,  a notice  specifying  the date on which any such
record is to be taken for the purpose of such dividend,  distribution  or vote,
and the amount and character of such dividend, distribution or vote.

           4.6  Adjustment  to Number of Shares  and  Warrant  Price  Based on
Dilutive  Issuance If and  whenever  the  Company  should  issue  shares of its
Class A  Common  Stock at a price  per  share  less  than  the  average  of the
closing  of the bid and  asked  prices  for such  Class A Common  Stock for the
last trading day  immediately  prior to the issuance of such shares (other than
shares issued  pursuant to an employee  benefit plan  including  Class A Common
Stock  issued or  issuable to the  officers or  employees  or  directors  of or
consultants  to the Company and  approved  by a  disinterested  majority of the
directors  of the  Company),  then  the  Warrant  Price  shall be  adjusted  by
dividing  (1) the sum of (A) the  total  number  of  shares  of  Class A Common
Stock  outstanding  immediately  prior to such issuance  multiplied by the then
effective  Warrant  Price and (B) the value of the  consideration  received  by
the Company  upon such  issuances  as  determined  by the Board of Directors by
(2)  the  total  number  of  shares  of  Class  A  Common   Stock   outstanding
immediately  after such  issuance.  The holder of the Warrant shall  thereafter
be entitled to purchase,  at the Warrant Price resulting from such  adjustment,
the number of Shares  (calculated  to the  nearest  whole  share)  obtained  by
multiplying  the Warrant Price in effect  immediately  prior to such adjustment
by the number of shares  issuable upon the exercise  hereof  immediately  prior
to such  adjustment  and  dividing  the product  thereof by the  Warrant  Price
resulting  from such  adjustment.  For the  purpose of this  paragraph  (d) the
issuance of securities  convertible  into or exercisable for the Class A Common
Stock  shall be deemed the  issuance  of the number of shares of Class A Common
Stock into which such  securities are  convertible or for which such securities
are exercisable,  and the  consideration  received for such securities shall be
deemed to include the minimum  aggregate  amount  payable  upon  conversion  or
exercise of such  securities  expire  unexercised,  the Warrant Price of Shares
issuable upon the exercise hereof shall be readjusted accordingly.

      5.   Notice  of  Adjustments.  Whenever  the  Warrant  Price or number of
Shares shall be adjusted pursuant to the provisions  hereof,  the Company shall
within thirty (30) days of such  adjustments  deliver a  certificate  signed by
its chief financial  officer to the registered  holder(s)  hereof setting forth
in reasonable  detail,  the event requiring the  adjustment,  the amount of the
adjustment,  the  method  by which  such  adjustment  was  calculated,  and the
Warrant Price after giving effect to such adjustment.

      6.   Fractional   Shares.   No  fractional   Shares  will  be  issued  in
connection with any exercise  hereunder,  but in lieu of such fractional shares
the Company  shall make a cash payment  therefor  upon the basis of the Warrant
Price then in effect.

      7.   Compliance with Securities Act, Disposition of Shares.

           7.1  Compliance  with  Securities  Act. The holder of this  Warrant,
by acceptance hereof,  reconfirms the representations  made by the Purchaser in
a  letter  agreement  with  the  Company  as of the date  hereof  (the  "Letter
Agreement")  and agrees to the  placement of a restrictive  transfer  legend on
this Warrant and the certificates representing the shares.

           7.2  Disposition  of  Warrants  and  Shares.  With  respect  to  any
offer,  sale or  other  disposition  of this  Warrant  or any  Shares  acquired
pursuant  to the  exercise  of  this  Warrant  prior  to  registration  of this
Warrant or such Shares,  the holder hereof and each  subsequent  holder of this
Warrant   agrees  to  give  written   notice  to  the  Company  prior  thereto,
describing  briefly  the manner  thereof,  together  with a written  opinion of
such holder's  counsel,  if  reasonably  requested by the Company (and, in such
case,  such counsel and opinion must be reasonably  acceptable to the Company),
to the  effect  that  such  offer,  sale or other  disposition  my be  effected
without  registration or  qualification  (under the Securities Act of 1933 (the
"Act") as then in  effect  or any  federal  or state  law then in  effect)  and
indicating  whether or not under the Act  certificates for this Warrant or such
Shares to be sold or otherwise  disposed of require any  restrictive  legend as
to applicable  restrictions on  transferability  in order to insure  compliance
with the Act.  Each  certificate  representing  this Warrant or the Shares thus
transferred  (except a  transfer  pursuant  to Rule 144) shall bear a legend as
to  the  applicable   restrictions  on   transferability  in  order  to  ensure
compliance  with the Act,  unless in the  aforesaid  opinion of counsel for the
holder,   such legend is not  required in order to ensure  compliance  with the
Act. The Company may issue stop  transfer  instructions  to its transfer  agent
in connection with the foregoing restrictions.

      8.   Rights as  Shareholders.  No holder of the Warrant,  as such,  shall
be entitled to vote or receive  dividends  or be deemed the holder of Shares or
any other  securities  of the Company  which may at any time be issuable on the
exercise  thereof for any purpose,  nor shall  anything  contained  herein,  be
construed  to  confer  upon  the  holder  of this  Warrant,  as such any of the
rights of a  shareholder  of the Company or any right to vote for the  election
of  directors  or upon any matter  submitted  to  shareholders  at any  meeting
thereof,  or to receive  notice of meetings  (except as  otherwise  provided in
Section 4.5 of this warrant),  or to receive  dividends or subscription  rights
or  otherwise  until  this  Warrant  shall have been  exercised  and the Shares
purchasable  upon  the  exercise  hereof  shall  have  become  deliverable,  as
provided herein.

      9.   Representations   and   Warranties.   This  Warrant  is  issued  and
delivered on the basis of the following:

                9.1  Authorization  and  Delivery.  This  Warrant has been duly
authorized  and  executed by the Company and when  delivered  will be valid and
binding  obligation of the Company  enforceable  in accordance  with its terms;
and

                9.2  Shares.   The  Shares  have  been  duly   authorized   and
reserved  for  issuance  by  the  Company  and  when  issued  and  paid  for in
accordance  with the terms  hereof,  will be  validly  issued,  fully  paid and
nonassessable.

      10.  Modification  and Waiver.  This Warrant and any provision hereof may
be changed,  waived,  discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

      11.  Notices.   Any  notice,   request  or  other  document  required  or
permitted to be given or delivered  to the holder  hereof or the Company  shall
be delivered in the manner set forth in the Letter Agreement.

      12.  Binding  Effect of  Successors.  This Warrant  shall be binding upon
any corporation  succeeding the Company by merger of consolidation,  and all of
the  obligations  of the  Company  relating  to the  Shares  issuable  upon the
exercise of this  Warrant  shall be as set forth in the Letter  Agreement,  the
Company's  Charter  and the  Company's  by-laws  (each as amended  from time to
time) and shall  survive the exercise and  termination  of this Warrant and all
of the  covenants  and  agreements  herein  and in  such  other  documents  and
instruments  of the Company  shall inure to the benefit of the  successors  and
assigns of the holder  hereof.  The Company  will,  at the time of the exercise
of this  Warrant,  in whole or in part,  upon request of the holder  hereof but
at the Company's expense,  acknowledge in writing its continuing  obligation to
the holder hereof in respect of any rights (including without  limitation,  any
right  to  registration  of the  Shares)  to  which  the  holder  hereof  shall
continue to be entitled  after such exercise in  accordance  with this Warrant;
provided  that the failure of the holder  hereof to make any such request shall
not affect the  continuing  obligation  of the Company to the holder  hereof in
respect of such rights.

      13.  Lost Warrants or Stock  Certificates.  The Company  covenants to the
holder  hereof that upon  receipt of evidence  reasonable  satisfactory  to the
Company of the loss, theft,  destruction,  or mutilation of this Warrant or any
stock  certificates  and, in the case of any such loss,  theft or  destruction,
upon  receipt of an indemnity  reasonable  satisfactory  to the Company,  or in
the  case of any  such  mutilation  upon  surrender  and  cancellation  of such
Warrant or stock  certificate,  the Company will make and deliver a new Warrant
or stock  certificate,  or like tenor, in lieu of the lost,  stolen,  destroyed
or mutilated Warrant or stock certificate.

      14.  Descriptive  Headings.  The  descriptive  headings  of  the  several
paragraphs  of this  Warrant  are  inserted  for  convenience  only  and do not
constitute a part of this Warrant.

      15.  Governing  Law.  This  Warrant  shall be  construed  and enforced in
accordance  with,  and the rights of the parties shall be governed by, the laws
of the Commonwealth of Massachusetts.



                               PHC, INC.


                               By:  /s/  Bruce A. Shear, President
                               Date:     July 1, 1999



<PAGE>

                                   Exhibit A-1

                               Notice of Exercise

To:

      1.   The  undersigned  hereby elects to purchase  _______  Shares of PHC,
Inc.  pursuant  to the terms of the  attached  Warrant,  and  tenders  herewith
payment of the purchase price of such Shares in full.

      2.   Please issue a certificate or certificates  representing  the Shares
deliverable  upon the  exercise  set  forth in  paragraph  1 in the name of the
undersigned  or, subject to compliance  with the  restrictions  on transfer set
forth  in  Section  7 of the  Warrant,  in  such  other  name or  names  as are
specified below:

                      ____________________________________
                                     (Name)


                      _____________________________________

                      _____________________________________

                      _____________________________________
                                    (Address)

      3.   The  undersigned  represents  that the  aforesaid  shares  are being
acquired  for the  account of the  undersigned  for  investment  and not with a
view to, or for resale in connection  with, the  distribution  thereof and that
the  undersigned  has not present  intention of  distributing or reselling such
shares.



_______________________________
Signature


_______________________________
Date




<PAGE>


                                   Exhibit A-2

                               Notice of Exercise

To:

      1.   Contingent upon and effective  immediately prior to the closing (the
"Closing") of the Company's  public offering  contemplated by the  Registration
Statement  of  Form  S   _____________,   filed   ______________,   ______  the
undersigned  hereby  elects to  purchase  Shares of the Company (or such lesser
number of Shares as may be sold on behalf of the  undersigned  at the  Closing)
pursuant to the terms of the attached Warrant.

      2.   Please  deliver to the  custodian  for the  selling  shareholders  a
certificate representing the Shares being so purchased.

      3.   The  undersigned  has  instructed  the  custodian  for  the  selling
shareholders  to deliver to the Company $  _________________  of, if less,  the
net  proceeds  due the  undersigned  from the sales of Shares in the  aforesaid
public  offering.  If such net proceeds  are less than the  purchase  price for
such Shares,  the  undersigned  agrees to deliver the difference to the Company
prior to the Closing.



_______________________________
Signature


_______________________________
Date



warrants.dot



<PAGE>
Exhibit 4.30

THE SECURITIES  REPRESENTED  BY THIS WARRANT (AND THE SECURITIES  ISSUABLE UPON
EXERCISE OF THIS WARRANT) HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT
OF 1933, OR ANY STATE  SECURITIES  STATUTE.  THE SECURITIES  HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO  DISTRIBUTION  OR RESALE,  AND MAY NOT BE
SOLD,  MORTGAGED,  PLEDGED,  HYPOTHECATED OR OTHERWISE  TRANSFERRED  WITHOUT AN
EFFECTIVE  REGISTRATION  STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT
OF 1933 AND ANY APPLICABLE  STATE  SECURITIES  STATUTE,  OR UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE THEREUNDER.


 Shares Issuable Upon Exercise:    Up to 10,000  shares of the Class A Common
                                   Stock, $.01 par value, of PHC, Inc.

                               WARRANT TO PURCHASE
                         SHARES OF CLASS A COMMON STOCK

                              Expires August 1, 2004

           THIS  CERTIFIES  THAT,  for  value  received,  George  H.  Gordon is
entitled to  subscribe  for and purchase  that number of shares (the  "Shares")
of the fully  paid and  nonassessable  Class A Common  Stock,  $.01 par  value,
(the "Class A Common Stock") of PHC,  Inc., a  Massachusetts  corporation  (the
"Company"),  for a price of $1.00 per Share (the "Warrant  Price"),  subject to
the  provisions  and upon the terms and conditions  hereinafter  set forth.  As
used herein,  the term "Shares" shall mean the Company's  Class A Common Stock,
or any stock  into or for which such  Class A Common  Stock  shall have been or
may   hereafter  be  converted  or  exchanged   pursuant  to  the  Articles  of
Incorporation  of the  Company as from time to time  amended as provided by law
and in such Articles  (hereinafter  the  "Charter"),  and the term "Grant Date"
shall mean August 1, 1999.

     1. Term.  Subject to the  provisions  of this Warrant,  the purchase  right
represented by this Warrant is exercisable, in whole or in part, at any time and
from time to time from and after the Grant Date and prior to August 1, 2004.

           Notwithstanding  anything to the contrary contained herein,  neither
this Warrant nor any rights  hereunder may be  transferred  or assigned  except
to  an  Assignee  who  is  an  "accredited  investor"  within  the  meaning  of
Regulation D of the General  Rules and  Regulations  of the  Securities  Act of
1933.

      2.   Method of Exercise.  The purchase right  represented by this Warrant
may be  exercised  by the holder  hereof,  in whole or in part and from time to
time,  by either,  at the  election of this  holder,  (a) the  surrender of the
Warrant (with the notice of exercise  form attached  hereto as Exhibit A-1 duly
executed)  at the  principal  office of the  Company  and by the payment to the
Company by certified or bank check or by wire  transfer,  of an amount equal to
the then  applicable  Warrant  Price  multiplied  by the number of shares  then
being  purchased or (b) if in connection  with a registered  public offering of
the Company's  securities  (provided  that such offering  includes the shares),
the  surrender  of this  Warrant  (with the notice of  exercise  form  attached
hereto as Exhibit A-2 duly  executed)  at the  principal  office of the Company
together with notice of  arrangements  reasonably  satisfactory  to the Company
and  any  underwriter,  in  the  case  of  an  underwritten  registered  public
offering,  for payment to the Company  either by  certified or bank check or by
wire  transfer  of from the  proceeds  of the sale of  Shares to be sold by the
holder  in such  public  offering  of an  amount  equal to the then  applicable
Warrant  Price  per  Share  multiplied  by the  number  of  Shares  then  being
purchased.   The  person  or  persons  in  whose  name(s)  any   certificate(s)
representing  Shares  which shall be  issuable  upon  exercise of this  Warrant
shall be  deemed to have  become  the  holder(s)  of  record  of,  and shall be
treated for all  purposes as the record  holder(s)  of, the shares  represented
thereby  (and such  shares  shall be deemed  to have been  issued)  immediately
prior to the close of  business  on the date or dates upon  which this  Warrant
is exercised  and the then  applicable  Warrant Price paid. In the event of any
exercise  of the  rights  represented  by this  Warrant,  certificates  for the
shares of stock so purchased  shall be  delivered to the holder  hereof as soon
as  possible  and in any event  within ten (10) days of receipt of such  notice
and payment of the then  applicable  Warrant Price and, unless this Warrant has
been fully  exercised  or expired,  a new Warrant  representing  the portion of
the Shares,  if any,  with  respect to which this  Warrant  shall not then have
been  exercised  shall also be issued to the holder  hereof as soon as possible
and in any event within such ten-day period.

      3.   Stock  Fully  Paid;  Reservation  of Shares.  All shares that may be
issued upon the  exercise of the rights  represented  by this Warrant will upon
issuance,  be fully paid and nonassessable,  and free from all taxes, liens and
charges  with  respect to the issue  thereof.  During the period  within  which
the rights  represented  by the Warrant may be  exercised,  the Company will at
all times  have  authorized  and  reserved  for the  purpose of  issuance  upon
exercise  of the  purchase  rights  evidenced  by this  Warrant,  a  sufficient
number of shares of Class A Common  Stock to provide  for the  exercise  of the
rights represented by this Warrant.

      4.   Adjustment  of Warrant  Price and  Number of Shares.  The number and
kind of securities  purchasable upon the exercise of the Warrant  Agreement and
the  Warrant  Price shall be subject to  adjustment  from time to time upon the
occurrence of certain events, as follows:

           4.1 Reclassification.  In case of any  reclassification,  change  or
conversion  of the  Company's  Class A Common Stock (other than a change in par
value,  or from par value to no par  value,  or from no par value to par value,
or as a result of a subdivision or combination),  the Company,  shall execute a
new Warrant  Agreement (in form and substance  reasonably  satisfactory  to the
Holder)  providing  that the Holder of this  Warrant  Agreement  shall have the
right to  exercise  such new  Warrant  Agreement  and upon  such  exercise  and
payment  of the  then  applicable  Warrant  Price to  receive,  in lieu of each
Share theretofore  issuable upon exercise of this Warrant  Agreement,  the kind
and  amount  of  shares  of  stock,   other  securities,   money  and  property
receivable  upon  such  reclassification  or change by a holder of one share of
Class  A  Common  Stock.   Such  new  Warrant   Agreement   shall  provide  for
adjustments  that shall be as nearly  equivalent as may be  practicable  to the
adjustments  provided for in this Section 4.1. The  provisions  of this Section
4.1 shall similarly apply to successive reclassifications and changes.

           4.2  Subdivision  or  Combination  of Shares.  If the Company at any
time while this Warrant  remains  outstanding  and unexpired shall subdivide or
combine its Class A Common  Stock,  the Warrant  Price and the number of Shares
issuable upon exercise hereof shall be equitably adjusted.

           4.3  Stock  Dividends.  If  the  Company  at  any  time  while  this
Warrant is  outstanding  and unexpired  shall pay a dividend  payable in shares
of Class A Common Stock (except any distribution  specifically  provided for in
the  foregoing  Sections  4.1  and  4.2),  then  the  Warrant  Price  shall  be
adjusted,  from and after the date of  determination  of shareholders  entitled
to  receive  such  dividend  or  distribution,  to  that  price  determined  by
multiplying  the  Warrant  Price in  effect  immediately  prior to such date of
determination  by a  fraction  (a) the  numerator  of which  shall be the total
number of  shares  of Class A Common  Stock  outstanding  immediately  prior to
such dividend or  distribution,  and (b) the  denominator of which shall be the
total number of shares of Class A Common Stock  outstanding  immediately  after
such  dividend  or  distribution  and the  number  of  Shares  subject  to this
Warrant shall be appropriately adjusted.


<PAGE>

          4.4  No  Impairment.  The  Company  will not,  by  amendment  of its
Charter or through any  reorganization,  recapitalization,  transfer of assets,
consolidation,  merger,  dissolution,  issue or sale of securities or any other
voluntary  action,  avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed  hereunder  by the  Company,  but will
at all times in good faith  assist in the  carrying  out of all the  provisions
of this  Article 4 and in the taking of all such action as may be  necessary or
appropriate  in order to  protect  the  rights of the  Holder  of this  Warrant
Agreement against impairment.

           4.5  Notices  of  Record  Date.  In the  event of any  taking by the
Company  of a  record  of its  shareholders  for  the  purpose  of  determining
shareholders  who are  entitled  to receive  payment of any  dividend  or other
distribution,  or for the purpose of determining  shareholders who are entitled
to  vote in  connection  with  any  proposed  merger  or  consolidation  of the
Company  with or into any other  corporation,  or any proposed  sale,  lease or
conveyance  of all or  substantially  all of the assets of the Company,  or any
proposed  liquidation,  dissolution  or winding up of the Company,  the Company
shall mail to the holder of this  Warrant,  at least fifteen (15) days prior to
the date  specified  therein,  a notice  specifying  the date on which any such
record is to be taken for the purpose of such dividend,  distribution  or vote,
and the amount and character of such dividend, distribution or vote.

           4.6  Adjustment  to Number of Shares  and  Warrant  Price  Based on
Dilutive  Issuance If and  whenever  the  Company  should  issue  shares of its
Class A  Common  Stock at a price  per  share  less  than  the  average  of the
closing  of the bid and  asked  prices  for such  Class A Common  Stock for the
last trading day  immediately  prior to the issuance of such shares (other than
shares issued  pursuant to an employee  benefit plan  including  Class A Common
Stock  issued or  issuable to the  officers or  employees  or  directors  of or
consultants  to the Company and  approved  by a  disinterested  majority of the
directors  of the  Company),  then  the  Warrant  Price  shall be  adjusted  by
dividing  (1) the sum of (A) the  total  number  of  shares  of  Class A Common
Stock  outstanding  immediately  prior to such issuance  multiplied by the then
effective  Warrant  Price and (B) the value of the  consideration  received  by
the Company  upon such  issuances  as  determined  by the Board of Directors by
(2)  the  total  number  of  shares  of  Class  A  Common   Stock   outstanding
immediately  after such  issuance.  The holder of the Warrant shall  thereafter
be entitled to purchase,  at the Warrant Price resulting from such  adjustment,
the number of Shares  (calculated  to the  nearest  whole  share)  obtained  by
multiplying  the Warrant Price in effect  immediately  prior to such adjustment
by the number of shares  issuable upon the exercise  hereof  immediately  prior
to such  adjustment  and  dividing  the product  thereof by the  Warrant  Price
resulting  from such  adjustment.  For the  purpose of this  paragraph  (d) the
issuance of securities  convertible  into or exercisable for the Class A Common
Stock  shall be deemed the  issuance  of the number of shares of Class A Common
Stock into which such  securities are  convertible or for which such securities
are exercisable,  and the  consideration  received for such securities shall be
deemed to include the minimum  aggregate  amount  payable  upon  conversion  or
exercise of such  securities  expire  unexercised,  the Warrant Price of Shares
issuable upon the exercise hereof shall be readjusted accordingly.

      5.   Notice  of  Adjustments.  Whenever  the  Warrant  Price or number of
Shares shall be adjusted pursuant to the provisions  hereof,  the Company shall
within thirty (30) days of such  adjustments  deliver a  certificate  signed by
its chief financial  officer to the registered  holder(s)  hereof setting forth
in reasonable  detail,  the event requiring the  adjustment,  the amount of the
adjustment,  the  method  by which  such  adjustment  was  calculated,  and the
Warrant Price after giving effect to such adjustment.

      6.   Fractional   Shares.   No  fractional   Shares  will  be  issued  in
connection with any exercise  hereunder,  but in lieu of such fractional shares
the Company  shall make a cash payment  therefor  upon the basis of the Warrant
Price then in effect.

      7.   Compliance with Securities Act, Disposition of Shares.

           7.1  Compliance  with  Securities  Act. The holder of this  Warrant,
by acceptance hereof,  reconfirms the representations  made by the Purchaser in
a  letter  agreement  with  the  Company  as of the date  hereof  (the  "Letter
Agreement")  and agrees to the  placement of a restrictive  transfer  legend on
this Warrant and the certificates representing the shares.

           7.2  Disposition  of  Warrants  and  Shares.  With  respect  to  any
offer,  sale or  other  disposition  of this  Warrant  or any  Shares  acquired
pursuant  to the  exercise  of  this  Warrant  prior  to  registration  of this
Warrant or such Shares,  the holder hereof and each  subsequent  holder of this
Warrant   agrees  to  give  written   notice  to  the  Company  prior  thereto,
describing  briefly  the manner  thereof,  together  with a written  opinion of
such holder's  counsel,  if  reasonably  requested by the Company (and, in such
case,  such counsel and opinion must be reasonably  acceptable to the Company),
to the  effect  that  such  offer,  sale or other  disposition  my be  effected
without  registration or  qualification  (under the Securities Act of 1933 (the
"Act") as then in  effect  or any  federal  or state  law then in  effect)  and
indicating  whether or not under the Act  certificates for this Warrant or such
Shares to be sold or otherwise  disposed of require any  restrictive  legend as
to applicable  restrictions on  transferability  in order to insure  compliance
with the Act.  Each  certificate  representing  this Warrant or the Shares thus
transferred  (except a  transfer  pursuant  to Rule 144) shall bear a legend as
to  the  applicable   restrictions  on   transferability  in  order  to  ensure
compliance  with the Act,  unless in the  aforesaid  opinion of counsel for the
holder,   such legend is not  required in order to ensure  compliance  with the
Act. The Company may issue stop  transfer  instructions  to its transfer  agent
in connection with the foregoing restrictions.

      8.   Rights as  Shareholders.  No holder of the Warrant,  as such,  shall
be entitled to vote or receive  dividends  or be deemed the holder of Shares or
any other  securities  of the Company  which may at any time be issuable on the
exercise  thereof for any purpose,  nor shall  anything  contained  herein,  be
construed  to  confer  upon  the  holder  of this  Warrant,  as such any of the
rights of a  shareholder  of the Company or any right to vote for the  election
of  directors  or upon any matter  submitted  to  shareholders  at any  meeting
thereof,  or to receive  notice of meetings  (except as  otherwise  provided in
Section 4.5 of this warrant),  or to receive  dividends or subscription  rights
or  otherwise  until  this  Warrant  shall have been  exercised  and the Shares
purchasable  upon  the  exercise  hereof  shall  have  become  deliverable,  as
provided herein.

      9.   Representations   and   Warranties.   This  Warrant  is  issued  and
delivered on the basis of the following:

                9.1  Authorization  and  Delivery.  This  Warrant has been duly
authorized  and  executed by the Company and when  delivered  will be valid and
binding  obligation of the Company  enforceable  in accordance  with its terms;
and

                9.2  Shares.   The  Shares  have  been  duly   authorized   and
reserved  for  issuance  by  the  Company  and  when  issued  and  paid  for in
accordance  with the terms  hereof,  will be  validly  issued,  fully  paid and
nonassessable.

      10.  Modification  and Waiver.  This Warrant and any provision hereof may
be changed,  waived,  discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

      11.  Notices.   Any  notice,   request  or  other  document  required  or
permitted to be given or delivered  to the holder  hereof or the Company  shall
be delivered in the manner set forth in the Letter Agreement.

      12.  Binding  Effect of  Successors.  This Warrant  shall be binding upon
any corporation  succeeding the Company by merger of consolidation,  and all of
the  obligations  of the  Company  relating  to the  Shares  issuable  upon the
exercise of this  Warrant  shall be as set forth in the Letter  Agreement,  the
Company's  Charter  and the  Company's  by-laws  (each as amended  from time to
time) and shall  survive the exercise and  termination  of this Warrant and all
of the  covenants  and  agreements  herein  and in  such  other  documents  and
instruments  of the Company  shall inure to the benefit of the  successors  and
assigns of the holder  hereof.  The Company  will,  at the time of the exercise
of this  Warrant,  in whole or in part,  upon request of the holder  hereof but
at the Company's expense,  acknowledge in writing its continuing  obligation to
the holder hereof in respect of any rights (including without  limitation,  any
right  to  registration  of the  Shares)  to  which  the  holder  hereof  shall
continue to be entitled  after such exercise in  accordance  with this Warrant;
provided  that the failure of the holder  hereof to make any such request shall
not affect the  continuing  obligation  of the Company to the holder  hereof in
respect of such rights.

      13.  Lost Warrants or Stock  Certificates.  The Company  covenants to the
holder  hereof that upon  receipt of evidence  reasonable  satisfactory  to the
Company of the loss, theft,  destruction,  or mutilation of this Warrant or any
stock  certificates  and, in the case of any such loss,  theft or  destruction,
upon  receipt of an indemnity  reasonable  satisfactory  to the Company,  or in
the  case of any  such  mutilation  upon  surrender  and  cancellation  of such
Warrant or stock  certificate,  the Company will make and deliver a new Warrant
or stock  certificate,  or like tenor, in lieu of the lost,  stolen,  destroyed
or mutilated Warrant or stock certificate.

      14.  Descriptive  Headings.  The  descriptive  headings  of  the  several
paragraphs  of this  Warrant  are  inserted  for  convenience  only  and do not
constitute a part of this Warrant.

      15.  Governing  Law.  This  Warrant  shall be  construed  and enforced in
accordance  with,  and the rights of the parties shall be governed by, the laws
of the Commonwealth of Massachusetts.



                               PHC, INC.


                               By:  /s/  Bruce A. Shear, President
                               Date:    August 1, 1999



<PAGE>



                                   Exhibit A-1

                               Notice of Exercise

To:

      1.   The  undersigned  hereby elects to purchase  _______  Shares of PHC,
Inc.  pursuant  to the terms of the  attached  Warrant,  and  tenders  herewith
payment of the purchase price of such Shares in full.

      2.   Please issue a certificate or certificates  representing  the Shares
deliverable  upon the  exercise  set  forth in  paragraph  1 in the name of the
undersigned  or, subject to compliance  with the  restrictions  on transfer set
forth  in  Section  7 of the  Warrant,  in  such  other  name or  names  as are
specified below:

                      ____________________________________
                                     (Name)


                      _____________________________________

                      _____________________________________

                      _____________________________________
                                    (Address)

      3.   The  undersigned  represents  that the  aforesaid  shares  are being
acquired  for the  account of the  undersigned  for  investment  and not with a
view to, or for resale in connection  with, the  distribution  thereof and that
the  undersigned  has not present  intention of  distributing or reselling such
shares.



_______________________________
Signature


_______________________________
Date

<PAGE>
                                   Exhibit A-2

                               Notice of Exercise

To:

      1.   Contingent upon and effective  immediately prior to the closing (the
"Closing") of the Company's  public offering  contemplated by the  Registration
Statement  of  Form  S   _____________,   filed   ______________,   ______  the
undersigned  hereby  elects to  purchase  Shares of the Company (or such lesser
number of Shares as may be sold on behalf of the  undersigned  at the  Closing)
pursuant to the terms of the attached Warrant.

      2.   Please  deliver to the  custodian  for the  selling  shareholders  a
certificate representing the Shares being so purchased.

      3.   The  undersigned  has  instructed  the  custodian  for  the  selling
shareholders  to deliver to the Company $  _________________  of, if less,  the
net  proceeds  due the  undersigned  from the sales of Shares in the  aforesaid
public  offering.  If such net proceeds  are less than the  purchase  price for
such Shares,  the  undersigned  agrees to deliver the difference to the Company
prior to the Closing.



_______________________________
Signature


_______________________________
Date



warrants.dot

<PAGE>
Exhibit 4.31

THE SECURITIES  REPRESENTED  BY THIS WARRANT (AND THE SECURITIES  ISSUABLE UPON
EXERCISE OF THIS WARRANT) HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT
OF 1933, OR ANY STATE  SECURITIES  STATUTE.  THE SECURITIES  HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO  DISTRIBUTION  OR RESALE,  AND MAY NOT BE
SOLD,  MORTGAGED,  PLEDGED,  HYPOTHECATED OR OTHERWISE  TRANSFERRED  WITHOUT AN
EFFECTIVE  REGISTRATION  STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT
OF 1933 AND ANY APPLICABLE  STATE  SECURITIES  STATUTE,  OR UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE THEREUNDER.


 Shares Issuable Upon Exercise:    Up to  37,500  shares of the Class A Common
                                   Stock, $.01 par value, of PHC, Inc.

                               WARRANT TO PURCHASE
                         SHARES OF CLASS A COMMON STOCK

                              Expires April 5, 2004

           THIS  CERTIFIES  THAT,  for  value  received,   National  Securities
Corporation  is entitled to subscribe  for and  purchase  that number of shares
(the "Shares") of the fully paid and  nonassessable  Class A Common Stock, $.01
par  value,  (the  "Class  A  Common  Stock")  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Company"),  for a price of $1.45  per Share  (the  "Warrant
Price"),   subject  to  the  provisions  and  upon  the  terms  and  conditions
hereinafter  set  forth.  As used  herein,  the term  "Shares"  shall  mean the
Company's  Class A Common  Stock,  or any stock  into or for which such Class A
Common  Stock  shall  have been or may  hereafter  be  converted  or  exchanged
pursuant to the Articles of  Incorporation  of the Company as from time to time
amended as provided by law and in such Articles  (hereinafter  the  "Charter"),
and the term "Grant Date" shall mean April 5, 1999.

      1.   Term.  Subject  to the  provisions  of this  Warrant,  the  purchase
right  represented by this Warrant is exercisable,  in whole or in part, at any
time and from time to time  from and  after  the Grant  Date and prior to April
5, 2004.

           Notwithstanding  anything to the contrary contained herein,  neither
this Warrant nor any rights  hereunder may be  transferred  or assigned  except
to  an  Assignee  who  is  an  'accredited  investor"  within  the  meaning  of
Regulation D of the General  Rules and  Regulations  of the  Securities  Act of
1933.

      2.   Method of Exercise.  The purchase right  represented by this Warrant
may be  exercised  by the holder  hereof,  in whole or in part and from time to
time,  by either,  at the  election of this  holder,  (a) the  surrender of the
Warrant (with the notice of exercise  form attached  hereto as Exhibit A-1 duly
executed)  at the  principal  office of the  Company  and by the payment to the
Company by certified or bank check or by wire  transfer,  of an amount equal to
the then  applicable  Warrant  Price  multiplied  by the number of shares  then
being  purchased or (b) if in connection  with a registered  public offering of
the Company's  securities  (provided  that such offering  includes the shares),
the  surrender  of this  Warrant  (with the notice of  exercise  form  attached
hereto as Exhibit A-2 duly  executed)  at the  principal  office of the Company
together with notice of  arrangements  reasonably  satisfactory  to the Company
and  any  underwriter,  in  the  case  of  an  underwritten  registered  public
offering,  for payment to the Company  either by  certified or bank check or by
wire  transfer  of from the  proceeds  of the sale of  Shares to be sold by the
holder  in such  public  offering  of an  amount  equal to the then  applicable
Warrant  Price  per  Share  multiplied  by the  number  of  Shares  then  being
purchased.   The  person  or  persons  in  whose  name(s)  any   certificate(s)
representing  Shares  which shall be  issuable  upon  exercise of this  Warrant
shall be  deemed to have  become  the  holder(s)  of  record  of,  and shall be
treated for all  purposes as the record  holder(s)  of, the shares  represented
thereby  (and such  shares  shall be deemed  to have been  issued)  immediately
prior to the close of  business  on the date or dates upon  which this  Warrant
is exercised  and the then  applicable  Warrant Price paid. In the event of any
exercise  of the  rights  represented  by this  Warrant,  certificates  for the
shares of stock so purchased  shall be  delivered to the holder  hereof as soon
as  possible  and in any event  within ten (10) days of receipt of such  notice
and payment of the then  applicable  Warrant Price and, unless this Warrant has
been fully  exercised  or expired,  a new Warrant  representing  the portion of
the Shares,  if any,  with  respect to which this  Warrant  shall not then have
been  exercised  shall also be issued to the holder  hereof as soon as possible
and in any event within such ten-day period.

      3.   Stock  Fully  Paid;  Reservation  of Shares.  All shares that may be
issued upon the  exercise of the rights  represented  by this Warrant will upon
issuance,  be fully paid and nonassessable,  and free from all taxes, liens and
charges  with  respect to the issue  thereof.  During the period  within  which
the rights  represented  by the Warrant may be  exercised,  the Company will at
all times  have  authorized  and  reserved  for the  purpose of  issuance  upon
exercise  of the  purchase  rights  evidenced  by this  Warrant,  a  sufficient
number of shares of Class A Common  Stock to provide  for the  exercise  of the
rights represented by this Warrant.

      4.   Adjustment  of Warrant  Price and  Number of Shares.  The number and
kind of securities  purchasable upon the exercise of the Warrant  Agreement and
the  Warrant  Price shall be subject to  adjustment  from time to time upon the
occurrence of certain events, as follows:

           4.1 Reclassification.  In case of any  reclassification,  change  or
conversion  of the  Company's  Class A Common Stock (other than a change in par
value,  or from par value to no par  value,  or from no par value to par value,
or as a result of a subdivision or combination),  the Company,  shall execute a
new Warrant  Agreement (in form and substance  reasonably  satisfactory  to the
Holder)  providing  that the Holder of this  Warrant  Agreement  shall have the
right to  exercise  such new  Warrant  Agreement  and upon  such  exercise  and
payment  of the  then  applicable  Warrant  Price to  receive,  in lieu of each
Share theretofore  issuable upon exercise of this Warrant  Agreement,  the kind
and  amount  of  shares  of  stock,   other  securities,   money  and  property
receivable  upon  such  reclassification  or change by a holder of one share of
Class  A  Common  Stock.   Such  new  Warrant   Agreement   shall  provide  for
adjustments  that shall be as nearly  equivalent as may be  practicable  to the
adjustments  provided for in this Section 4.1. The  provisions  of this Section
4.1 shall similarly apply to successive reclassifications and changes.

           4.2  Subdivision  or  Combination  of Shares.  If the Company at any
time while this Warrant  remains  outstanding  and unexpired shall subdivide or
combine its Class A Common  Stock,  the Warrant  Price and the number of Shares
issuable upon exercise hereof shall be equitably adjusted.

           4.3  Stock  Dividends.  If  the  Company  at  any  time  while  this
Warrant is  outstanding  and unexpired  shall pay a dividend  payable in shares
of Class A Common Stock (except any distribution  specifically  provided for in
the  foregoing  Sections  4.1  and  4.2),  then  the  Warrant  Price  shall  be
adjusted,  from and after the date of  determination  of shareholders  entitled
to  receive  such  dividend  or  distribution,  to  that  price  determined  by
multiplying  the  Warrant  Price in  effect  immediately  prior to such date of
determination  by a  fraction  (a) the  numerator  of which  shall be the total
number of  shares  of Class A Common  Stock  outstanding  immediately  prior to
such dividend or  distribution,  and (b) the  denominator of which shall be the
total number of shares of Class A Common Stock  outstanding  immediately  after
such  dividend  or  distribution  and the  number  of  Shares  subject  to this
Warrant shall be appropriately adjusted.


<PAGE>

           4.4  No  Impairment.  The  Company  will not,  by  amendment  of its
Charter or through any  reorganization,  recapitalization,  transfer of assets,
consolidation,  merger,  dissolution,  issue or sale of securities or any other
voluntary  action,  avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed  hereunder  by the  Company,  but will
at all times in good faith  assist in the  carrying  out of all the  provisions
of this  Article 4 and in the taking of all such action as may be  necessary or
appropriate  in order to  protect  the  rights of the  Holder  of this  Warrant
Agreement against impairment.

           4.5  Notices  of  Record  Date.  In the  event of any  taking by the
Company  of a  record  of its  shareholders  for  the  purpose  of  determining
shareholders  who are  entitled  to receive  payment of any  dividend  or other
distribution,  or for the purpose of determining  shareholders who are entitled
to  vote in  connection  with  any  proposed  merger  or  consolidation  of the
Company  with or into any other  corporation,  or any proposed  sale,  lease or
conveyance  of all or  substantially  all of the assets of the Company,  or any
proposed  liquidation,  dissolution  or winding up of the Company,  the Company
shall mail to the holder of this  Warrant,  at least fifteen (15) days prior to
the date  specified  therein,  a notice  specifying  the date on which any such
record is to be taken for the purpose of such dividend,  distribution  or vote,
and the amount and character of such dividend, distribution or vote.

           4.6  Adjustment  to Number of Shares  and  Warrant  Price  Based on
Dilutive  Issuance If and  whenever  the  Company  should  issue  shares of its
Class A  Common  Stock at a price  per  share  less  than  the  average  of the
closing  of the bid and  asked  prices  for such  Class A Common  Stock for the
last trading day  immediately  prior to the issuance of such shares (other than
shares issued  pursuant to an employee  benefit plan  including  Class A Common
Stock  issued or  issuable to the  officers or  employees  or  directors  of or
consultants  to the Company and  approved  by a  disinterested  majority of the
directors  of the  Company),  then  the  Warrant  Price  shall be  adjusted  by
dividing  (1) the sum of (A) the  total  number  of  shares  of  Class A Common
Stock  outstanding  immediately  prior to such issuance  multiplied by the then
effective  Warrant  Price and (B) the value of the  consideration  received  by
the Company  upon such  issuances  as  determined  by the Board of Directors by
(2)  the  total  number  of  shares  of  Class  A  Common   Stock   outstanding
immediately  after such  issuance.  The holder of the Warrant shall  thereafter
be entitled to purchase,  at the Warrant Price resulting from such  adjustment,
the number of Shares  (calculated  to the  nearest  whole  share)  obtained  by
multiplying  the Warrant Price in effect  immediately  prior to such adjustment
by the number of shares  issuable upon the exercise  hereof  immediately  prior
to such  adjustment  and  dividing  the product  thereof by the  Warrant  Price
resulting  from such  adjustment.  For the  purpose of this  paragraph  (d) the
issuance of securities  convertible  into or exercisable for the Class A Common
Stock  shall be deemed the  issuance  of the number of shares of Class A Common
Stock into which such  securities are  convertible or for which such securities
are exercisable,  and the  consideration  received for such securities shall be
deemed to include the minimum  aggregate  amount  payable  upon  conversion  or
exercise of such  securities  expire  unexercised,  the Warrant Price of Shares
issuable upon the exercise hereof shall be readjusted accordingly.

      5.   Notice  of  Adjustments.  Whenever  the  Warrant  Price or number of
Shares shall be adjusted pursuant to the provisions  hereof,  the Company shall
within thirty (30) days of such  adjustments  deliver a  certificate  signed by
its chief financial  officer to the registered  holder(s)  hereof setting forth
in reasonable  detail,  the event requiring the  adjustment,  the amount of the
adjustment,  the  method  by which  such  adjustment  was  calculated,  and the
Warrant Price after giving effect to such adjustment.

      6.   Fractional   Shares.   No  fractional   Shares  will  be  issued  in
connection with any exercise  hereunder,  but in lieu of such fractional shares
the Company  shall make a cash payment  therefor  upon the basis of the Warrant
Price then in effect.

      7.   Compliance with Securities Act, Disposition of Shares.

           7.1  Compliance  with  Securities  Act. The holder of this  Warrant,
by acceptance hereof,  reconfirms the representations  made by the Purchaser in
a  letter  agreement  with  the  Company  as of the date  hereof  (the  "Letter
Agreement")  and agrees to the  placement of a restrictive  transfer  legend on
this Warrant and the certificates representing the shares.

           7.2  Disposition  of  Warrants  and  Shares.  With  respect  to  any
offer,  sale or  other  disposition  of this  Warrant  or any  Shares  acquired
pursuant  to the  exercise  of  this  Warrant  prior  to  registration  of this
Warrant or such Shares,  the holder hereof and each  subsequent  holder of this
Warrant   agrees  to  give  written   notice  to  the  Company  prior  thereto,
describing  briefly  the manner  thereof,  together  with a written  opinion of
such holder's  counsel,  if  reasonably  requested by the Company (and, in such
case,  such counsel and opinion must be reasonably  acceptable to the Company),
to the  effect  that  such  offer,  sale or other  disposition  my be  effected
without  registration or  qualification  (under the Securities Act of 1933 (the
"Act") as then in  effect  or any  federal  or state  law then in  effect)  and
indicating  whether or not under the Act  certificates for this Warrant or such
Shares to be sold or otherwise  disposed of require any  restrictive  legend as
to applicable  restrictions on  transferability  in order to insure  compliance
with the Act.  Each  certificate  representing  this Warrant or the Shares thus
transferred  (except a  transfer  pursuant  to Rule 144) shall bear a legend as
to  the  applicable   restrictions  on   transferability  in  order  to  ensure
compliance  with the Act,  unless in the  aforesaid  opinion of counsel for the
holder,   such legend is not  required in order to ensure  compliance  with the
Act. The Company may issue stop  transfer  instructions  to its transfer  agent
in connection with the foregoing restrictions.

      8.   Rights as  Shareholders.  No holder of the Warrant,  as such,  shall
be entitled to vote or receive  dividends  or be deemed the holder of Shares or
any other  securities  of the Company  which may at any time be issuable on the
exercise  thereof for any purpose,  nor shall  anything  contained  herein,  be
construed  to  confer  upon  the  holder  of this  Warrant,  as such any of the
rights of a  shareholder  of the Company or any right to vote for the  election
of  directors  or upon any matter  submitted  to  shareholders  at any  meeting
thereof,  or to receive  notice of meetings  (except as  otherwise  provided in
Section 4.5 of this warrant),  or to receive  dividends or subscription  rights
or  otherwise  until  this  Warrant  shall have been  exercised  and the Shares
purchasable  upon  the  exercise  hereof  shall  have  become  deliverable,  as
provided herein.

      9.   Representations   and   Warranties.   This  Warrant  is  issued  and
delivered on the basis of the following:

                9.1  Authorization  and  Delivery.  This  Warrant has been duly
authorized  and  executed by the Company and when  delivered  will be valid and
binding  obligation of the Company  enforceable  in accordance  with its terms;
and

                9.2  Shares.   The  Shares  have  been  duly   authorized   and
reserved  for  issuance  by  the  Company  and  when  issued  and  paid  for in
accordance  with the terms  hereof,  will be  validly  issued,  fully  paid and
nonassessable.

      10.  Modification  and Waiver.  This Warrant and any provision hereof may
be changed,  waived,  discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

      11   Notices.   Any  notice,   request  or  other  document  required  or
permitted to be given or delivered  to the holder  hereof or the Company  shall
be delivered in the manner set forth in the Letter Agreement.

      12.  Binding  Effect of  Successors.  This Warrant  shall be binding upon
any corporation  succeeding the Company by merger of consolidation,  and all of
the  obligations  of the  Company  relating  to the  Shares  issuable  upon the
exercise of this  Warrant  shall be as set forth in the Letter  Agreement,  the
Company's  Charter  and the  Company's  by-laws  (each as amended  from time to
time) and shall  survive the exercise and  termination  of this Warrant and all
of the  covenants  and  agreements  herein  and in  such  other  documents  and
instruments  of the Company  shall inure to the benefit of the  successors  and
assigns of the holder  hereof.  The Company  will,  at the time of the exercise
of this  Warrant,  in whole or in part,  upon request of the holder  hereof but
at the Company's expense,  acknowledge in writing its continuing  obligation to
the holder hereof in respect of any rights (including without  limitation,  any
right  to  registration  of the  Shares)  to  which  the  holder  hereof  shall
continue to be entitled  after such exercise in  accordance  with this Warrant;
provided  that the failure of the holder  hereof to make any such request shall
not affect the  continuing  obligation  of the Company to the holder  hereof in
respect of such rights.

      13.  Lost Warrants or Stock  Certificates.  The Company  covenants to the
holder  hereof that upon  receipt of evidence  reasonable  satisfactory  to the
Company of the loss, theft,  destruction,  or mutilation of this Warrant or any
stock  certificates  and, in the case of any such loss,  theft or  destruction,
upon  receipt of an indemnity  reasonable  satisfactory  to the Company,  or in
the  case of any  such  mutilation  upon  surrender  and  cancellation  of such
Warrant or stock  certificate,  the Company will make and deliver a new Warrant
or stock  certificate,  or like tenor, in lieu of the lost,  stolen,  destroyed
or mutilated Warrant or stock certificate.

      14.  Descriptive  Headings.  The  descriptive  headings  of  the  several
paragraphs  of this  Warrant  are  inserted  for  convenience  only  and do not
constitute a part of this Warrant.

      15.  Governing  Law.  This  Warrant  shall be  construed  and enforced in
accordance  with,  and the rights of the parties shall be governed by, the laws
of the Commonwealth of Massachusetts.



                               PHC, INC.


                               By:           ____________________________
                                             Bruce A. Shear, President
                               Date:         April 5, 1999



<PAGE>

                                   Exhibit A-1

                               Notice of Exercise

To:

      1.   The  undersigned  hereby elects to purchase  _______  Shares of PHC,
Inc.  pursuant  to the terms of the  attached  Warrant,  and  tenders  herewith
payment of the purchase price of such Shares in full.

      2.   Please issue a certificate or certificates  representing  the Shares
deliverable  upon the  exercise  set  forth in  paragraph  1 in the name of the
undersigned  or, subject to compliance  with the  restrictions  on transfer set
forth  in  Section  7 of the  Warrant,  in  such  other  name or  names  as are
specified below:

                      ____________________________________
                                     (Name)


                      _____________________________________

                      _____________________________________

                      _____________________________________
                                    (Address)

      3.   The  undersigned  represents  that the  aforesaid  shares  are being
acquired  for the  account of the  undersigned  for  investment  and not with a
view to, or for resale in connection  with, the  distribution  thereof and that
the  undersigned  has not present  intention of  distributing or reselling such
shares.



_______________________________
Signature


_______________________________
Date




<PAGE>
                                   Exhibit A-2

                               Notice of Exercise

To:

      1.   Contingent upon and effective  immediately prior to the closing (the
"Closing") of the Company's  public offering  contemplated by the  Registration
Statement  of  Form  S   _____________,   filed   ______________,   ______  the
undersigned  hereby  elects to  purchase  Shares of the Company (or such lesser
number of Shares as may be sold on behalf of the  undersigned  at the  Closing)
pursuant to the terms of the attached Warrant.

      2.   Please  deliver to the  custodian  for the  selling  shareholders  a
certificate representing the Shares being so purchased.

      3.   The  undersigned  has  instructed  the  custodian  for  the  selling
shareholders  to deliver to the Company $  _________________  of, if less,  the
net  proceeds  due the  undersigned  from the sales of Shares in the  aforesaid
public  offering.  If such net proceeds  are less than the  purchase  price for
such Shares,  the  undersigned  agrees to deliver the difference to the Company
prior to the Closing.



_______________________________
Signature


_______________________________
Date



warrants.dot

<PAGE>

Exhibit 4.32

THE SECURITIES  REPRESENTED  BY THIS WARRANT (AND THE SECURITIES  ISSUABLE UPON
EXERCISE OF THIS WARRANT) HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT
OF 1933, OR ANY STATE  SECURITIES  STATUTE.  THE SECURITIES  HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO  DISTRIBUTION  OR RESALE,  AND MAY NOT BE
SOLD,  MORTGAGED,  PLEDGED,  HYPOTHECATED OR OTHERWISE  TRANSFERRED  WITHOUT AN
EFFECTIVE  REGISTRATION  STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT
OF 1933 AND ANY APPLICABLE  STATE  SECURITIES  STATUTE,  OR UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE THEREUNDER.


 Shares Issuable Upon Exercise:    Up to  37,500  shares of the Class A Common
                                   Stock, $.01 par value, of PHC, Inc.

                               WARRANT TO PURCHASE
                         SHARES OF CLASS A COMMON STOCK

                              Expires July 5, 2004

           THIS  CERTIFIES  THAT,  for  value  received,   National  Securities
Corporation  is entitled to subscribe  for and  purchase  that number of shares
(the "Shares") of the fully paid and  nonassessable  Class A Common Stock, $.01
par  value,  (the  "Class  A  Common  Stock")  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Company"),  for a price of $1.45  per Share  (the  "Warrant
Price"),   subject  to  the  provisions  and  upon  the  terms  and  conditions
hereinafter  set  forth.  As used  herein,  the term  "Shares"  shall  mean the
Company's  Class A Common  Stock,  or any stock  into or for which such Class A
Common  Stock  shall  have been or may  hereafter  be  converted  or  exchanged
pursuant to the Articles of  Incorporation  of the Company as from time to time
amended as provided by law and in such Articles  (hereinafter  the  "Charter"),
and the term "Grant Date" shall mean July 5, 1999.

      1.   Term.  Subject  to the  provisions  of this  Warrant,  the  purchase
right  represented by this Warrant is exercisable,  in whole or in part, at any
time and from time to time  from and after the Grant  Date and prior to July 5,
2004.

           Notwithstanding  anything to the contrary contained herein,  neither
this Warrant nor any rights  hereunder may be  transferred  or assigned  except
to  an  Assignee  who  is  an  "accredited  investor"  within  the  meaning  of
Regulation D of the General  Rules and  Regulations  of the  Securities  Act of
1933.

      2.   Method of Exercise.  The purchase right  represented by this Warrant
may be  exercised  by the holder  hereof,  in whole or in part and from time to
time,  by either,  at the  election of this  holder,  (a) the  surrender of the
Warrant (with the notice of exercise  form attached  hereto as Exhibit A-1 duly
executed)  at the  principal  office of the  Company  and by the payment to the
Company by certified or bank check or by wire  transfer,  of an amount equal to
the then  applicable  Warrant  Price  multiplied  by the number of shares  then
being  purchased or (b) if in connection  with a registered  public offering of
the Company's  securities  (provided  that such offering  includes the shares),
the  surrender  of this  Warrant  (with the notice of  exercise  form  attached
hereto as Exhibit A-2 duly  executed)  at the  principal  office of the Company
together with notice of  arrangements  reasonably  satisfactory  to the Company
and  any  underwriter,  in  the  case  of  an  underwritten  registered  public
offering,  for payment to the Company  either by  certified or bank check or by
wire  transfer  of from the  proceeds  of the sale of  Shares to be sold by the
holder  in such  public  offering  of an  amount  equal to the then  applicable
Warrant  Price  per  Share  multiplied  by the  number  of  Shares  then  being
purchased.   The  person  or  persons  in  whose  name(s)  any   certificate(s)
representing  Shares  which shall be  issuable  upon  exercise of this  Warrant
shall be  deemed to have  become  the  holder(s)  of  record  of,  and shall be
treated for all  purposes as the record  holder(s)  of, the shares  represented
thereby  (and such  shares  shall be deemed  to have been  issued)  immediately
prior to the close of  business  on the date or dates upon  which this  Warrant
is exercised  and the then  applicable  Warrant Price paid. In the event of any
exercise  of the  rights  represented  by this  Warrant,  certificates  for the
shares of stock so purchased  shall be  delivered to the holder  hereof as soon
as  possible  and in any event  within ten (10) days of receipt of such  notice
and payment of the then  applicable  Warrant Price and, unless this Warrant has
been fully  exercised  or expired,  a new Warrant  representing  the portion of
the Shares,  if any,  with  respect to which this  Warrant  shall not then have
been  exercised  shall also be issued to the holder  hereof as soon as possible
and in any event within such ten-day period.

      3.   Stock  Fully  Paid;  Reservation  of Shares.  All shares that may be
issued upon the  exercise of the rights  represented  by this Warrant will upon
issuance,  be fully paid and nonassessable,  and free from all taxes, liens and
charges  with  respect to the issue  thereof.  During the period  within  which
the rights  represented  by the Warrant may be  exercised,  the Company will at
all times  have  authorized  and  reserved  for the  purpose of  issuance  upon
exercise  of the  purchase  rights  evidenced  by this  Warrant,  a  sufficient
number of shares of Class A Common  Stock to provide  for the  exercise  of the
rights represented by this Warrant.

      4.   Adjustment  of Warrant  Price and  Number of Shares.  The number and
kind of securities  purchasable upon the exercise of the Warrant  Agreement and
the  Warrant  Price shall be subject to  adjustment  from time to time upon the
occurrence of certain events, as follows:

           4.1 Reclassification.  In case of any  reclassification,  change  or
conversion  of the  Company's  Class A Common Stock (other than a change in par
value,  or from par value to no par  value,  or from no par value to par value,
or as a result of a subdivision or combination),  the Company,  shall execute a
new Warrant  Agreement (in form and substance  reasonably  satisfactory  to the
Holder)  providing  that the Holder of this  Warrant  Agreement  shall have the
right to  exercise  such new  Warrant  Agreement  and upon  such  exercise  and
payment  of the  then  applicable  Warrant  Price to  receive,  in lieu of each
Share theretofore  issuable upon exercise of this Warrant  Agreement,  the kind
and  amount  of  shares  of  stock,   other  securities,   money  and  property
receivable  upon  such  reclassification  or change by a holder of one share of
Class  A  Common  Stock.   Such  new  Warrant   Agreement   shall  provide  for
adjustments  that shall be as nearly  equivalent as may be  practicable  to the
adjustments  provided for in this Section 4.1. The  provisions  of this Section
4.1 shall similarly apply to successive reclassifications and changes.

           4.2  Subdivision  or  Combination  of Shares.  If the Company at any
time while this Warrant  remains  outstanding  and unexpired shall subdivide or
combine its Class A Common  Stock,  the Warrant  Price and the number of Shares
issuable upon exercise hereof shall be equitably adjusted.

           4.3  Stock  Dividends.  If  the  Company  at  any  time  while  this
Warrant is  outstanding  and unexpired  shall pay a dividend  payable in shares
of Class A Common Stock (except any distribution  specifically  provided for in
the  foregoing  Sections  4.1  and  4.2),  then  the  Warrant  Price  shall  be
adjusted,  from and after the date of  determination  of shareholders  entitled
to  receive  such  dividend  or  distribution,  to  that  price  determined  by
multiplying  the  Warrant  Price in  effect  immediately  prior to such date of
determination  by a  fraction  (a) the  numerator  of which  shall be the total
number of  shares  of Class A Common  Stock  outstanding  immediately  prior to
such dividend or  distribution,  and (b) the  denominator of which shall be the
total number of shares of Class A Common Stock  outstanding  immediately  after
such  dividend  or  distribution  and the  number  of  Shares  subject  to this
Warrant shall be appropriately adjusted.


<PAGE>

          4.4  No  Impairment.  The  Company  will not,  by  amendment  of its
Charter or through any  reorganization,  recapitalization,  transfer of assets,
consolidation,  merger,  dissolution,  issue or sale of securities or any other
voluntary  action,  avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed  hereunder  by the  Company,  but will
at all times in good faith  assist in the  carrying  out of all the  provisions
of this  Article 4 and in the taking of all such action as may be  necessary or
appropriate  in order to  protect  the  rights of the  Holder  of this  Warrant
Agreement against impairment.

           4.5  Notices  of  Record  Date.  In the  event of any  taking by the
Company  of a  record  of its  shareholders  for  the  purpose  of  determining
shareholders  who are  entitled  to receive  payment of any  dividend  or other
distribution,  or for the purpose of determining  shareholders who are entitled
to  vote in  connection  with  any  proposed  merger  or  consolidation  of the
Company  with or into any other  corporation,  or any proposed  sale,  lease or
conveyance  of all or  substantially  all of the assets of the Company,  or any
proposed  liquidation,  dissolution  or winding up of the Company,  the Company
shall mail to the holder of this  Warrant,  at least fifteen (15) days prior to
the date  specified  therein,  a notice  specifying  the date on which any such
record is to be taken for the purpose of such dividend,  distribution  or vote,
and the amount and character of such dividend, distribution or vote.

           4.6  Adjustment  to Number of Shares  and  Warrant  Price  Based on
Dilutive  Issuance If and  whenever  the  Company  should  issue  shares of its
Class A  Common  Stock at a price  per  share  less  than  the  average  of the
closing  of the bid and  asked  prices  for such  Class A Common  Stock for the
last trading day  immediately  prior to the issuance of such shares (other than
shares issued  pursuant to an employee  benefit plan  including  Class A Common
Stock  issued or  issuable to the  officers or  employees  or  directors  of or
consultants  to the Company and  approved  by a  disinterested  majority of the
directors  of the  Company),  then  the  Warrant  Price  shall be  adjusted  by
dividing  (1) the sum of (A) the  total  number  of  shares  of  Class A Common
Stock  outstanding  immediately  prior to such issuance  multiplied by the then
effective  Warrant  Price and (B) the value of the  consideration  received  by
the Company  upon such  issuances  as  determined  by the Board of Directors by
(2)  the  total  number  of  shares  of  Class  A  Common   Stock   outstanding
immediately  after such  issuance.  The holder of the Warrant shall  thereafter
be entitled to purchase,  at the Warrant Price resulting from such  adjustment,
the number of Shares  (calculated  to the  nearest  whole  share)  obtained  by
multiplying  the Warrant Price in effect  immediately  prior to such adjustment
by the number of shares  issuable upon the exercise  hereof  immediately  prior
to such  adjustment  and  dividing  the product  thereof by the  Warrant  Price
resulting  from such  adjustment.  For the  purpose of this  paragraph  (d) the
issuance of securities  convertible  into or exercisable for the Class A Common
Stock  shall be deemed the  issuance  of the number of shares of Class A Common
Stock into which such  securities are  convertible or for which such securities
are exercisable,  and the  consideration  received for such securities shall be
deemed to include the minimum  aggregate  amount  payable  upon  conversion  or
exercise of such  securities  expire  unexercised,  the Warrant Price of Shares
issuable upon the exercise hereof shall be readjusted accordingly.

      5.   Notice  of  Adjustments.  Whenever  the  Warrant  Price or number of
Shares shall be adjusted pursuant to the provisions  hereof,  the Company shall
within thirty (30) days of such  adjustments  deliver a  certificate  signed by
its chief financial  officer to the registered  holder(s)  hereof setting forth
in reasonable  detail,  the event requiring the  adjustment,  the amount of the
adjustment,  the  method  by which  such  adjustment  was  calculated,  and the
Warrant Price after giving effect to such adjustment.

      6.   Fractional   Shares.   No  fractional   Shares  will  be  issued  in
connection with any exercise  hereunder,  but in lieu of such fractional shares
the Company  shall make a cash payment  therefor  upon the basis of the Warrant
Price then in effect.

      7.   Compliance with Securities Act, Disposition of Shares.

           7.1  Compliance  with  Securities  Act. The holder of this  Warrant,
by acceptance hereof,  reconfirms the representations  made by the Purchaser in
a  letter  agreement  with  the  Company  as of the date  hereof  (the  "Letter
Agreement")  and agrees to the  placement of a restrictive  transfer  legend on
this Warrant and the certificates representing the shares.

           7.2  Disposition  of  Warrants  and  Shares.  With  respect  to  any
offer,  sale or  other  disposition  of this  Warrant  or any  Shares  acquired
pursuant  to the  exercise  of  this  Warrant  prior  to  registration  of this
Warrant or such Shares,  the holder hereof and each  subsequent  holder of this
Warrant   agrees  to  give  written   notice  to  the  Company  prior  thereto,
describing  briefly  the manner  thereof,  together  with a written  opinion of
such holder's  counsel,  if  reasonably  requested by the Company (and, in such
case,  such counsel and opinion must be reasonably  acceptable to the Company),
to the  effect  that  such  offer,  sale or other  disposition  my be  effected
without  registration or  qualification  (under the Securities Act of 1933 (the
"Act") as then in  effect  or any  federal  or state  law then in  effect)  and
indicating  whether or not under the Act  certificates for this Warrant or such
Shares to be sold or otherwise  disposed of require any  restrictive  legend as
to applicable  restrictions on  transferability  in order to insure  compliance
with the Act.  Each  certificate  representing  this Warrant or the Shares thus
transferred  (except a  transfer  pursuant  to Rule 144) shall bear a legend as
to  the  applicable   restrictions  on   transferability  in  order  to  ensure
compliance  with the Act,  unless in the  aforesaid  opinion of counsel for the
holder,   such legend is not  required in order to ensure  compliance  with the
Act. The Company may issue stop  transfer  instructions  to its transfer  agent
in connection with the foregoing restrictions.

      8.   Rights as  Shareholders.  No holder of the Warrant,  as such,  shall
be entitled to vote or receive  dividends  or be deemed the holder of Shares or
any other  securities  of the Company  which may at any time be issuable on the
exercise  thereof for any purpose,  nor shall  anything  contained  herein,  be
construed  to  confer  upon  the  holder  of this  Warrant,  as such any of the
rights of a  shareholder  of the Company or any right to vote for the  election
of  directors  or upon any matter  submitted  to  shareholders  at any  meeting
thereof,  or to receive  notice of meetings  (except as  otherwise  provided in
Section 4.5 of this warrant),  or to receive  dividends or subscription  rights
or  otherwise  until  this  Warrant  shall have been  exercised  and the Shares
purchasable  upon  the  exercise  hereof  shall  have  become  deliverable,  as
provided herein.

      9.   Representations   and   Warranties.   This  Warrant  is  issued  and
delivered on the basis of the following:

                9.1  Authorization  and  Delivery.  This  Warrant has been duly
authorized  and  executed by the Company and when  delivered  will be valid and
binding  obligation of the Company  enforceable  in accordance  with its terms;
and

                9.2  Shares.   The  Shares  have  been  duly   authorized   and
reserved  for  issuance  by  the  Company  and  when  issued  and  paid  for in
accordance  with the terms  hereof,  will be  validly  issued,  fully  paid and
nonassessable.

      10.  Modification  and Waiver.  This Warrant and any provision hereof may
be changed,  waived,  discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

      11   Notices.   Any  notice,   request  or  other  document  required  or
permitted to be given or delivered  to the holder  hereof or the Company  shall
be delivered in the manner set forth in the Letter Agreement.

      12.  Binding  Effect of  Successors.  This Warrant  shall be binding upon
any corporation  succeeding the Company by merger of consolidation,  and all of
the  obligations  of the  Company  relating  to the  Shares  issuable  upon the
exercise of this  Warrant  shall be as set forth in the Letter  Agreement,  the
Company's  Charter  and the  Company's  by-laws  (each as amended  from time to
time) and shall  survive the exercise and  termination  of this Warrant and all
of the  covenants  and  agreements  herein  and in  such  other  documents  and
instruments  of the Company  shall inure to the benefit of the  successors  and
assigns of the holder  hereof.  The Company  will,  at the time of the exercise
of this  Warrant,  in whole or in part,  upon request of the holder  hereof but
at the Company's expense,  acknowledge in writing its continuing  obligation to
the holder hereof in respect of any rights (including without  limitation,  any
right  to  registration  of the  Shares)  to  which  the  holder  hereof  shall
continue to be entitled  after such exercise in  accordance  with this Warrant;
provided  that the failure of the holder  hereof to make any such request shall
not affect the  continuing  obligation  of the Company to the holder  hereof in
respect of such rights.

      13.  Lost Warrants or Stock  Certificates.  The Company  covenants to the
holder  hereof that upon  receipt of evidence  reasonable  satisfactory  to the
Company of the loss, theft,  destruction,  or mutilation of this Warrant or any
stock  certificates  and, in the case of any such loss,  theft or  destruction,
upon  receipt of an indemnity  reasonable  satisfactory  to the Company,  or in
the  case of any  such  mutilation  upon  surrender  and  cancellation  of such
Warrant or stock  certificate,  the Company will make and deliver a new Warrant
or stock  certificate,  or like tenor, in lieu of the lost,  stolen,  destroyed
or mutilated Warrant or stock certificate.

      14.  Descriptive  Headings.  The  descriptive  headings  of  the  several
paragraphs  of this  Warrant  are  inserted  for  convenience  only  and do not
constitute a part of this Warrant.

      15.  Governing  Law.  This  Warrant  shall be  construed  and enforced in
accordance  with,  and the rights of the parties shall be governed by, the laws
of the Commonwealth of Massachusetts.



                               PHC, INC.


                               By:      ____________________________
                                        Bruce A. Shear, President
                               Date:    July 5, 1999



<PAGE>
                                   Exhibit A-1

                               Notice of Exercise

To:

      1.   The  undersigned  hereby elects to purchase  _______  Shares of PHC,
Inc.  pursuant  to the terms of the  attached  Warrant,  and  tenders  herewith
payment of the purchase price of such Shares in full.

      2.   Please issue a certificate or certificates  representing  the Shares
deliverable  upon the  exercise  set  forth in  paragraph  1 in the name of the
undersigned  or, subject to compliance  with the  restrictions  on transfer set
forth  in  Section  7 of the  Warrant,  in  such  other  name or  names  as are
specified below:

                      ____________________________________
                                     (Name)


                      _____________________________________

                      _____________________________________

                      _____________________________________
                                    (Address)

      3.   The  undersigned  represents  that the  aforesaid  shares  are being
acquired  for the  account of the  undersigned  for  investment  and not with a
view to, or for resale in connection  with, the  distribution  thereof and that
the  undersigned  has not present  intention of  distributing or reselling such
shares.



_______________________________
Signature


_______________________________
Date

<PAGE>
                                   Exhibit A-2

                               Notice of Exercise

To:

      1.   Contingent upon and effective  immediately prior to the closing (the
"Closing") of the Company's   public offering  contemplated by the  Registration
Statement  of  Form  S   _____________,   filed   ______________,   ______  the
undersigned  hereby  elects to  purchase  Shares of the Company (or such lesser
number of Shares as may be sold on behalf of the  undersigned  at the  Closing)
pursuant to the terms of the attached Warrant.

      2.   Please  deliver to the  custodian  for the  selling  shareholders  a
certificate representing the Shares being so purchased.

      3.   The  undersigned  has  instructed  the  custodian  for  the  selling
shareholders  to deliver to the Company $  _________________  of, if less,  the
net  proceeds  due the  undersigned  from the sales of Shares in the  aforesaid
public  offering.  If such net proceeds  are less than the  purchase  price for
such Shares,  the  undersigned  agrees to deliver the difference to the Company
prior to the Closing.



_______________________________
Signature


_______________________________
Date



warrants.dot



<PAGE>

Exhibit 10.65

                     AMENDMENT NO. 2 TO SECURED BRIDGE NOTE


     THIS  AMENDMENT NO. 2 TO SECURED  BRIDGE NOTE (the  "Amendment")  is hereby
entered  into as of the 10th day of  November,  1998 by and among PHC,  INC.,  a
Massachusetts  corporation  ("Borrower"),  and HCFP FUNDING II, INC., a Delaware
corporation ("Lender").

     A. Borrower and Lender  entered into that certain  Secured Bridge Note (the
"Note")  dated March 10, 1998 in the  principal  sum of Three  Hundred Fifty and
00/100 Dollars  ($350,000.00),  which had an original  Maturity Date of July 10,
1998.

     B. Pursuant to Amendment No. 1 to Secured  Bridge Note dated as of July 10,
1998,  Lender agreed to extend the Maturity Date of the Note until  November 10,
1998.

     C.  Borrower has  requested  that the Maturity Date of the Note be extended
for an  additional  six (6) months,  which  extension  of the  Maturity  Date is
essential to Borrower in continuing to finance its operations.

     D.  Borrower has  requested  that the Maturity Date of the Note be extended
for an  additional  two (2) months,  which  extension  of the  Maturity  Date is
essential to Borrower in continuing to finance its operations.

     E.  Lender  has  agreed  to  extend  the  Maturity  Date upon the terms and
conditions of this Amendment.

     NOW, THEREFORE, the parties agree as follows:

     1. Capitalized terms used and not otherwise defined in this Amendment shall
have the meanings given them in the Note.

     2.  Borrower and Lender  hereby  affirm and agree that the Maturity Date of
the Note is hereby extended to May 10, 1999.

     3. Borrower  acknowledges and agrees to pay concurrently with the extension
of this Amendment an extension fee equal to Seventeen  Thousand Five Hundred and
00/100 Dollars ($17,500.00).

     4. Borrower and Lender are parties to that certain Letter  Agreement  dated
as of  September  2, 1998 (the  "September  Letter")  relating  to Common  Stock
Purchase  Warrants of Borrower  that are held by Lende4r and to the  exercise by
Lender of certain  rights related to those  Warrants.  Borrower and Lender agree
that for purposes of the September Letter, the extension of the Maturity Date by
this Amendment shall be construed as a repayment of the Note,  permitting Lender
to exercise its rights under the September Letter on and after May 10, 1999.





  H:\WP\LEGAL\CLIENTS\PHCINC\secnote2amend.wpd

5

<PAGE>

     This  amendment may be executed in several  counterparts,  and each copy so
executed shall be deemed an
                  original.

     6. Except as expressly stated in this Amendment, the terms, conditions, and
provisions of the Note, as amended by this Amendment, shall remain in full force
and effect and shall not be modified or othe5rwise  affected by the execution of
the agreement.

     IN WITNESS  WHEREOF,  the parties have executed or caused this Amendment to
be executed by their respective officers thereunto duly authorized as of the day
and year first above written.



                                          LENDER:

                                          HCFP FUNDING II, INC.

                                          a Delaware corporation


                                          By:      /s/  Michael Gardullo
                                          Title:        Vice President

                                          BORROWER:

                                          PHC, INC

                                          a Massachusetts corporation

                                          By:      /s/  Bruce A. Shear
                                          Title:        President








H:\WP\LEGAL\CLIENTS\PHCINC\secnote2amend.wpd

                                        2




<PAGE>
Exhibit 4.33


                             SUBSCRIPTION AGREEMENT

                                    PHC, INC.

THE SECURITIES WHICH ARE THE SUBJECT OF THIS  SUBSCRIPTION  AGREEMENT (AS IT MAY
BE AMENDED FROM TIME TO TIME, THE  "AGREEMENT")  HAVE NOT BEEN REGISTERED  UNDER
THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES  ACT") OR UNDER THE
APPLICABLE SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE
ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THESE LAWS BY VIRTUE OF PHC,
INC.'S  INTENDED  COMPLIANCE WITH SECTIONS 3(b), 4(2) AND 4(6) OF THE SECURITIES
ACT, THE PROVISIONS OF REGULATION D UNDER SUCH ACT AND SIMILAR  EXEMPTIONS UNDER
STATE LAW.  THESE  SECURITIES  HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION ("SEC"),  ANY STATE SECURITIES  COMMISSION OR
ANY OTHER REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

     The undersigned  purchaser  (hereafter,  the "Purchaser")  hereby offers to
purchase  certain Series B Convertible  Preferred Stock (referred to herein as a
"Share" or  collectively as "Shares") of PHC, Inc. (the  "Company"),  a publicly
held  corporation  formed under the laws of the  Commonwealth of  Massachusetts.
This  offer to  purchase  may,  for any  reason  whatsoever,  be  revoked by the
Purchaser or rejected by the Company  prior to  acceptance  of this offer by the
Company.

     Section  1.1  Purchase  and Sale of Shares.  Upon the  following  terms and
conditions, the Company shall issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company,  the number of Shares indicated  herein,  which
Shares shall have the rights, designations and preferences set forth in Schedule
I hereto.

     Section  1.2  Purchase  Price.  The  purchase  price  for the  Shares  (the
"Purchase Price") shall be $1,000 per Share.

     Section 1.3 The Closing.

     (a) The closing of the  purchase  and sale of the Shares  (the  "Closing"),
shall take place at the law offices of Arent, Fox, Kintner, Plotkin & Kahn, 1050
Connecticut  Avenue,  N.W.,  Washington,   D.C.  20036,  at  10:00  a.m.,  local
Washington,  D.C. time, on the later of the following: (i) the date on which the
last to be  fulfilled or waived of the  conditions  set forth in Section 4.1 and
4.2  hereof  and  applicable  to the  Closing  shall be  fulfilled  or waived in
accordance herewith, or (ii) such other time and place and/or on such other date
as the Purchaser and the Company may agree. The date on which the Closing occurs
is referred to herein as the "Closing Date."

     (b) On the Closing  Date,  the Company shall deliver to the Purchaser (i) a
certificate  representing the Shares  registered in the name of the Purchaser or
deposit  such Shares into  accounts  designated  by the  Purchaser  and (ii) the
Warrant for the number of shares of the Company's Common Stock indicated herein,
in the form attached hereto as Exhibit A, incorporated herein by reference.  The
Purchaser  shall on the Closing Date  deliver to the Company the Purchase  Price
for all the Shares by cashier's check or wire transfer in immediately  available
funds to such  account as shall be  designated  in writing  by the  Company.  In
addition,  each party shall  deliver all  documents,  instruments  and  writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Closing.

     Section 1.4 Covenant to Register.

     (a) For purposes of this Section, the following definitions shall apply:

     The  terms  "register,"   "registered,"  and  "registration"   refer  to  a
registration under the Securities Act of 1933, as amended (the "Act"),  effected
by  preparing  and  filing a  registration  statement  or  similar  document  in
compliance  with the Act, and the  declaration or ordering of  effectiveness  of
such registration statement, document or amendment thereto.

     (ii) The term  "Registrable  Securities"  means the shares of the Company's
Class A Common Stock,  par value $.01 per share (the "Common  Stock"),  issuable
upon  conversion  of shares of the Shares and upon  exercise of the Warrant,  or
upon  conversion of any other stock issued in payment of dividends on the Shares
or otherwise issuable pursuant to this Agreement or the provisions of Schedule I
hereto,  and any  securities  of the  Company  or  securities  of any  successor
corporation  issued as, or  issuable  upon the  conversion  or  exercise  of any
warrant  right  or  other  security  that  is  issued  as a  dividend  or  other
distribution  with  respect to, or in exchange  for, or in  replacement  of, the
Shares.

     (iii) The term "holder of Registrable  Securities"  means the Purchaser and
any permitted assignee of registration rights pursuant to Section 1.4(h).

     (b) (i) The Company shall as soon as possible file a registration statement
on Form SB-2 or Form S-3  covering  at least 200% of the  number of  Registrable
Securities  which would then be issuable  upon  conversion  of the Shares at the
conversion  price then in effect,  and shall use its best  efforts to cause such
registration  statement to become  effective on or before ninety (90) days after
the Closing Date (the "Initial Registration"). In the event such registration is
not so declared  effective  or does not include all  Registrable  Securities,  a
holder of  Registrable  Securities  shall have the right to require by notice in
writing that the Company register all or any part of the Registrable  Securities
held by such holder (a "Demand  Registration")  and the Company shall  thereupon
effect such  registration in accordance  herewith (which may include adding such
shares to an existing shelf registration).  The parties agree that if the holder
of  Registrable  Securities  demands  registration  of  less  than  all  of  the
Registrable  Securities,  the Company,  at its option,  may nevertheless  file a
registration  statement  covering  all of the  Registrable  Securities.  If such
registration  statement is declared  effective  with respect to all  Registrable
Securities  and  the  Company  is  in  compliance  with  its  obligations  under
Subsection  (d) of this  Section  1.4, the demand  registration  rights  granted
pursuant to this Subsection (b)(i) shall cease. If such  registration  statement
is not declared  effective with respect to all Registrable  Securities or if the
Company is not in  compliance  with such  obligations,  the demand  registration
rights described herein shall remain in effect.

     (ii) The Company  shall not be  obligated  to effect a Demand  Registration
under Subsection (b)(i) above: (A) if all of the Registrable  Securities held by
the holder of  Registrable  Securities  which are  demanded to be covered by the
Demand  Registration  are, at the time of such demand,  included in an effective
registration  statement  and the Company is in compliance  with its  obligations
under  Subsection  (d) of  this  Section  1.4;  (B)  if  all of the  Registrable
Securities  may be sold under Rule 144(k) of the Act and the Company's  transfer
agent has accepted an instruction from the Company to such effect; or (C) at any
time after two (2) years from the Closing Date.

     (iii) Subject to  Subsection  (iv)(B)  hereof,  the Company may suspend the
effectiveness of any such registration  effected pursuant to this Subsection (b)
in the event and for such  period of time as, such a  suspension  is required by
the rules and regulations of the Securities and Exchange Commission ("SEC"). The
Company will use its best efforts to cause such  suspension  to terminate at the
earliest possible date.

     (iv) (A) If the Company is advised by the SEC that a registration statement
filed hereunder is subject to a "no-review" and such  registration  statement is
not  declared   effective   within  five  (5)  business  days   thereafter   (an
"Acceleration  Date")  or,  irrespective  of  the  SEC  review,  a  registration
statement  is not  declared  effective  by the ninety first (91st) day after the
Closing Date (the "Target Date"),  the Company shall pay Purchaser as liquidated
damages an amount equal to two percent (2%) of the total  Purchase  Price of the
Shares for each thirty (30) day period following the earlier of the Acceleration
Date or  Target  Date,  as  applicable,  until  such  time  as the  registration
statement is declared effective;  provided, however, that such damages shall not
be  payable if the  failure to meet the  Acceleration  Date or Target  Date,  as
applicable,  is due to action or inaction by Purchaser with respect to providing
information for the registration statement. The payment set forth above shall be
pro-rated  daily as to any period of less than  thirty (30) days.  Such  payment
shall be made to the Purchaser either (I) by cashier's check or wire transfer in
immediately available funds to such account as shall be designated in writing by
the  Purchaser  or (II) in  Shares,  the  number of which  shall be equal to the
amount due under this  Subsection  divided  by $1,000 per Share.  The  foregoing
amount shall be paid  irrespective of the amount of Registrable  Securities then
held by Purchaser.

     (B) If, following effectiveness of a registration, either the effectiveness
of the registration  statement is suspended or a current  prospectus meeting the
requirements  of  Section 10 of the Act is not  available  for  delivery  by the
Purchaser  (either  referred to herein as a  "suspension"),  the  Company  shall
thereupon pay to Purchaser as liquidated  damages an amount equal to two percent
(2%) of the Purchase  Price of the Shares for each thirty (30) day period of the
suspension.  The payment set forth above shall be pro-rated  daily as to periods
of less than thirty (30) days.  Such payment  shall be made to the  Purchaser by
cashiers check or wire transfer in immediately  available  funds to such account
as  shall  be  designated  in  writing  by the  Purchaser,  and  shall  be  paid
irrespective  of the amount of  Registrable  Securities  held by Purchaser on or
after the date following the suspension.

     (C)  Any  amount  payable  pursuant  to the  foregoing  provisions  of this
Subsection  (iv) shall be delivered  on or before the fifth (5th) day  following
the end of the  calendar  month in which  such  payment  obligation  arose.  The
"Purchase  Price"  of  Registrable  Securities  shall  be  (1) if  derived  from
conversion or substitution of Shares,  the Purchase Price of the Shares, and (2)
if received in satisfaction of a Company  obligation,  the dollar amount of such
obligation.

     (D) This  Subsection  is in addition to the  provisions  of Section  7.2(a)
hereof.

     (c) If the  Company  proposes  to register  (including  for this  purpose a
registration  effected by the Company for shareholders other than the Purchaser)
any of its stock or other  securities  under the Act in connection with a public
offering of such securities  (other than a registration on Form S-4, Form S-8 or
other limited purpose form) and all Registrable  Securities have not theretofore
been included in a registration  statement under  Subsection (b) of this Section
1.4 which remains effective,  the Company shall, at such time, promptly give all
holders of Registrable Securities written notice of such registration.  Upon the
written request of any holder of Registrable Securities given within twenty (20)
days after receipt of such notice by the holder of Registrable  Securities,  the
Company shall use its best efforts to cause to be  registered  under the Act all
Registrable Securities that such holder of Registrable Securities requests to be
registered.  However, the Company shall have no obligation under this Subsection
(c) if (i) the  Registrable  Securities may be sold without  registration  under
Rule 144(k) and the Company's  transfer agent has accepted an  instruction  from
the Company to such effect,  (ii) the Registration  Statement is filed more than
two (2) years after the Closing Date, or (iii) to the extent that,  with respect
to any  underwritten  offering  initiated by the Company later than one calendar
year following the Closing, the managing underwriter of such offering reasonably
notifies such  holder(s) in writing of its  determination  that the  Registrable
Securities or a portion thereof shall be excluded therefrom.

     (d) Whenever  required under this Section 1.4 to effect the registration of
any  Registrable   Securities   including,   without  limitation,   the  Initial
Registration, the Company shall, as expeditiously as reasonably possible:

     (i) Prepare and file with the SEC a registration  statement with respect to
such Registrable  Securities and use its best efforts to cause such registration
to become effective as provided in Section 1.4(b)(i), and keep such registration
statement effective for so long as any holder of Registrable  Securities desires
to dispose of the securities covered by such registration  statement;  provided,
however, that in no event shall the Company be required to keep the Registration
Statement  effective  for a period  greater  than two (2) years from the Closing
Date;

     (ii)  Respond to comments  made by the SEC with  respect to a  registration
statement  filed pursuant to this Agreement  within ten (10) business days after
the  date of the  comment  letter,  and  prepare  and  file  with  the SEC  such
amendments  and  supplements to such  registration  statement and the prospectus
used in  connection  with such  registration  statement  as may be  necessary to
comply with the  provisions  of the Act with respect to the  disposition  of all
securities covered by such registration  statement and notify the holders of the
filing and  effectiveness of such  Registration  Statement and any amendments or
supplements;

     (iii)  Furnish to each holder of  Registrable  Securities  such  numbers of
copies of a current prospectus,  including a preliminary prospectus,  conforming
with the  requirements  of the Act,  copies of the  registration  statement  any
amendment  or  supplement  to any  thereof  and any  documents  incorporated  by
reference  therein and such other documents,  all free of charge, as such holder
of  Registrable  Securities  may  reasonably  require in order to facilitate the
disposition  of  Registrable  Securities  owned by such  holder  of  Registrable
Securities;

     (iv) Use its best efforts to register and qualify the securities covered by
such  registration  statement under such other  securities or "Blue Sky" laws of
such jurisdictions as shall be reasonably requested by the holder of Registrable
Securities;

     (v)  Notify  each  holder  of  Registrable  Securities  immediately  of the
happening  of any  event as a result of which the  prospectus  included  in such
registration  statement,  as then in effect,  includes  an untrue  statement  of
material fact or omits to state a material fact required to be stated therein or
necessary  to make  the  statements  therein  not  misleading  in  light  of the
circumstances then existing,  and use its best efforts to promptly update and/or
correct such prospectus;

     (vi)  Furnish,  at the request of any holder of  Registrable  Securities in
connection with any underwritten  public offering,  (A) an opinion of counsel of
the Company, dated the effective date of the registration statement, in form and
substance  reasonably  satisfactory  to the holder and its counsel and covering,
without  limitation,  such matters as the due  authorization and issuance of the
securities being  registered and certain matters  pertaining to disclosure under
and  compliance  with  securities  laws by the  Company in  connection  with the
registration  thereof and/or (B) a "comfort"  letter or letters of the Company's
independent  public  accountants  provided at the Company's  expense in form and
substance reasonably satisfactory to the holder and its counsel;

     (vii) Use its best efforts to list the  Registrable  Securities  covered by
such registration  statement with any national market or securities  exchange on
which such securities are then listed;

     (viii)  Make   available  for  inspection  by  the  holder  of  Registrable
Securities,  upon request, all SEC Documents (as defined below) filed subsequent
to the Closing and require the  Company's  officers,  directors and employees to
supply  all  information  reasonably  requested  by any  holder  of  Registrable
Securities in connection with such registration statement: and

     (ix) Furnish to each holder of Registrable  Securities prompt notice of the
commencement of any stop-order  proceedings  under the Act, together with copies
of all  documents in  connection  therewith,  and use its best efforts to obtain
withdrawal of any such stop order as soon as possible.

     (e) Upon request of the Company, each holder of Registrable Securities will
furnish to the Company in connection  with any  registration  under this Section
such  information  regarding  itself,  the  Registrable   Securities  and  other
securities of the Company held by it, and the intended  method of disposition of
such  securities as shall be reasonably  required to effect the  registration of
the Registrable  Securities held by such holder of Registrable  Securities.  The
intended method of disposition  (Plan of  Distribution) of such securities as so
provided by Purchaser shall be included  without  alteration in the Registration
Statement  covering the Registrable  Securities and shall not be changed without
the prior written consent of the Purchaser.

     (f) (i) The Company shall  indemnify,  defend and hold harmless each holder
of  Registrable  Securities  which  are  included  in a  registration  statement
pursuant  to the  provisions  of  Subsections  (b) or (c) hereof and each of its
officers, directors,  employees, agents, partners or controlling persons (within
the meaning of the Act) (each,  an  "indemnified  party") from and against,  and
shall  reimburse  such  indemnified  party with  respect to, any and all claims,
suits,  demands,  causes  of  action,  losses,  damages,  liabilities,  costs or
expenses  ("Liabilities")  to which such  indemnified  party may become  subject
under the Act or otherwise, arising from or relating to (A) any untrue statement
or alleged untrue statement of any material fact contained in such  registration
statement,  any  prospectus  contained  therein or any  amendment or  supplement
thereto,  or (B) the  omission or alleged  omission to state  therein a material
fact required to be stated therein or necessary to make the statements  therein,
in light of the circumstances in which they were made, not misleading; provided,
however,  that the  Company  shall not be liable in any such case to the  extent
that any such  Liability  arises out of or is based upon an untrue  statement or
omission  so  made in  strict  conformity  with  information  furnished  by such
indemnified party in writing specifically for use in a registration statement.

     (ii)  In the  event  of  any  registration  under  the  Act of  Registrable
Securities  pursuant to Subsections (b) or (c), each holder of such  Registrable
Securities  hereby severally  agrees to indemnity,  defend and hold harmless the
Company,  and  its  officers,   directors,   employees,   agents,  partners,  or
controlling  persons  (within  the meaning of the Act)  (each,  an  "indemnified
party")  from and  against,  and shall  reimburse  such  indemnified  party with
respect to, any and all Liabilities to which such  indemnified  party may become
subject under the Act or  otherwise,  arising from or relating to (A) any untrue
statement or alleged  untrue  statement of any material  fact  contained in such
registration  statement,  any prospectus  contained  therein or any amendment or
supplement  thereto,  or (B) the omission or alleged omission to state therein a
material fact required to be stated  therein or necessary to make the statements
therein,  in light of the circumstances in which they were made, not misleading;
provided,  that such  holders  will be liable in any such case to the extent and
only to the extent,  that any such  Liability  arises out of or is based upon an
untrue  statement or alleged  untrue  statement or omission or alleged  omission
made in such  registration  statement,  prospectus  or amendment  or  supplement
thereto in reliance upon and in conformity with written information furnished by
such holder specifically for use in the preparation thereof.

     (iii)  Promptly  after  receipt by any  indemnified  party of notice of the
commencement of any action,  such indemnified party shall, if a claim in respect
thereof  is  to  be  made  against  another  party  (the  "indemnifying  party")
hereunder,  notify such party in writing thereof,  but the omission so to notify
such party shall not relieve such party from any Liability  which it may have to
the  indemnified  party other than under this  Section and shall only relieve it
from any Liability which it may have to the indemnified party under this section
if and to the extent an  indemnifying  party is  materially  prejudiced  by such
omission. In case any such action shall be brought against any indemnified party
and  such  indemnified   party  shall  notify  an  indemnifying   party  of  the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and  undertake  the defense  thereof
with counsel  reasonably  satisfactory  to such  indemnified  party,  and, after
notice from the indemnifying  party to the indemnified  party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to the  indemnified  party  under  this  section  for any legal  expenses
subsequently  incurred by the  indemnified  party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected; provided however, that if the defendants in any such action include
both parties and the  indemnified  party shall have  reasonably  concluded  that
there may be reasonable  defenses  available to them which are different from or
additional to those available to the  indemnifying  party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying  party, the indemnified  party shall have the right to select a
separate  counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of one such
separate counsel and other reasonable  expenses related to such participation to
be reimbursed by the indemnifying party as incurred.

     (g) (i) With  respect  to the  inclusion  of  Registrable  Securities  in a
registration  statement  pursuant to Subsections (b) or (c), all fees, costs and
expenses of and incidental to such  registration,  inclusion and public offering
shall be borne  by the  Company,  provided,  however,  that any  securityholders
participating  in such  registration  shall  bear  their  pro-rata  share of the
underwriting  discounts and commissions,  if any, incurred by them in connection
with such registration.

     (ii) The  fees,  costs  and  expenses  of  registration  to be borne by the
Company as provided in this Subsection shall include,  without  limitation,  all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and  accountants for the Company,  and all legal fees and  disbursements
and other  expenses of complying  with state  securities or Blue Sky laws of any
jurisdiction  or  jurisdictions  in which  securities  to be  offered  are to be
registered   and   qualified.   Subject   to   appropriate   agreements   as  to
confidentiality,  the Company shall make available to the holders of Registrable
Securities  and their  counsel its  documents  and  personnel  for due diligence
purposes. Except as otherwise provided herein, fees and disbursements of counsel
and  accountants  for  the  selling  security  holders  shall  be  borne  by the
respective selling security holders.

     (h) The  rights to cause the  Company  to  register  all or any  portion of
Registrable Securities pursuant to this Section 1.4 may be assigned by Purchaser
to a transferee or assignee.  Within a reasonable time after such transfer,  the
Purchaser shall notify the Company of the name and address of such transferee or
assignee,  and the securities with respect to which such registration rights are
being  assigned.  Such  assignment  shall  be  effective  only  if,  immediately
following  such  transfer,  the further  disposition  of such  securities by the
transferee or assignee is  restricted  under the Act. Any  transferee  asserting
registration  rights  hereunder  shall be bound by the applicable  provisions of
this Agreement.

     (i) The Company  shall not agree to allow the holders of any  securities of
the Company to include any of their  securities  in any  registration  statement
filed by the Company  pursuant to Subsection  (b) unless such inclusion will not
reduce the amount of the Registrable Securities included therein.

     Section  1.5  Company  Standoff,  Except  in  a  corporate  reorganization,
business combination,  stock or asset purchase,  merger or consolidation,  under
existing  employee  stock  incentive  or  purchase  plans  or  pursuant  to this
Agreement,  the Company shall not for its own account  effect any public sale or
distribution  of any  securities  similar to the  Registrable  Securities or any
securities  exercisable  for or convertible or changeable  into the  Registrable
Securities  during the thirty (30) days prior to, and during the sixty (60) days
immediately following, the effective date of any registration statement filed or
amended  pursuant to Section  1.4(b);  provided,  however,  that the Company may
effect such public sale or distribution  during the sixty (60) days  immediately
following  the  effective  date of such  registration  statement if such sale or
distribution  of  securities  is at a price equal to or greater than 125% of the
last trade price of the Company's Common Stock on the day of Closing.

     Section 2.1 Representations and Warranties of the Purchaser.  The Purchaser
makes the following representations and warranties to the Company.

     (a) Accredited Investor. The Purchaser is an "accredited investor", as such
term is defined in Rule 50 1 (a) of Regulation D, promulgated under the Act.

     (b)  Speculative  Investment.  The Purchaser is aware that an investment in
the Shares is highly speculative and subject to substantial risks. The Purchaser
is capable of bearing the high  degree of  economic  risk and the burden of this
venture,  including, but not limited to, the possibility of complete loss of the
Purchaser's  investment  in the Shares and  underlying  Common  Stock which make
liquidation of this investment impossible for the indefinite future.

     (c) Disposition.  The Purchaser understands that (i) except as provided for
in Section  1.4,  the Shares and  underlying  Common  Stock of the Company  (the
"Securities"),  have not been and are not being  registered under the Securities
Act or any applicable state  securities laws, and may not be transferred  unless
(A)  subsequently  registered  thereunder,  or (B) the Securities may be sold or
transferred  pursuant to an exemption  from  securities  registration  under the
Securities Act and any applicable  state securities laws or (C) sold pursuant to
Rule 144,  promulgated under the Securities Act (or any successor Rule), or (ii)
any sale of such  Securities  made in  reliance  on Rule 144 may be made only in
accordance  with  the  terms  of such  Rule  and  further,  if such  Rule is not
applicable,  any  resale of such  Securities  under  circumstances  in which the
seller  (or the  person  through  whom the sale is made)  may be deemed to be an
underwriter  (as  that  term is  defined  in the  Securities  Act)  may  require
compliance  with another  exemption under the Securities Act or the rules of the
SEC thereunder.  Notwithstanding any provision to the contrary contained herein,
a holder may pledge such  Securities as collateral  for a revolving  credit note
pursuant to a loan and security agreement with a lending institution.

     (d)  Privately  Offered.  The offer to  acquire  the  Shares  was  directly
communicated  to the Purchaser in such manner that the Purchaser was able to ask
questions of and receive  answers  concerning  the terms and  conditions of this
transaction.  At no time was the  Purchaser  presented  with or  solicited by or
through any leaflet, public promotional meeting,  television  advertisement,  or
any other form of general advertising.

     (e) Purchase for  Investment,  The Securities are being acquired solely for
the  Purchaser's own account,  for investment,  and are not being purchased with
view to the  resale,  distribution,  subdivision  or  fractionalization  thereof
without proper registration with applicable securities administrators.

     Section 2.2  Representations  and  Warranties  of the Company.  The Company
hereby makes the following representations and warranties to the Purchaser:

     (a)  Organizations  and  Qualifications.  The Company is a corporation duly
incorporated and existing in good standing under the laws of the Commonwealth of
Massachusetts and has the requisite corporate power to own its properties and to
carry on its  business as now being  conducted.  The  Company  does not have any
subsidiaries  except as listed in Exhibit B,  attached  hereto and  incorporated
herein by  reference.  The  Company  and each such  subsidiary,  if any, is duly
qualified as a foreign  corporation  to do business  and is in good  standing in
every  jurisdiction  in which the nature of the  business  conducted or property
owned by it makes  such  qualification  necessary  other than those in which the
failure  so to  qualify  would not have a  Material  Adverse  Effect.  "Material
Adverse Effect", for purposes of this Agreement, means any adverse effect on the
business operations, properties, prospects, or financial condition of the entity
with respect to which such term is used and which is material to such entity and
other entities controlled by such entity taken as a whole.

     (b) Authorizations Enforcement. (i) The Company has the requisite corporate
power and  authority to enter into and perform this  Agreement  and to issue the
Shares and Registrable  Securities in accordance with the terms hereof, (ii) the
execution and delivery of this Agreement by the Company and the  consummation by
it of the  transactions  contemplated  hereby have been duly  authorized  by all
necessary  corporate  action,  and no further  consent or  authorization  of the
Company  or its Board of  Directors  or  stockholders  is  required,  (iii) this
Agreement  has been  duly  executed  and  delivered  by the  Company,  (iv) this
Agreement  constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms (except as such  enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting  generally the enforcement
of,  creditor'  rights and remedies or by other equitable  principles of general
application)  and (v) prior to the Closing Date,  any necessary  Certificate  of
Amendment  to the  Company's  Charter  authorizing  Company  to issue all of the
Shares and  Registerable  Securities,  in accordance  with Schedule 1, will have
been filed with the  Massachusetts  Secretary of State and will be in full force
and effect enforceable  against the Company in accordance with the terms of such
amended Charter.

     (c)  Authorized  Capital  Rights or  Commitments  to Stock.  The authorized
capital stock of the Company  consists of 22,200,000  shares of Common Stock and
1,000,000  shares of Series B Preferred  Stock;  there are  4,704,956  shares of
Common  Stock  issued and 730,292  shares of Class B Common  Stock  outstanding;
there are no shares of such Preferred  Stock issued and  outstanding;  and, upon
issuance  of the  Shares in  accordance  with the terms  hereof,  there  will be
4,704,956  shares of Class B Common Stock and 950 shares of such Preferred Stock
issued and outstanding.

      All of the  outstanding  shares of the Company's  Common Stock have been
validly  issued and are fully paid and  nonassessable.  Except as set forth in
Exhibit B hereto or as  described  in the SEC  Documents,  no shares of Common
Stock are entitled to preemptive  rights or registration  rights and there are
no  outstanding  options,  warrants,  scrip,  rights to subscribe to, calls or
commitments of any character  whatsoever  relating to, or securities or rights
convertible  into,  any shares of capital stock of the Company,  or contracts,
commitments,  understandings,  or  arrangements by which the Company is or may
become  bound to issue  additional  shares of capital  stock of the Company or
options,  warrants,  scrip, rights to subscribe to, or commitments to purchase
or acquire,  any shares.  or securities or rights  convertible into shares, of
capital stock of the Company.  The Company has furnished or made  available to
the  Purchaser  true  and  correct   copies  of  the  Company's   Articles  of
Organization  as in  effect  on the  date  hereof  (the  "Charter"),  and  the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").

     (d) Issuance of Shares. The issuance of the Shares has been duly authorized
and, when paid for and issued in accordance with the terms hereof,  the shall be
validly  issued,  fully paid and  non-assessable  and entitled to the rights and
preferences  set forth in  Schedule I hereto.  The Common  Stock  issuable  upon
conversion of the Shares will be duly  authorized and reserved for issuance and,
upon conversion,  will be validly issued,  fully paid and non-assessable and the
holders shall be entitled to all rights and preferences  accorded to a holder of
Common Stock.

     (e) No Conflicts. The execution, delivery and performance of this Agreement
by the  Company  and  the  consummation  by  the  Company  of  the  transactions
contemplated  hereby  do not and  will  not (i)  result  in a  violation  of the
Company's  Charter or By-Laws or (ii) conflict with, or constitute a default (or
an event  which  with  notice or lapse of time or both  would  become a default)
under, or give to others any rights of termination,  amendment,  acceleration or
cancellation of, any agreement,  indenture or instrument to which the Company or
any of its  subsidiaries  is a party,  or result in a violation  of any federal,
state,  local or  foreign  law,  rule,  regulation,  order,  judgment  or decree
(including Federal and state securities laws and regulations)  applicable to the
Company or any of its  subsidiaries  or by which any  property  or assets of the
Company  or any of its  subsidiaries  is  bound  or  affected  (except  for such
conflicts, defaults, terminations, amendments, accelerations,  cancellations and
violations  as would  not,  individually  or in the  aggregate,  have a Material
Adverse  Effect);  provided  that,  for  purposes of such  representation  as to
Federal,  state, local or foreign law, rule or regulation,  no representation is
made herein with respect to any of the same  applicable  solely to the Purchaser
and not to the Company.  The  business of the Company is not being  conducted in
violation  of any law,  ordinance or  regulations  of any  governmental  entity,
except for  violations  which either  singly or in the aggregate do not and will
not have a Material  Adverse Effect.  The Company is not required under Federal,
state or local  law,  rule or  regulation  in the  United  States to obtain  any
consent, authorization or order of, or make any filing (other than any filing of
a vote establishing a class or series of stock with the Massachusetts  Secretary
of State) or registration with, any court or governmental agency in order for it
to execute,  deliver or perform any of its  obligations  under this Agreement or
issue and sell the Shares in  accordance  with the terms hereof  (other than any
SEC,  NASD or state  securities  filings which may be required to be made by the
Company subsequent to the Closing,  and any registration  statement which may be
filed pursuant hereto);  provided that, for purposes of the representation  made
in this  sentence,  the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchaser herein.

     (f) SEC Documents, Financial Statements. The Common Stock of the Company is
registered  pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange  Act") and, except as set forth in Exhibit B, the Company
has filed on a timely basis all reports,  schedules, forms, statements and other
documents  required  to be filed by it with the SEC  pursuant  to the  reporting
requirements of the Exchange Act,  including  material filed pursuant to Section
13(a)  or  15(d),  in  addition  to  one or  more  registration  statements  and
amendments  thereto  heretofore  filed by the Company with the SEC under the Act
(all of the foregoing including filings  incorporated by reference therein being
referred to herein as the "SEC Documents").  The Company directly or through its
agent  has  delivered  to the  Purchaser  true and  complete  copies  of the SEC
Documents  except for the exhibits and incorporated  documents.  The Company has
not provided to the Purchaser  any  information  which,  according to applicable
law, rule or regulation,  should have been disclosed publicly by the Company but
which has not been so  disclosed,  other than with  respect to the  transactions
contemplated by this Agreement.

     Except  as set forth in  Exhibit  B, as of their  respective  dates the SEC
Documents  complied in all material respects with the requirements of the Act or
the  Exchange  Act as the case may be and the rules and  regulations  of the SEC
promulgated  thereunder  and other  federal,  state and  local  laws,  rules and
regulations  applicable  to such SEC  Documents,  and none of the SEC  Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated  therein or necessary in order to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.  Except as set forth in Exhibit B, the  financial  statements of the
Company included in the SEC Documents comply as to form in all material respects
with applicable accounting  requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto.  Such
financial  statements have been prepared in accordance  with generally  accepted
accounting  principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise  indicated in such  financial  statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include  footnotes or may be condensed or summary  statements)  and
fairly present in all material respects the financial position of the Company as
of the dates  thereof  and the  results  of  operations  and cash  flows for the
periods  then ended  (subject,  in the case of unaudited  statements,  to normal
year-end audit adjustments).

     (g) No  Material  Adverse  Change.  Since the date  through  which the most
recent  quarterly report of the Company on Form 10-Q has been prepared and filed
with the SEC, a copy of which is  included  in the SEC  Documents,  no  Material
Adverse  Effect has occurred or exists with respect to the Company or any of its
subsidiaries.

     (h) No Undisclosed  Liabilities.  The Company and its subsidiaries  have no
material  liabilities or obligations  not disclosed in the SEC Documents,  other
than  those  incurred  in the  ordinary  course of the  Company's  or any of its
subsidiaries'  respective  businesses  since the date of the most recently filed
SEC Documents which,  individually or in the aggregate, do not or would not have
a Material Adverse Effect on the Company or any of its subsidiaries.

     (i) No Undisclosed  Events or  Circumstances.  No event or circumstance has
occurred or exists with  respect to the  Company or any of its  subsidiaries  or
their  respective  businesses,  properties,  prospects,  operations or financial
condition  which,  under  applicable  law, rule or regulation,  requires  public
disclosure  or  announcement  by the  Company but which has not been so publicly
announced or disclosed.

     (j)  No  General  Solicitation.   Neither  the  Company,  nor  any  of  its
affiliates,  or, to the best of its knowledge, any person acting on its or their
behalf, has engaged in any form of general  solicitation or general  advertising
(within the meaning of Regulation D under the Act) in connection  with the offer
or sale of the Shares.

     (k) No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has,  directly or indirectly,  made
any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Shares under the Act.

     Section 3.1  Securities  Compliance.  The Company  shall notify the SEC and
NASD, in accordance with their requirements, of the transactions contemplated by
this Agreement, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation,  for the legal
and valid issuance of the Shares,  and the Common Stock issuable upon conversion
thereof, to the Purchaser.

     Section 3.2 Registration  and Listing.  Until. at least two (2) years after
all Shares have been converted  into  Registrable  Securities,  the Company will
cause its Common  Stock to continue to be  registered  under  Sections  12(b) or
12(g) of the Exchange  Act,  will comply in all respects  with its reporting and
filing  obligations  under such Exchange Act, will comply with all  requirements
related to any registration  statement filed pursuant to this Agreement and will
not take any action or file any document (whether or not permitted by the Act or
the  Exchange  Act or  the  rules  thereunder)  to  terminate  or  suspend  such
registration  or to terminate or suspend its  reporting  and filing  obligations
under said Acts, except as permitted herein.  Until at least two (2) years after
all Shares  have been  converted  into Common  Stock the  Company  will take all
action  within its power to continue  the listing or trading of its Common Stock
on the  NASDAQ  Small  Cap  Market  and will  comply  in all  respects  with the
Company's  reporting,  filing and other obligations under the bylaws or rules of
the NASD and NASDAQ.  The  covenants  set forth in this Section 3.2 shall not be
deemed  to   prohibit  a  merger,   sale  of  all  assets  or  other   corporate
reorganization  if the entity surviving or succeeding to the Company is bound by
this  Agreement  with  respect to its  securities  issued in exchange  for or in
replacement of the Shares or Common Stock or the  consideration  received for or
in replacement of the Shares or Common Stock is cash.

     Section 3.3 Right of First Refusal and  Most-Favored-Nation  Clause.  If at
any time  during the period  beginning  on the fifth (5th) day prior to (but not
including) the Closing Date and ending sixty (60) days immediately following the
effective date of the Initial Registration, the Company proposes to issue Common
Stock or securities  convertible  into or exercisable  for Common Stock or other
convertible  securities,  pursuant to an offering exempt from registration under
the Act, the Company shall provide to Purchaser reasonable advance notice of all
the terms of such  proposed  issuance.  The  Purchaser  shall  have the right to
purchase or refuse to purchase all or any part of such securities proposed to be
issued in such  offering,  and shall have at least  seventy two (72) hours after
receipt of such notice to review the terms of the proposed issuance.

     If the  Company  issues  Common  Stock or  securities  convertible  into or
exercisable for Common Stock or other convertible securities, at a time when any
of the Shares  remain  outstanding,  at an  effective  price per share of Common
Stock which is lower than the conversion  price of the Shares at that time, then
the Company shall,  within five (5) business  days,  deliver to each holder upon
conversion  an additional  number of shares of Common Stock  necessary to reduce
the effective conversion price to such lower issue price. This Section shall not
be  applicable  to  issuances  of  Common  Stock  pursuant  to (a) any  business
combination,  acquisition transaction, stock or asset purchase undertaken by the
Company or (b) any  shareholder-approved  option plan covering not more than 10%
of the Company's outstanding stock.

     Section 4.1  Conditions  Precedent to the Obligation of the Company to Sell
the Shares.  The  obligation  hereunder  of the Company to issue and/or sell the
Shares to the  Purchaser  is  subject  to the  satisfaction,  at or  before  the
Closing,  of each of the  conditions  set forth below.  These  conditions may be
waived by the Company at any time in its sole discretion.

     (a)  Accuracy  of  the  Purchaser's  Representations  and  Warranting.  The
representations and warranties of the Purchaser shall be true and correct in all
material  respects as of the date when made and as of the Closing Date as though
made at that time (except for  representations and warranties that speak as of a
particular date).

     (b)  Performance by the Purchaser.  The Purchaser  shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Purchaser at or prior to the Closing.

     (c) No Injunction.  No statute, rule, regulation.  executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

     (d) Legal action.  No legal action,  suit or proceeding shall be pending or
threatened which seeks to restrain or prohibit the transactions  contemplated by
this Agreement.

     (e)  Execution.  The  Purchaser  shall have executed  this  Agreement,  and
delivered such Agreement to the Company.

     (f) Purchase  Price.  The Purchaser shall have delivered the Purchase Price
in accordance with Section 1.3(b) above.

     Section 4.2  Conditions  Precedent to the  Obligation  of the  Purchaser to
Purchase the Shares.  The  obligation  hereunder of the Purchaser to acquire and
pay for the Shares is subject to the satisfaction,  at or before the Closing, of
each of the  conditions set forth below.  These  conditions may be waived by the
Purchaser at any time in its sole discretion.

     (a)  Accuracy  of  the  Company's   Representations  and  Warranties.   The
representations  and  warranties of the Company shall be true and correct in all
material  respects as of the date when made and as of the Closing Date as though
made at that time (except for  representations and warranties that speak as of a
particular date).

     (b)  Performance  by the  Company.  The Company  shall have  performed  all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.

     (c)  NASDAO.  From the date  hereof to the  Closing  Date,  trading  in the
Company's  Common  Stock shall not have been  suspended by the SEC or the NASDAQ
Small Cap Market  (except  for any  suspension  of  trading of limited  duration
agreed to between the Company and the NASDAQ  Small Cap Market  solely to permit
dissemination  of material  information  regarding the Company),  and trading in
securities  generally  as reported by NASDAQ  shall not have been  suspended  or
limited or minimum prices shall not have been established on
securities whose trades are reported by NASDAQ.

     (d) No Injunction.  No statute, rule, regulation,  executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

     (e) Opinion of Counsel Etc. The Purchaser  shall have received before or at
the Closing an opinion of counsel to the Company (covering,  without limitation,
such of the matters set forth in Section 2.2(a) through (e)), as are in form and
substance  reasonably  satisfactory  to the Purchaser and its counsel,  and such
other  certificates  and  documents  as  the  Purchaser  or  its  counsel  shall
reasonably require incident to the Closing.

     (f)  Execution.  The  Company  shall  have  executed  this  Agreement,  and
delivered such Agreement to the Purchaser.

     Section 5.1 Legend on Stock. Each certificate  representing the Shares and,
if necessary,  Common Stock issued upon conversion thereof,  shall be stamped or
otherwise imprinted with a legend substantially in the following form:

THESE  SECURITIES  [AND THE SHARES OF COMMON STOCK  ISSUABLE UPON THE CONVERSION
HEREOF] HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE  SECURITIES  LAWS.  THEY MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS
THERE IS AN EFFECTIVE  REGISTRATION  STATEMENT UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR, IN THE OPINION OF COUNSEL,  REGISTRATION UNDER SUCH ACT
OR APPLICABLE  STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH SUCH SALE
OR OFFER, AND SUCH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY.

     The Company agrees to reissue  certificates  representing the Shares or, if
applicable,  the Common Stock issued upon conversion thereof, without the legend
set forth above at such time as (a) the holder  thereof is  permitted to dispose
of such Shares (or securities  issued upon conversion  thereof) pursuant to Rule
144(k) under the Act, (b) the  securities  are sold to a purchaser or purchasers
who (in the opinion of counsel to such holders, in form and substance reasonably
satisfactory  to the  Company  and its  counsel)  are  able to  dispose  of such
securities publicly without registration under the Act, or (iii) such securities
are registered under the Act

     Section 6.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the mutual  written  consent of the Company,
and the Purchaser.

     Section 6.2 Other  Termination.  This Agreement may be terminated by action
of the  Board of  Directors  or other  governing  body of the  Purchaser  or the
Company at any time if the Closing shall not have been  consummated by the fifth
(5th) business day following the date of this Agreement, provided that the party
seeking to terminate the Agreement is not in breach of the Agreement.

     Section 6.3  Automatic  Termination.  This  Agreement  shall  automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the seventh  (7th)  business day following the date of this
Agreement,  provided, however, that any such termination shall not terminate the
liability of any party which is then in breach of the Agreement.

     Section 7.1 Fees and Expenses. Except as otherwise set forth in Section 1.4
hereof with respect to the registration of Registrable  Securities,  the Company
shall pay the fees, commissions and expenses of its advisers,  brokers, finders,
counsel,  accountants  and  other  experts,  if  any,  and  all  other  expenses
associated therewith, and shall on the Closing Date reimburse ProFutures Special
Equities  Fund,  L.P.  up to $5,000  for fees and  expenses  of its  counsel  in
connection with the preparation, negotiation and coordination of this Agreement.
The Company  shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares and Common Stock pursuant hereto.

     Section 7.2 Specific Enforcement, Consent to Jurisdiction.

     (a) The Company and the Purchaser  acknowledge  and agree that  irreparable
damage  would occur in the event that any of the  provisions  of this  Agreement
were not performed in accordance  with their  specific  terms or were  otherwise
breached.  It is  accordingly  agreed that the  parties  shall be entitled to an
injunction or  injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce  specifically  the terms and  provisions  hereof,  this
being in addition to any other remedy to which either of them may be entitled by
law or equity.

     (b) The Company and the Purchaser  each (i) hereby  irrevocably  submits to
the  jurisdiction  of the United States  District  Court and other courts of the
United States sitting in the State of Texas for the purposes of any suit, action
or  proceeding  arising  out of or relating  to this  Agreement  and (ii) hereby
waives,  and agrees not to assert in any such suit,  action or  proceeding,  any
claim that it is not personally  subject to the jurisdiction of such court, that
the suit,  action or proceeding is brought in an inconvenient  forum or that the
venue of the  suit,  action or  proceeding  is  improper.  The  Company  and the
Purchaser  each  consents to process  being  served in any such suit,  action or
proceeding  by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and  sufficient  service of process  and  notice  thereof.  Nothing in this
paragraph  shall affect or limit any right to serve  process in any other manner
permitted by law.

     Section 7.3 Entire Agreement: Amendment. This Agreement contains the entire
understanding  of the parties  with respect to the matters  covered  hereby and,
except as specifically  set forth herein,  neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by a
written  instrument  signed by the party  against whom  enforcement  of any such
amendment or waiver is sought.

     Section  7.4  Notices.  Any  notice  or  other  communication  required  or
permitted to be given  hereunder  shall be in writing and shall be effective (a)
upon hand  delivery or delivery by telex (with  correct  answer back  received),
telecopy or facsimile at the address or number designated below (if delivered on
a  business  day  during  normal  business  hours  where  such  notice  is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal  business  hours where such notice is to be
received) or (b) on the second (2nd)  business day following the date of mailing
by express courier service,  fully prepaid,  addressed to such address,  or upon
actual receipt of such mailing, whichever shall first occur.

     The addresses for such communications shall be:

to the Company:   Bruce A. Shear, President and Chief Executive Officer
                  PHC, Inc.
                  200 Lake Street -- Suite 102
                  Peabody, Massachusetts 01960

to the Purchaser: At the address set forth at the foot of this Agreement or
                  as specified in writing by Purchaser.

Any party  hereto may from time to time change its address for notices by giving
at least ten (10)  days'  written  notice of such  changed  address to the other
party hereto.

     Section 7.5 Waivers.  No waiver by either party of any default with respect
to any provision,  condition or requirement of this Agreement shall be deemed to
be a  continuing  waiver  in the  future  or a waiver  of any  other  provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right  hereunder  in any manner  impair the exercise of any such
right accruing to it thereafter.

     Section 7.6 Headings.  The headings herein are for convenience only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof.

     Section  7.7  Governing  Law.  This  Agreement  shall  be  governed  by and
construed and enforced in accordance with the internal laws of the present state
of  incorporation  of the Company  without regard to such state's  principles of
conflict of laws.

     Section 7.8 Survival. The representations and warranties of the Company and
the Purchaser  contained in herein and the agreements and covenants set forth in
Sections 1.1 through 1.5, 3.1 through 3.3 and 7.1 through 7.16 shall survive the
Closing for a period of two (2) years.

     Section 7.9 Publicity.  The Company  agrees that it will not disclose,  and
will not include in any public  announcement,  the name of the Purchaser without
its consent,  unless and until such  disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.

     Section 7.10 NASDAO.  The term "NASDAQ" or "NASDAQ Small Cap Market" herein
refers to the  principal  market on which the  Common  Stock of the  Company  is
traded.  If the Common Stock is listed on a securities  exchange.  or if another
market  becomes  the  principal  market on which the  Common  Stock is traded or
through  which price  quotations  for the Common  Stock are  reported,  the term
"NASDAQ" or "NASDAQ  Small Cap Market" shall be deemed to refer to such exchange
or other principal market.

     Section 7.11  Acceptance.  Execution and delivery of this  Agreement  shall
constitute  an offer to purchase  the Shares,  which  offer,  unless  previously
revoked by the  Purchaser,  may be accepted or rejected by the  Company,  in its
sole  discretion  for any cause or for no cause  and  without  liability  to the
Purchaser. The Company shall indicate acceptance of this Agreement by signing as
indicated on the signature page hereof.

     Section 7.12 Binding  Agreement.  Upon  acceptance of this Agreement by the
Company,  the Purchaser  agrees that he may not cancel,  terminate or revoke any
agreement of the Purchaser made hereunder, and that this Agreement shall survive
the death or  disability  of the  Purchaser  and shall be  binding  upon  heirs,
successors,  assigns,  executors,  administrators,  guardians,  conservators  or
personal representatives of the Purchaser.

     Section 7.13  Incorporation by Reference.  All information set forth on the
signature page is incorporated as integral terms of this Agreement.

     Section  7.14  Counterparts.  This  Agreement  may be  signed  in  multiple
counterparts,  which  counterparts  shall  constitute  one and the same original
instrument.

     Section 7.15  Severability.  If any portion of this Agreement shall be held
illegal,  unenforceable,  void or  voidable  by any court each of the  remaining
terms  hereof shall  nevertheless  remain in full force and effect as a separate
contract.

     Section 7.16  Successors and Assigns.  This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their  respective  successors
and permitted assigns.




   [This space has been left blank intentionally. The signature page follows.]

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $500,000 (500 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         26,315 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      ProFutures Special Equities Fund, L.P.

Address of Purchaser:   % ProFutures Fund Management, Inc.
                        1030 Highway 620 South - Suite 200
                        Austin, TX  78734

Social Security or IRS Employer Identification Number(s):

      74-2786952

Signature of Purchaser:                              Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

______________________________________________
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  ProFutures Special Equities Fund, L.P.
                 By ProFutures Fund Management, Inc., a General Partner


By:  ______________________________________
          (Signature)

Name:      /s/ Gary D. Halbert
Title:         President

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $150,000 (150 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         7,890 shares

The exact name(s)(Including  correct,legible spelling) and the information under
which title to the Shares will be taken is as follows (Please print or type):

      Gary D. Halbert

Address of Purchaser:   1030 Highway 620 South - Suite 200
                        Austin, TX  78734

Social Security or IRS Employer Identification Number(s):

      ###-##-####

Signature of Purchaser:                                 Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

/s/ Gary D. Halbert
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  _______________________________________

By:  ______________________________________
          (Signature)

Name:     ____________________________________________
Title:    ____________________________________________

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $100,000 (100 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         5,260 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      John F. Mauldin

Address of Purchaser:   1000 Ballpark in Arlington - Suite 216
                        Arlington, TX  76011

Social Security or IRS Employer Identification Number(s):

      ###-##-####

Signature of Purchaser:                                 Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

/s/ John F. Mauldin
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  ________________________________


By:  ______________________________________
          (Signature)

Name:     _________________________________
Title:    _________________________________

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $200,000 (200 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         10,525 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      Augustine Fund, L.P.

Address of Purchaser:   141 West Jackson Boulevard - Suite 2182
                        Chicago, IL  60604

Social Security or IRS Employer Identification Number(s):

      36-418-6782

Signature of Purchaser:                                  Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

______________________________________________
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  Augustine Fund, L.P.
            By Augustine Capital Management, Inc., the General Partner

By:  ______________________________________
          (Signature)

Name:      /s/ Thomas Duszynski
Title:         Chief Operating Officer

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name: /s/ Bruce A. Shear
Title:    President

<PAGE>
                                   SCHEDULE I

                                    PHC, INC.

                 RESOLUTIONS ESTABLISHING RIGHTS AND PREFERENCES
                    FOR SERIES B CONVERTIBLE PREFERRED STOCK

     RESOLVED,  that  there  shall  be a series  of  shares  of the  Corporation
designated "Series B Convertible  Preferred Stock"; that the number of shares of
such series shall be 1,000, that the Corporation issue such shares, and that the
rights and  preferences of such series (the "6%  Preferred") and the limitations
or restrictions thereon, shall be as set forth herein.

     The following  terms and conditions  shall be adopted and  incorporated  by
reference into the foregoing resolutions as if fully set forth therein:

     1. Dividends.

     (a) The holders of the 6% Preferred shall be entitled to receive out of any
assets legally available  therefor  cumulative  dividends at the rate of $60 per
share per annum,  accrued  daily and payable  quarterly  in arrears on March 31,
June 30,  September 30 and December 31 of each year, in preference  and priority
to any payment of any  dividend on the Common Stock or any other class or series
of stock of the Corporation. Such dividends shall accrue on any given share from
the day of  original  issuance  of such share and shall  accrue  from day to day
whether or not earned or declared.  If at any time dividends on the  outstanding
6%  Preferred  at the rate set forth  above shall not have been paid or declared
and set apart for payment with respect to all preceding  periods,  the amount of
the  deficiency  shall be fully paid or declared and set apart for payment,  but
without  interest,  before  any  distribution,  whether  by way of  dividend  or
otherwise,  shall be  declared  or paid upon or set apart for the  shares of any
other class or series of stock of the Corporation.

     (b) Any dividend  payable on a dividend  payment  date may be paid,  at the
option of the Corporation,  either (i) in cash or (ii) in shares of 6% Preferred
valued at $1,000 per share, if the Common Stock issuable upon conversion of such
shares has been  registered  for resale  under the  Securities  Act of 1933,  as
amended  (the  "Act"),  and  the  registration  statement  including  a  current
prospectus  with  respect  thereto  remains in effect at the date of delivery of
such  shares,  and if the  Corporation  shall have given  written  notice of its
intention  to pay such  dividend in stock to all holders of the 6%  Preferred at
least ten (10) days before the record date for such dividend.

     2. Liquidation Preference, Redemption.

     (a) In the  event of any  liquidation,  dissolution  or  winding  up of the
Corporation,  either  voluntary or involuntary,  the holders of the 6% Preferred
shall be entitled to receive, prior and in preference to any distribution of any
assets of the Corporation to the holders of any other class or series of shares,
the amount of $1,000  per share  plus any  accrued  but  unpaid  dividends  (the
"Liquidation Preference").

     (b) A  consolidation  or merger of the  Corporation  with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation  (other than a sale or transfer to a wholly-owned  subsidiary
of the Corporation), shall, at the option of the holders of the 6% Preferred, be
deemed a  liquidation,  dissolution  or winding  up within  the  meaning of this
Section 2 if the  shares  of stock of the  Corporation  outstanding  immediately
prior to such transaction represent immediately after such transaction less than
a majority of the voting power of the surviving  corporation (or of the acquirer
of the Corporation's assets in the case of a sale of assets). Such option may be
exercised  by the vote or written  consent  of  holders of a majority  of the 6%
Preferred at any time within thirty (30) days after written  notice (which shall
be given  promptly) of the essential terms of such  transaction  shall have been
given to the holders of the 6% Preferred  in the manner  provided by law for the
giving of notice of meetings of shareholders.




                                      - 1 -
<PAGE>

     (c) The Corporation may, at its option, cause all outstanding shares of the
6% Preferred  to be redeemed  after the date on which a  registration  statement
under  the Act  ("Registration  Statement")  has been  declared  effective  (the
"effective date"); provided the Corporation has given notice of its intention to
redeem to the  holders of the 6%  Preferred  at least five (5) days prior to the
redemption date. In addition, if any conversion of 6% Preferred, when aggregated
with all prior  conversions,  will cause the Company to issue a number of shares
of Common Stock which exceeds twenty percent (20%) of the shares of Common Stock
then issued and  outstanding,  the Company shall redeem such number of shares of
6% Preferred  as is  necessary to limit such  issuance of Common Stock to twenty
percent (20%) of the shares of Common Stock then issued and outstanding,  unless
the Company has previously obtained  stockholder  approval to issue in excess of
twenty percent (20%) of the shares of Common Stock then issued and  outstanding.
If a  redemption  will occur under  either of the  preceding  sentences,  on the
redemption  date,  the  Corporation  shall pay such holders by cashiers check or
wire transfer in immediately  available  funds the amount of $1,300 per share of
6% Preferred plus all accrued but unpaid  dividends.  Promptly  thereafter,  the
holders shall  surrender the  certificate or  certificates  representing  the 6%
Preferred,  duly endorsed,  at the office of the  Corporation or of any transfer
agent for such shares, or at such other place designated by the Corporation.

     3. 6% Preferred - Forced Conversion.

     (a) The Corporation may, at its option, cause all outstanding shares of the
6%  Preferred to be converted  into Common Stock at any time  beginning  one (1)
year after the date of issuance,  on at least twenty (20) days' advance  notice,
at a  conversion  price  determined  as set  forth  in  Section  4  hereof  (the
"Conversion  Price") as of the date  specified  in such notice (the  "Conversion
Date") and otherwise on the terms set forth in Section 4 hereof,  provided, that
the Corporation may not exercise such right of conversion unless (i) the Closing
Price  (last  trade  price) of the Common  Stock as  reported  by NASDAQ for the
twenty (20) consecutive  trading days prior to the date the Conversion Notice is
mailed has not on any day been less than one hundred forty percent (140%) of the
last trade price of the Company's Common Stock on the day of Closing (subject to
adjustment for stock dividends, stock splits and reverse stock splits), and (ii)
the shares  issuable  upon  conversion of the 6% Preferred  are  registered  for
resale by an effective  Registration  Statement which became  effective not more
than  one  hundred  twenty  (120)  days  after  the date of  issuance  of the 6%
Preferred,  and a current  prospectus  meeting the requirements of Section 10 of
the Act is available for delivery at the Conversion Date.

     (b) At least twenty (20) days prior to the Conversion Date,  written notice
(the "Conversion  Notice") shall be mailed,  first class postage prepaid, by the
Corporation  to each holder of record of the 6%  Preferred,  at the address last
shown on the records of the Corporation  for such holder,  notifying such holder
of the conversion  which is to be effected,  specifying the Conversion  Date and
calling upon each such holder to surrender to the Corporation, in the manner and
at the place designated,  a certificate or certificates  representing the number
of shares of 6% Preferred held by such holder.  Subject to the provisions of the
following  subsection  (c), on or after the Conversion  Date,  each holder of 6%
Preferred  shall  surrender to the  Corporation  the certificate or certificates
representing  the  shares  of 6%  Preferred  owned  by  such  holder  as of  the
Conversion  Date, in the manner and at the place  designated  in the  Conversion
Notice,  and  thereupon  the  shares  issuable  upon  such  conversion  shall be
delivered as provided in Section 4(b) hereof.

     (c) If, on the Conversion  Date, the  registration  condition  specified in
clause (ii) of subsection  (a) shall not be  satisfied,  then no shares shall be
converted and the  Conversion  Notice shall be deemed to be  withdrawn.  In such
event,  any  certificates  for 6%  Preferred  which  have been  surrendered  for
conversion  shall be returned to the persons  surrendering  the same;  provided,
however, that if a holder has received shares of Common Stock upon conversion of
6% Preferred  after the  Conversion  Notice was given but before the  Conversion
Date,  such holder may elect  either to retain such Common Stock or rescind such
conversion by tendering such shares of Common Stock to the Corporation.

     (d) On the second anniversary of the issuance of the 6% Preferred, all then
outstanding shares of 6% Preferred shall be automatically  converted into Common
Stock  at  the  Conversion  Price  and  otherwise  pursuant  to  the  applicable
provisions set forth in Section 4 hereof.


                                      - 2 -



<PAGE>

     4. 6%  Preferred - Optional  Conversion.  The  holders of the 6%  Preferred
shall have optional conversion rights as follows:

     (a) Right to  Convert.  At any time  after the  earlier  of (i) the date on
which a Registration Statement has been declared effective, or (ii) the close of
business on the ninety first (91st) day following the date of issuance of the 6%
Preferred, shares of 6% Preferred shall become convertible, at the option of the
holder  thereof,  into such  number of fully  paid and  nonassessable  shares of
Common Stock as is determined by dividing (A) the Liquidation  Preference of the
6% Preferred  determined  pursuant to Section 2 hereof on the date the notice of
conversion is given,  by (B) the  Conversion  Price  determined  as  hereinafter
provided in effect on the applicable conversion date.

     (b) Mechanics of Conversion.  To convert shares of 6% Preferred into shares
of Common Stock, the holder shall give written notice to the Corporation  (which
notice  may be given by  facsimile  transmission)  that  such  holder  elects to
convert the shares and shall state therein date of the conversion, the number of
shares to be  converted  and the name or names in which such  holder  wishes the
certificate or  certificates  for shares of Common Stock to be issued.  Promptly
thereafter,   the  holder  shall   surrender  the  certificate  or  certificates
representing  the shares to be converted,  duly  endorsed,  at the office of the
Corporation  or of any transfer  agent for such  shares,  or at such other place
designated by the Corporation; provided that the holder shall not be required to
deliver the  certificates  representing  such shares if the holder is waiting to
receive all or part of such certificates  from the Corporation.  The Corporation
shall, immediately upon receipt of such notice, issue and deliver to or upon the
order of such holder,  against  delivery of the  certificates  representing  the
shares which have been converted,  a certificate or certificates  for the number
of  shares of Common  Stock to which  such  holder  shall be  entitled  and such
certificate or certificates shall not bear any restrictive legend;  provided (A)
the  Common  Stock   evidenced   thereby  are  sold  pursuant  to  an  effective
registration  statement  under the Act, (B) the holder  provides the Corporation
with an opinion of  counsel  reasonably  acceptable  to the  Corporation  to the
effect that a public sale of such shares may be made without  registration under
the Act, or (C) such holder provides the Corporation  with reasonable  assurance
that  such  shares  can be sold  free of any  limitations  imposed  by Rule 144,
promulgated  under the Act.  The  Corporation  shall  cause  such  issuance  and
delivery to be effected  within three (3) business  days and shall  transmit the
certificates  by messenger or  overnight  delivery  service to reach the address
designated  by such holder  within three (3) business  days after the receipt of
such  notice.  The  notice  of  conversion  may be given by a holder at any time
during the day up to 5:00 p.m.  Boston,  Massachusetts  time and such conversion
shall be deemed to have been made immediately  prior to the close of business on
the date such notice of conversion is given (a "conversion date"). The person or
persons  entitled  to receive  the  shares of Common  Stock  issuable  upon such
conversion  shall be treated for all purposes as the record holder or holders of
such shares of Common Stock at the close of business on such date.

     (c)  Conversion,  Redemption and Note Delivery  Required.  The  Corporation
acknowledges  and  understands  that a delay in the issuance of the Common Stock
upon conversion or pursuant to a redemption  according to the provisions hereof,
or a delay in delivering the Promissory Note set forth in Subsection (d) hereof,
could  result  in  economic  loss  to  the  holders  of  the  6%  Preferred.  As
compensation  to any holder when the Corporation has failed with respect to such
holder to comply  with the  Corporation's  obligations  hereunder,  and not as a
penalty, the Corporation shall pay to such holder liquidated damages of $500 per
day plus an amount equal to: (i) two percent (2%) of the total Purchase Price of
Shares for the first  thirty (30) day period  after the date on which the Common
Stock should have been issued by the Corporation (i.e., the end of the three (3)
business  day  period  described  in  Subsection  (b)),  shares of 6%  Preferred
redeemed by the  Corporation or Promissory  Note delivered to holder (i.e.,  the
end of the three (3)  business  day period  described  in  Subsection  (d)),  as
applicable;  plus  (ii) an  amount  equal to  three  percent  (3%) of the  total
Purchase Price of Shares for each subsequent thirty (30) day period  thereafter.
Amounts  payable  shall be  pro-rated  daily as to a periods of less than thirty
(30) days.  Such amounts shall be paid to the holder at the end of each month in
which such amounts have accrued.  Payment shall be made immediately by cashier's
check or wire transfer in immediately  available  funds to such account as shall
be  designated  in writing by the holder.  Each  holder  shall be entitled to an
injunction  or  injunctions  to prevent or cure  breaches of the  provisions  of
hereof and. to enforce specifically the terms and provisions hereof, this being,
in  addition  to any other  remedy to which a holder may be  entitled  by law or
equity.



                                      - 3 -

<PAGE>

     (d) Determination of Conversion Price:

     (i )The "Conversion  Price" for purposes of hereof shall be equal to eighty
percent  (80%) of the average of the  closing bid prices of the Common  Stock as
reported by NASDAQ during the five (5)  consecutive  trading days  preceding the
conversion  date (but not including such date);  provided,  however,  that in no
event may the  Conversion  Price be more than three  dollars  and  twenty  cents
($3.20)  (the  "Maximum  Conversion  Price") or less than an amount equal to the
closing bid price per share of the Common  Stock on the date of  issuance  minus
fifty cents ($0.50) (the "Minimum Conversion  Price").  If, but for this Section
4(d)(i),  the Conversion Price would have been below Minimum  Conversion  Price,
the Company shall pay the holder by delivering to holder a Promissory  Note, the
form which has been delivered to the Corporation  and is incorporated  herein by
reference,  bearing the principal amount equal to the difference between (A) the
number of shares of Common  Stock that would have been  issued at the amount the
Conversion Price would have been but for this Section 4(d)(i) multiplied by 100%
of the  closing  bid  price  of the  Common  Stock  on the  conversion  date  as
determined  in  accordance  with the  Subsection  (d) (the latter  amount  being
referred  to herein as the  "Conversion  Date  Price"),  minus (B) the number of
shares of Common Stock actually issued pursuant to the conversion  multiplied by
the Conversion Date Price.  Such Promissory Note shall be delivered to holder by
the third (3rd) day following the applicable conversion date.

     (ii) The  "closing bid price" of the Common Stock on a trading day shall be
the closing bid price of the Common  Stock on the NASDAQ Small Cap Market or any
other principal  securities  price quotation system or market on which prices of
the  Common  Stock are  reported.  The term  "trading  day" means a day on which
trading is reported on the principal  quotation system or market on which prices
of the Common Stock are reported.

     (iii) If, during the period of consecutive trading days provided for above,
the Corporation shall declare or pay any dividend on the Common Stock payable in
Common Stock or in rights to acquire Common Stock, or shall effect a stock split
or reverse stock split, or a combination,  consolidation or  reclassification of
the Common Stock,  the Conversion  Price,  Maximum  Conversion Price and Minimum
Conversion   Price  shall  be   proportionately   decreased  or  increased,   as
appropriate, to give effect to such event.

     (e)  Distributions.  If the  Corporation  shall at any time or from time to
time make or issue,  or fix a record  date for the  determination  of holders of
Common Stock entitled to receive,  a dividend or other  distribution  payable in
securities of the Corporation or any of its  subsidiaries  other than additional
shares of Common Stock,  then in each such event provision shall be made so that
the holders of 6% Preferred  shall  receive,  upon the conversion  thereof,  the
securities of the  Corporation  which they would have received had they been the
owners  on the date of such  event of the  number  of  shares  of  Common  Stock
issuable to them upon conversion.

     (f)  Certificates as to Adjustments.  Upon the occurrence of any adjustment
or  readjustment  of the  Conversion  Price,  the Maximum  Conversion  Price and
Minimum  Conversion  Price  pursuant to this Section 4, the  Corporation  at its
expense shall promptly  compute such  adjustment or  readjustment  in accordance
with the terms hereof and cause the  independent  public  accountants  regularly
employed to audit the  financial  statements of the  Corporation  to verify such
computation and prepare and furnish to each holder of 6% Preferred a certificate
setting forth such  adjustment or  readjustment  and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of 6%. Preferred, furnish or cause
to be furnished to such holder a like  certificate  prepared by the  Corporation
setting forth (i) such  adjustments  and  readjustments,  and (ii) the number of
other  securities  and the amount,  if any, of other  property which at the time
would be received upon the conversion of 6% Preferred with respect to each share
of Common Stock received upon such conversion.

     (g) Notice of Record Date. In the event of any taking by the Corporation of
a  record  of the  holders  of any  class  of  securities  for  the  purpose  of
determining  the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other  distribution,  any security or right convertible
into or  entitling  the holder  thereof to receive  additional  shares of Common
Stock, or any right to subscribe for,  purchase or otherwise  acquire any shares
of stock of any class or any other  securities  or  property,  or to receive any
other right, the Corporation  shall mail to each holder of 6% Preferred at least
ten (10) days prior to the date specified  therein, a notice specifying the date
on which  any such  record  is to be taken  for the  purpose  of such  dividend,
distribution,  security or right and the amount and character of such  dividend,
distribution, security or right.

                                      - 4 -
<PAGE>

     (h)  Issue  Taxes.  The  Corporation  shall pay any and all issue and other
taxes, excluding any income,  franchise or similar taxes, that may be payable in
respect of any issue or  delivery  of shares of Common  Stock on  conversion  of
shares of 6% Preferred pursuant hereto; provided,  however, that the Corporation
shall not be  obligated to pay any transfer  taxes  resulting  from any transfer
requested by any holder in connection with any such conversion.

     (i) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
all times reserve and keep available out of its  authorized but unissued  shares
of Common  Stock,  solely for the purpose of  effecting  the  conversion  of the
shares of the 6%  Preferred,  such number of its shares of Common Stock as shall
from time to time be  sufficient  to effect the  conversion  of all  outstanding
shares of the 6%  Preferred,  and if at any time the  number of  authorized  but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then  outstanding  shares of the 6% Preferred,  the Corporation will take
such  corporate  action as may be  necessary  to  increase  its  authorized  but
unissued  shares of Common Stock to such number of shares as shall be sufficient
for such purpose,  including,  without  limitation,  engaging in best efforts to
obtain any requisite shareholder approval.

     (j)  Fractional  Shares.  No  fractional  shares  shall be issued  upon the
conversion  of any share or shares of 6%  Preferred.  All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
6% Preferred by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share. If,
after  the  aforementioned  aggregation,  the  conversion  would  result  in the
issuance of a fraction of a share of Common Stock,  the  Corporation  shall,  in
lieu of issuing any fractional share, pay the holder otherwise  entitled to such
fraction a sum in cash equal to the fair  market  value of such  fraction on the
date of conversion (as determined in good faith by the Board of Directors of the
Corporation or an authorized Committee thereof).

     (k) Notices.  Any notice  required by the  provisions of this Section to be
given  to the  holders  of  shares  of 6%  Preferred  shall be  deemed  given if
deposited in the United  States mail,  postage  prepaid,  and  addressed to each
holder of record at its address appearing on the books of the Corporation.

     (1)  Reorganization  or  Merger.  In  case  of  any  reorganization  or any
reclassification of the capital stock of the Corporation or any consolidation or
merger of the Corporation with or into any other  corporation or corporations or
a sale of all or substantially all of the assets of the Corporation to any other
person  (other  than a sale or  transfer  to a wholly  owned  subsidiary  of the
Corporation),  and the  holders  of 6%  Preferred  do not  elect to  treat  such
transaction as a liquidation, dissolution or winding up as provided in Section 2
hereof,  then, as part of such  reorganization,  consolidation,  merger or sale,
provision shall be made so that each share of 6% Preferred  shall  thereafter be
convertible  into the number of shares of stock or other  securities or property
(including  cash) to which a holder of the  number  of  shares  of Common  Stock
deliverable  upon  conversion  of such  share of 6%  Preferred  would  have been
entitled  upon the record  date of (or date of, if no record date is fixed) such
event and, in any case,  appropriate  adjustment  (as determined by the Board of
Directors)  shall be made in the application of the provisions  herein set forth
with  respect to the rights and  interests  thereafter  of the holders of the 6%
Preferred,  to the end that the provisions set forth herein shall  thereafter be
applicable, as nearly as equivalent as is practicable, in relation to any shares
of stock or the securities or property  (including cash) thereafter  deliverable
upon the conversion of the shares of 6% Preferred.

     5.  Re-issuance  of  Certificates.  In the event of a  conversion  (or,  if
applicable,  redemption) of 6% Preferred in which less than all of the shares of
6% Preferred of a particular  certificate are converted or redeemed, as the case
may be, the  Corporation  shall  promptly  without  delay cause to be issued and
delivered to the holder of such  certificate,  a  certificate  representing  the
remaining shares of 6% Preferred which have not been so
converted or redeemed.





                                      - 5 -

<PAGE>

     6. Other Provisions. For all purposes of this Resolution, the term "date of
issuance" and the terms  "Closing" or "Closing Date" shall mean the day on which
shares of the 6% Preferred  are first issued by the  Corporation.  Any provision
herein which conflicts with or violates any applicable usury law shall be deemed
modified to the extent  necessary to avoid such conflict or violation.  The term
"NASDAQ" herein refers to the principal  market on which the Common Stock of the
Corporation is traded.  If the Common Stock is listed on a securities  exchange,
or if another market  becomes the principal  market on which the Common Stock is
traded or through which price quotations for the Common Stock are reported,  the
term  "NASDAQ"  shall be deemed  to refer to such  exchange  or other  principal
market.

     7.  Restrictions and Limitations.  The Corporation  shall not undertake the
following  actions  without  the  consent of the holders of a majority of the 6%
Preferred:  (i) modify its Articles of  Organization or Bylaws so as to amend or
change any of the rights,  preferences,  or privileges of the 6% Preferred, (ii)
authorize or issue any other preferred  equity security senior to or on a parity
with the 6%  Preferred  as to  dividends,  liquidation  preferences,  conversion
rights,  redemption  rights or other rights,  preferences  or  privileges  for a
period of thirty (30) days after  Closing,  as applicable or (iii),  purchase or
otherwise  acquire for value any Common  Stock or other  equity  security of the
Corporation  either  junior or senior  to or on a parity  with the 6%  Preferred
while  there  exists  any  arrearage  in the  payment  of  cumulative  dividends
hereunder other than redemptions of stock from terminating employees pursuant to
contractual rights in favor of the Corporation.

     8. Voting Rights.  Except as provided herein or as provided for by law, the
6% Preferred shall have no voting rights.

     9. Attorney's Fees. Any holder of 6% Preferred shall be entitled to recover
from the  Corporation the reasonable  attorneys'  fees and expenses  incurred by
such holder in connection  with  enforcement by such holder of any obligation of
the Corporation hereunder.

     10. No Adverse Actions. The Corporation shall not in any manner, whether by
amendment of the Articles of Organization  (including,  without limitation,  any
vote  establishing  a  class  or  series  of  stock),  merger,   reorganization,
recapitalization,  consolidation,  sales of assets,  sale of stock tender offer,
dissolution  or  otherwise,  take any action,  or permit any action to be taken,
solely or  primarily  for the  purpose of  increasing  the value of any class of
stock of the  Corporation if the effect of such action is to reduce the value or
security of the 6% Preferred.





                                      - 6 -
<PAGE>


                     EXHIBIT A to the Subscription Agreement

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN EFFECTIVE  REGISTRATION  STATEMENT  FOR THIS WARRANT OR COMMON
STOCK PURCHASABLE HEREUNDER, AS APPLICABLE, UNDER THE ACTS, OR (B) AN OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March ___, 1998

     1. Basic Terms.  This Warrant (as it may be amended from time to time,  the
"Warrant")  certifies that, for value received,  the registered holder specified
below or its  registered  assigns  ("Holder"),  is the owner of warrants of PHC,
Inc., a Massachusetts corporation (the "Corporation"),  and is entitled, subject
to the terms and conditions of this Warrant,  including  adjustments as provided
herein,  to purchase  ______ ( ) (number to be  pro-rated  for a total of 50,000
share) shares of the Common Stock (the "Common Stock") of the  Corporation  from
the Corporation at the price per share shown below (the "Exercise Price").

              Holder:



              Exercise   Price  per   share:   ______   Dollars   and   ______
              Cents ($     )per share

                               [This amount will be the Closing Bid Price of the
                                Corporation's Common Stock on the Issue Date]

     Except as specifically  provided otherwise,  all references in this Warrant
to the  Exercise  Price and the  number of  shares of Common  Stock  purchasable
hereunder  shall be to the  Exercise  Price  and  number  of  shares  after  any
adjustments are made thereto pursuant to this Warrant.

     2. Corporation's Representations/Covenants.  The Corporation represents and
covenants  that the shares of Common  Stock  issuable  upon the exercise of this
Warrant shall at delivery be fully paid and  non-assessable and free from taxes,
liens,  encumbrances and charges with respect to their purchase. The Corporation
shall take any  necessary  actions to assure that the par value per share of the
Common  Stock is at all times  equal to or less than the then  current  Exercise
Price  per  share  of  Common  Stock  issuable  pursuant  to this  Warrant.  The
Corporation  shall at all times reserve and hold available  sufficient shares of
Common  Stock to satisfy  all  conversion  and  purchase  rights of  outstanding
convertible securities, options and warrants of the Corporation,  including this
Warrant.





                                      - 1 -
<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts time) three (3) years after the issue date.
To  exercise  this  Warrant,  the Holder  shall  surrender  this  Warrant at the
principal  office of the  Corporation or that of the duly  authorized and acting
transfer  agent for its Common Stock,  together with the executed  exercise form
(substantially  in the form of that  attached  hereto) and together with payment
for the Common Stock purchased under this Warrant.  The principal  office of the
Corporation  is located at the address  specified on the signature  page of this
Warrant; provided, however, that the Corporation may change its principal office
upon notice to the  Holder.  At the option of the Holder  payment  shall be made
either in cash (by wire) or by certified or bank cashier's  check payable to the
order of the  Corporation  or the Holder  may elect to receive  shares of Common
Stock  calculated  pursuant to paragraph 4. The Corporation  shall,  immediately
upon  receipt  of such  notice,  issue and  deliver to or upon the order of such
Holder a certificate or certificates for the number of shares of Common Stock to
which such Holder shall be entitled and such  certificate or certificates  shall
not bear any restrictive legend; provided (A) the Common Stock evidenced thereby
are sold pursuant to an effective  registration statement under the Act, (B) the
holder provides the Corporation with an opinion of counsel reasonably acceptable
to the  Corporation  to the effect that a public sale of such shares may be made
without  registration under the Act, or (C) such holder provides the Corporation
with  reasonable  assurance that such shares can be sold free of any limitations
imposed by Rule 144, promulgated under the Act. The Corporation shall cause such
issuance  and delivery to be effected  within three (3) business  days and shall
transmit the  certificates by messenger or overnight  delivery  service to reach
the address  designated  by such holder within three (3) business days after the
receipt of such  notice.  This  Warrant  is not  exercisable  with  respect to a
fraction  of a share of Common  Stock.  In lieu of issuing a fraction of a share
remaining  after  exercise of this Warrant as to all full shares covered by this
Warrant the  Corporation  shall either at its option (a) pay for the  fractional
share cash equal to the same  fraction at the fair market  price for such share;
or (b) issue scrip for the fraction in the registered or bearer form which shall
entitle the Holder to receive a certificate  for a full share of Common Stock on
surrender of scrip  aggregating a full share. As compensation to the Holder when
the  Corporation  has  failed  with  respect to such  Holder to comply  with the
Corporation's obligations hereunder, and not as a penalty, the Corporation shall
pay to such holder liquidated damages of $500 per day until the certificates are
delivered as  instructed.  Such damages  shall be paid to the Holder by cashiers
check or wire transfer in immediately  available  funds to such account as shall
be  designated  in  writing by the Holder at the end of each month in which such
amounts have accrued.  Holder shall be entitled to an injunction or  injunctions
to  prevent  or  cure  breaches  of the  provisions  of  hereof  and to  enforce
specifically  the terms and  provisions  hereof,  this being in  addition to any
other remedy to which Holder may be entitled by law or equity.

     4. Cashless Exercise.

     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -
<PAGE>

     If at any time the Common Stock is not listed on any  domestic  exchange or
quoted in the NASDAQ System or the domestic  over-the-counter  market,  the fair
market value shall be the higher of (i) the book value thereof, as determined by
any firm of independent  public  accountants of recognized  standing selected by
the   Corporation   (which  may  be  the   Corporation's   regular   independent
accountants), as of the last day of any month ending within sixty days preceding
the date as of which the  determination  is to be made;  or (ii) the fair market
value thereof,  which shall be reasonably  determined by the Corporation and the
Holder  as of a date  which is within  fifteen  days of the date as of which the
determination is to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case,  the  Exercise  Price  shall be adjusted to that
price determined by multiplying the Exercise Price in effect  immediately  prior
to such event by a fraction  (A) the  numerator  of which is the total number of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.





                                      - 3 -
<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted  number an kind of securities or other
property  purchasable  under this  Warrant  resulting  from the event and settin
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until,
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -

<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this  Warrant.All  notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -
<PAGE>

     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the
Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  ________________________________
                                                 Authorized Officer


                                       Printed Name:  _______________________
                                       Title:  ______________________________

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ________________________________
       ________________________________
                 Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________         ____________________________________
                                            Signature








                                      - 8 -





<PAGE>

      Incorporated by Reference into the Resolutions Establishing Right and
              Preferences for Series B Convertible Preferred Stock.


                          PROMISSORY NOTE (the "Note")



Date:  __________________,  ________________________

Maker: PHC, Inc.

Maker's Mailing Address:     200 Lake Street -- Suite 102
                             Peabody, Massachusetts 01960

Payee:

Place for Payment:

Principal Amount: $_________________________________

Annual Interest Rate on Unpaid Principal From Date: Eight percent (8%).

Annual Past Due  Interest  Rate on Unpaid  Principal  from  Maturity to Payment:
Fifteen percent (15%).

Terms of Payment:  Principal  and  interest  shall be due and payable in six (6)
equal  consecutive  monthly payments of $  ________________  (based on a six (6)
month  amortization)  with the first  payment being due and payable on the first
day of _____________________.

The Maker  promises  to pay to the order of Payee at the place for  payment  and
according to the terms of payment the outstanding principal and accrued interest
at the rates stated above. All unpaid amounts owing on this Note shall be due by
the final scheduled payment date of ________________________.

Additional Provisions:

If Maker defaults in the payment of this Note, or in any instrument  securing or
collateral  to it, then Payee may declare the unpaid  principal  balance of this
Note and all  accrued  interest  immediately  due and  payable.  Maker  and each
surety,  endorser,  and  guarantor  or other party liable for the payment of any
sums of money  payable on this Note  severally  waive all demands  for  payment,
presentations  for  payment,  notices  of  dishonor,  notices  of  intention  to
accelerate maturity, notices of acceleration of maturity,  protests, and notices
of protest, to the extent permitted by law.

     If this Note or any instrument  securing or collateral to it is given to an
attorney for collection or enforcement.  or if suit is brought for collection or
enforcement or if it is collected or enforced  through probate,  bankruptcy,  or
other  judicial  proceedings  then Maker shall pay Payee all costs of collection
and  enforcement,  including  reasonable  attorneys  fees and  court  costs,  in
addition to other amounts due.


                           PHC. INC., PROMISSORY NOTE
Page 1



<PAGE>

     Interest that may be contracted for, taken,  reserved,  charged or received
under law; any  interest in excess of that  maximum  amount shall be credited on
the  principal  of the  debt  or,  if  that  has  been  paid,  refunded.  On any
acceleration  or  required or  permitted  prepayment,  any such excess  shall be
canceled automatically as of the acceleration or prepayment or, if already paid,
credited on the  principal of the debt or, if the principal of the debt has been
paid, refunded.  This provision overrides other provisions in this and all other
instruments concerning the debt.

     When the context requires, singular nouns and pronouns include the plural.

     This Note is to be governed and  construed in  accordance  with the laws of
the State of Texas.

     MAKER, FOR GOOD AND VALUABLE CONSIDERATION,  THE RECEIPT AND SUFFICIENCY OF
WHICH  ARE  HEREBY   ACKNOWLEDGED,   (I)  HEREBY  IRREVOCABLY   SUBMITS  TO  THE
JURISDICTION  OF THE UNITED STATES DISTRICT COURT AND OTHER COURTS OF THE UNITED
STATES  SITTING  IN TEXAS FOR THE  PURPOSES  OF ANY SUIT,  ACTION OR  PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (ii) HEREBY WAIVES,  AND AGREES
NOT TO ASSERT IN ANY SUCH SUIT,  ACTION OR PROCEEDING,  ANY CLAIM THAT IT IS NOT
PERSONALLY  SUBJECT TO THE JURISDICTION OF SUCH COURT,  THAT THE SUIT, ACTION OR
PROCEEDING  IS BROUGHT IN AN  INCONVENIENT  FORUM OR THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER.  MAKER CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT,  ACTION OR  PROCEEDING BY MAILING A COPY THEREOF TO MAKER AT ITS MAIN
BUSINESS  OFFICE  AND  AGREES  THAT  SUCH  SERVICE  SHALL  CONSTITUTE  GOOD  AND
SUFFICIENT  SERVICE OF PROCESS  AND NOTICE  THEREOF.  NOTHING IN THIS  PARAGRAPH
SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE  PROCESS IN ANY OTHER MANNER  PERMITTED
BY LAW.

     Executed as of date first above written.

                  PHC Inc., a Massachusetts corporation

                  By:  _______________________________________
                  Name of
                  Authorized Officer:  __________________________
                  Title:  ______________________________________








                           PHC. INC., PROMISSORY NOTE
Page 2


<PAGE>


                     EXHIBIT B to the Subscription Agreement

Section 2.2(a): PHC, Inc. Subsidiaries:

PHC of Utah, Inc.                       Pioneer Counseling of Virginia, Inc.
D/B/A Highland Ridge Hospital           (80% Owned)
4578 Highland Drive                     D/B/A Pioneer Counseling of Virginia
Salt Lake City, UT 94117                D/B/A Counseling Associates of Virginia
                                        400 East Burwell street
                                        Salem, VA 24153

PHC of Virginia, Inc.                   PHC of Kansas, Inc.
D/B/A Mount Regis Center                D/B/A Total Concept EAP
D/B/A Changes                           7451 Szwitzer, Suite 101
405 Kimball Avenue                      Shawnee Mission, KS 66203
Salem, VA 24153

Quality Care Centers of Mass, Inc.      PHC of California, Inc.
D/B/A Franvale Nursing & Rehab Center   D/B/A Marin Grove
20 Pond Street                          42 Grove Street
Braintree, MA 02194                     San Rafael, CA 94901

PHC of Nevada, Inc.                     Professional Health Associates
D/B/A Harmony Healthcare                94-19 59 Avenue
2340 Paseo del Prado, Bldg.D           Elmhum NY 11373
Las Vegas, NV 89102

Northpoint - Pioneer, Inc.              STL, Inc.
D/B/A Pioneer Counseling Center         200 Lake Street
31700 W. 13 Mile; Suite 201             Suite 102
Farmington Hills, MI 48334              Peabody, MA 0 1960

BSC-NY, Inc.                            Harmony Behavioral Health
D/B/A Behavioral Stress Center          2340 Paseo del Prado, Bldg.D
94-19 59 Avenue                         Las Vegas, NV 89102
Elmhurst, NY 11373

PHC of Michigan, Inc.                   PHC of Rhode island, Inc.
D/B/A Harbor Oaks Hospital              D/B/A Good Hope Center
35031 23 Mile Road                      P.O. Box 1491
New Baltimore, MI 48047                 Coventry, RI 02816-0029



<PAGE>


                               EXHIBIT B (cont'd.)
     Section 2.2(f):

     The Company failed to file two years' of audited  financial  statements for
Behavioral   Stress  Centers,   Inc.  and  Clinical   Diagnostics  and  Clinical
Associates,  as described  in the  December 18, 1996 letter from Choate,  Hall &
Stewart to Mr. Robert Bayless of the Securities and Exchange Commission.



<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  "Holder"),  is the owner of  warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase  Twenty Six Thousand Three Hundred  Fifteen  (26,315) shares of Class A
Common Stock (the "Common Stock") of the Corporation from the Corporation at the
price per share shown below (the "Exercise Price").

     Holder: ProFutures Special Equities Fund, L.P.


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2.  Corporations  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.


     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading shall be average of the
closing  prices on such day of the Common  Stock on all  domestic  exchanges  on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges  at he end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                       - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant,. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.



                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  /s/ Bruce A Shear
                                                Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)

For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ______________________             _____________________________________
                                               Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________          __________________________________
                                                Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase  Seven  Thousand  Eight Hundred Ninety (7,890) shares of Class A Common
Stock (the "Common Stock") of the Corporation  from the Corporation at the price
per share shown below (the "Exercise Price").

         Holder:                                Gary D. Halbert


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock s at all times equal to or less than the then current  Exercise  Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System ("NASDA", the average of the daily market prices of such stock on the ten
(10) trading days  immediately  preceeding the date as of which such value is to
be  determined.  The market  price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restriction  s on transfer  contained  herein,  in the names  designated  by the
Holder at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing  Law. This  Agreement  hall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:   /s/ Bruce A Shear
                                                 Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                     -6-



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee: ____________________________________________

Address:  ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ________________________       ________________________________
                                         Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________________
       __________________________________
                  Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase Five Thousand Two Hundred Sixty (5,260)  shares of Class A Common Stock
(the "Common  Stock") of the  Corporation  from the Corporation at the price per
share shown below (the "Exercise Price").

            Holder:      John F. Mauldin


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances  and charges with respect to their purchase.  he Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashiers  check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.

     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -

<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices  required or permitted t be given to the Holder shall
be in writing and shall be given by first class mail, postage repaid,  addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16.  Headings The headings in this Warrant are for purposes of  convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  /s/ Bruce A Shear
                                                Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:
Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  _________________________         _____________________________________
                                             Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  _________________________         ____________________________________
                                          Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.
                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase Ten Thousand Five Hundred Twenty Five (10,525) shares of Class A Common
Stock (the "Common Stock") of the Corporation  from the Corporation at the price
per share shown below (the "Exercise Price").

            Holder:                                 Augustine Fund, L.P.


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDA"),  the average of the daily market  prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.
                                      - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of Regulation D, promulgated under the Securities Act of
1933, as amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.



                                      - 5 -

<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.




                                       PHC, INC., a Massachusetts corporation


                                       By:   /s/ Bruce A Shear
                                                 Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ______________________                 ________________________________
                                                Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  _________________________              _________________________________
                                                 Signature








                                      - 8 -
<PAGE>
Exhibit 10.133

                            ASSET PURCHASE AGREEMENT


     This Asset Purchase Agreement is made and entered into as of the 2nd day of
February,  1998, by and between  Lexington  Healthcare  Group,  Inc., a Delaware
corporation  having  its  principal  place of  business  at 35 Park  Place,  New
Britain, Connecticut 06052 (together with its successors and assigns hereinafter
collectively  referred  to  as  the  "Buyer"),   and  Quality  Care  Centers  of
Massachusetts,  a  Massachusetts  corporation  having  its  principal  place  of
business at 200 Lake Street,  Suite 102, Peabody,  Massachusetts 01960 (together
with its  successors  and assigns  hereinafter  collectively  referred to as the
"Seller").

                              W I T N E S S E T H:

     WHEREAS,  the Seller owns and leases certain assets in connection with, and
operates the 128-bed  licensed  skilled nursing care facility known as, Franvale
Nursing and Rehabilitation  Center at 20 Pond Street,  Braintree,  Massachusetts
02184 (the "Facility"); and

     WHEREAS,  the Buyer  desires to  acquire  from the  Seller,  and the Seller
desires  to sell to the  Buyer,  certain  of the  assets of the  Seller  used in
connection with the operation of the Facility, all upoExhibit 4.28


                             SUBSCRIPTION AGREEMENT

                                    PHC, INC.


THE SECURITIES WHICH ARE THE SUBJECT OF THIS  SUBSCRIPTION  AGREEMENT (AS IT MAY
BE AMENDED FROM TIME TO TIME, THE  "AGREEMENT")  HAVE NOT BEEN REGISTERED  UNDER
THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES  ACT") OR UNDER THE
APPLICABLE SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE
ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THESE LAWS BY VIRTUE OF PHC,
INC.'S  INTENDED  COMPLIANCE WITH SECTIONS 3(b), 4(2) AND 4(6) OF THE SECURITIES
ACT, THE PROVISIONS OF REGULATION D UNDER SUCH ACT AND SIMILAR  EXEMPTIONS UNDER
STATE LAW.  THESE  SECURITIES  HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION ("SEC"),  ANY STATE SECURITIES  COMMISSION OR
ANY OTHER REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

     The undersigned  purchaser  (hereafter,  the "Purchaser")  hereby offers to
purchase  certain Series B Convertible  Preferred Stock (referred to herein as a
"Share" or  collectively as "Shares") of PHC, Inc. (the  "Company"),  a publicly
held  corporation  formed under the laws of the  Commonwealth of  Massachusetts.
This  offer to  purchase  may,  for any  reason  whatsoever,  be  revoked by the
Purchaser or rejected by the Company  prior to  acceptance  of this offer by the
Company.

     Section  1.1  Purchase  and Sale of Shares.  Upon the  following  terms and
conditions, the Company shall issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company,  the number of Shares indicated  herein,  which
Shares shall have the rights, designations and preferences set forth in Schedule
I hereto.

     Section  1.2  Purchase  Price.  The  purchase  price  for the  Shares  (the
"Purchase Price") shall be $1,000 per Share.

     Section 1.3 The Closing.

     (a) The closing of the  purchase  and sale of the Shares  (the  "Closing"),
shall take place at the law offices of Arent, Fox, Kintner, Plotkin & Kahn, 1050
Connecticut  Avenue,  N.W.,  Washington,   D.C.  20036,  at  10:00  a.m.,  local
Washington,  D.C. time, on the later of the following: (i) the date on which the
last to be  fulfilled or waived of the  conditions  set forth in Section 4.1 and
4.2  hereof  and  applicable  to the  Closing  shall be  fulfilled  or waived in
accordance herewith, or (ii) such other time and place and/or on such other date
as the Purchaser and the Company may agree. The date on which the Closing occurs
is referred to herein as the "Closing Date."

     (b) On the Closing  Date,  the Company shall deliver to the Purchaser (i) a
certificate  representing the Shares  registered in the name of the Purchaser or
deposit  such Shares into  accounts  designated  by the  Purchaser  and (ii) the
Warrant for the number of shares of the Company's Common Stock indicated herein,
in the form attached hereto as Exhibit A, incorporated herein by reference.  The
Purchaser  shall on the Closing Date  deliver to the Company the Purchase  Price
for all the Shares by cashier's check or wire transfer in immediately  available
funds to such  account as shall be  designated  in writing  by the  Company.  In
addition,  each party shall  deliver all  documents,  instruments  and  writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Closing.

     Section 1.4 Covenant to Register.

     (a) For purposes of this Section, the following definitions shall apply:

     The  terms  "register,"   "registered,"  and  "registration"   refer  to  a
registration under the Securities Act of 1933, as amended (the "Act"),  effected
by  preparing  and  filing a  registration  statement  or  similar  document  in
compliance  with the Act, and the  declaration or ordering of  effectiveness  of
such registration statement, document or amendment thereto.

     (ii) The term  "Registrable  Securities"  means the shares of the Company's
Class A Common Stock,  par value $.01 per share (the "Common  Stock"),  issuable
upon  conversion  of shares of the Shares and upon  exercise of the Warrant,  or
upon  conversion of any other stock issued in payment of dividends on the Shares
or otherwise issuable pursuant to this Agreement or the provisions of Schedule I
hereto,  and any  securities  of the  Company  or  securities  of any  successor
corporation  issued as, or  issuable  upon the  conversion  or  exercise  of any
warrant  right  or  other  security  that  is  issued  as a  dividend  or  other
distribution  with  respect to, or in exchange  for, or in  replacement  of, the
Shares.

     (iii) The term "holder of Registrable  Securities"  means the Purchaser and
any permitted assignee of registration rights pursuant to Section 1.4(h).

     (b) (i) The Company shall as soon as possible file a registration statement
on Form SB-2 or Form S-3  covering  at least 200% of the  number of  Registrable
Securities  which would then be issuable  upon  conversion  of the Shares at the
conversion  price then in effect,  and shall use its best  efforts to cause such
registration  statement to become  effective on or before ninety (90) days after
the Closing Date (the "Initial Registration"). In the event such registration is
not so declared  effective  or does not include all  Registrable  Securities,  a
holder of  Registrable  Securities  shall have the right to require by notice in
writing that the Company register all or any part of the Registrable  Securities
held by such holder (a "Demand  Registration")  and the Company shall  thereupon
effect such  registration in accordance  herewith (which may include adding such
shares to an existing shelf registration).  The parties agree that if the holder
of  Registrable  Securities  demands  registration  of  less  than  all  of  the
Registrable  Securities,  the Company,  at its option,  may nevertheless  file a
registration  statement  covering  all of the  Registrable  Securities.  If such
registration  statement is declared  effective  with respect to all  Registrable
Securities  and  the  Company  is  in  compliance  with  its  obligations  under
Subsection  (d) of this  Section  1.4, the demand  registration  rights  granted
pursuant to this Subsection (b)(i) shall cease. If such  registration  statement
is not declared  effective with respect to all Registrable  Securities or if the
Company is not in  compliance  with such  obligations,  the demand  registration
rights described herein shall remain in effect.

     (ii) The Company  shall not be  obligated  to effect a Demand  Registration
under Subsection (b)(i) above: (A) if all of the Registrable  Securities held by
the holder of  Registrable  Securities  which are  demanded to be covered by the
Demand  Registration  are, at the time of such demand,  included in an effective
registration  statement  and the Company is in compliance  with its  obligations
under  Subsection  (d) of  this  Section  1.4;  (B)  if  all of the  Registrable
Securities  may be sold under Rule 144(k) of the Act and the Company's  transfer
agent has accepted an instruction from the Company to such effect; or (C) at any
time after two (2) years from the Closing Date.

     (iii) Subject to  Subsection  (iv)(B)  hereof,  the Company may suspend the
effectiveness of any such registration  effected pursuant to this Subsection (b)
in the event and for such  period of time as, such a  suspension  is required by
the rules and regulations of the Securities and Exchange Commission ("SEC"). The
Company will use its best efforts to cause such  suspension  to terminate at the
earliest possible date.

     (iv) (A) If the Company is advised by the SEC that a registration statement
filed hereunder is subject to a "no-review" and such  registration  statement is
not  declared   effective   within  five  (5)  business  days   thereafter   (an
"Acceleration  Date")  or,  irrespective  of  the  SEC  review,  a  registration
statement  is not  declared  effective  by the ninety first (91st) day after the
Closing Date (the "Target Date"),  the Company shall pay Purchaser as liquidated
damages an amount equal to two percent (2%) of the total  Purchase  Price of the
Shares for each thirty (30) day period following the earlier of the Acceleration
Date or  Target  Date,  as  applicable,  until  such  time  as the  registration
statement is declared effective;  provided, however, that such damages shall not
be  payable if the  failure to meet the  Acceleration  Date or Target  Date,  as
applicable,  is due to action or inaction by Purchaser with respect to providing
information for the registration statement. The payment set forth above shall be
pro-rated  daily as to any period of less than  thirty (30) days.  Such  payment
shall be made to the Purchaser either (I) by cashier's check or wire transfer in
immediately available funds to such account as shall be designated in writing by
the  Purchaser  or (II) in  Shares,  the  number of which  shall be equal to the
amount due under this  Subsection  divided  by $1,000 per Share.  The  foregoing
amount shall be paid  irrespective of the amount of Registrable  Securities then
held by Purchaser.

     (B) If, following effectiveness of a registration, either the effectiveness
of the registration  statement is suspended or a current  prospectus meeting the
requirements  of  Section 10 of the Act is not  available  for  delivery  by the
Purchaser  (either  referred to herein as a  "suspension"),  the  Company  shall
thereupon pay to Purchaser as liquidated  damages an amount equal to two percent
(2%) of the Purchase  Price of the Shares for each thirty (30) day period of the
suspension.  The payment set forth above shall be pro-rated  daily as to periods
of less than thirty (30) days.  Such payment  shall be made to the  Purchaser by
cashiers check or wire transfer in immediately  available  funds to such account
as  shall  be  designated  in  writing  by the  Purchaser,  and  shall  be  paid
irrespective  of the amount of  Registrable  Securities  held by Purchaser on or
after the date following the suspension.

     (C)  Any  amount  payable  pursuant  to the  foregoing  provisions  of this
Subsection  (iv) shall be delivered  on or before the fifth (5th) day  following
the end of the  calendar  month in which  such  payment  obligation  arose.  The
"Purchase  Price"  of  Registrable  Securities  shall  be  (1) if  derived  from
conversion or substitution of Shares,  the Purchase Price of the Shares, and (2)
if received in satisfaction of a Company  obligation,  the dollar amount of such
obligation.

     (D) This  Subsection  is in addition to the  provisions  of Section  7.2(a)
hereof.

     (c) If the  Company  proposes  to register  (including  for this  purpose a
registration  effected by the Company for shareholders other than the Purchaser)
any of its stock or other  securities  under the Act in connection with a public
offering of such securities  (other than a registration on Form S-4, Form S-8 or
other limited purpose form) and all Registrable  Securities have not theretofore
been included in a registration  statement under  Subsection (b) of this Section
1.4 which remains effective,  the Company shall, at such time, promptly give all
holders of Registrable Securities written notice of such registration.  Upon the
written request of any holder of Registrable Securities given within twenty (20)
days after receipt of such notice by the holder of Registrable  Securities,  the
Company shall use its best efforts to cause to be  registered  under the Act all
Registrable Securities that such holder of Registrable Securities requests to be
registered.  However, the Company shall have no obligation under this Subsection
(c) if (i) the  Registrable  Securities may be sold without  registration  under
Rule 144(k) and the Company's  transfer agent has accepted an  instruction  from
the Company to such effect,  (ii) the Registration  Statement is filed more than
two (2) years after the Closing Date, or (iii) to the extent that,  with respect
to any  underwritten  offering  initiated by the Company later than one calendar
year following the Closing, the managing underwriter of such offering reasonably
notifies such  holder(s) in writing of its  determination  that the  Registrable
Securities or a portion thereof shall be excluded therefrom.

     (d) Whenever  required under this Section 1.4 to effect the registration of
any  Registrable   Securities   including,   without  limitation,   the  Initial
Registration, the Company shall, as expeditiously as reasonably possible:

     (i) Prepare and file with the SEC a registration  statement with respect to
such Registrable  Securities and use its best efforts to cause such registration
to become effective as provided in Section 1.4(b)(i), and keep such registration
statement effective for so long as any holder of Registrable  Securities desires
to dispose of the securities covered by such registration  statement;  provided,
however, that in no event shall the Company be required to keep the Registration
Statement  effective  for a period  greater  than two (2) years from the Closing
Date;

     (ii)  Respond to comments  made by the SEC with  respect to a  registration
statement  filed pursuant to this Agreement  within ten (10) business days after
the  date of the  comment  letter,  and  prepare  and  file  with  the SEC  such
amendments  and  supplements to such  registration  statement and the prospectus
used in  connection  with such  registration  statement  as may be  necessary to
comply with the  provisions  of the Act with respect to the  disposition  of all
securities covered by such registration  statement and notify the holders of the
filing and  effectiveness of such  Registration  Statement and any amendments or
supplements;

     (iii)  Furnish to each holder of  Registrable  Securities  such  numbers of
copies of a current prospectus,  including a preliminary prospectus,  conforming
with the  requirements  of the Act,  copies of the  registration  statement  any
amendment  or  supplement  to any  thereof  and any  documents  incorporated  by
reference  therein and such other documents,  all free of charge, as such holder
of  Registrable  Securities  may  reasonably  require in order to facilitate the
disposition  of  Registrable  Securities  owned by such  holder  of  Registrable
Securities;

     (iv) Use its best efforts to register and qualify the securities covered by
such  registration  statement under such other  securities or "Blue Sky" laws of
such jurisdictions as shall be reasonably requested by the holder of Registrable
Securities;

     (v)  Notify  each  holder  of  Registrable  Securities  immediately  of the
happening  of any  event as a result of which the  prospectus  included  in such
registration  statement,  as then in effect,  includes  an untrue  statement  of
material fact or omits to state a material fact required to be stated therein or
necessary  to make  the  statements  therein  not  misleading  in  light  of the
circumstances then existing,  and use its best efforts to promptly update and/or
correct such prospectus;

     (vi)  Furnish,  at the request of any holder of  Registrable  Securities in
connection with any underwritten  public offering,  (A) an opinion of counsel of
the Company, dated the effective date of the registration statement, in form and
substance  reasonably  satisfactory  to the holder and its counsel and covering,
without  limitation,  such matters as the due  authorization and issuance of the
securities being  registered and certain matters  pertaining to disclosure under
and  compliance  with  securities  laws by the  Company in  connection  with the
registration  thereof and/or (B) a "comfort"  letter or letters of the Company's
independent  public  accountants  provided at the Company's  expense in form and
substance reasonably satisfactory to the holder and its counsel;

     (vii) Use its best efforts to list the  Registrable  Securities  covered by
such registration  statement with any national market or securities  exchange on
which such securities are then listed;

     (viii)  Make   available  for  inspection  by  the  holder  of  Registrable
Securities,  upon request, all SEC Documents (as defined below) filed subsequent
to the Closing and require the  Company's  officers,  directors and employees to
supply  all  information  reasonably  requested  by any  holder  of  Registrable
Securities in connection with such registration statement: and

     (ix) Furnish to each holder of Registrable  Securities prompt notice of the
commencement of any stop-order  proceedings  under the Act, together with copies
of all  documents in  connection  therewith,  and use its best efforts to obtain
withdrawal of any such stop order as soon as possible.

     (e) Upon request of the Company, each holder of Registrable Securities will
furnish to the Company in connection  with any  registration  under this Section
such  information  regarding  itself,  the  Registrable   Securities  and  other
securities of the Company held by it, and the intended  method of disposition of
such  securities as shall be reasonably  required to effect the  registration of
the Registrable  Securities held by such holder of Registrable  Securities.  The
intended method of disposition  (Plan of  Distribution) of such securities as so
provided by Purchaser shall be included  without  alteration in the Registration
Statement  covering the Registrable  Securities and shall not be changed without
the prior written consent of the Purchaser.

     (f) (i) The Company shall  indemnify,  defend and hold harmless each holder
of  Registrable  Securities  which  are  included  in a  registration  statement
pursuant  to the  provisions  of  Subsections  (b) or (c) hereof and each of its
officers, directors,  employees, agents, partners or controlling persons (within
the meaning of the Act) (each,  an  "indemnified  party") from and against,  and
shall  reimburse  such  indemnified  party with  respect to, any and all claims,
suits,  demands,  causes  of  action,  losses,  damages,  liabilities,  costs or
expenses  ("Liabilities")  to which such  indemnified  party may become  subject
under the Act or otherwise, arising from or relating to (A) any untrue statement
or alleged untrue statement of any material fact contained in such  registration
statement,  any  prospectus  contained  therein or any  amendment or  supplement
thereto,  or (B) the  omission or alleged  omission to state  therein a material
fact required to be stated therein or necessary to make the statements  therein,
in light of the circumstances in which they were made, not misleading; provided,
however,  that the  Company  shall not be liable in any such case to the  extent
that any such  Liability  arises out of or is based upon an untrue  statement or
omission  so  made in  strict  conformity  with  information  furnished  by such
indemnified party in writing specifically for use in a registration statement.

     (ii)  In the  event  of  any  registration  under  the  Act of  Registrable
Securities  pursuant to Subsections (b) or (c), each holder of such  Registrable
Securities  hereby severally  agrees to indemnity,  defend and hold harmless the
Company,  and  its  officers,   directors,   employees,   agents,  partners,  or
controlling  persons  (within  the meaning of the Act)  (each,  an  "indemnified
party")  from and  against,  and shall  reimburse  such  indemnified  party with
respect to, any and all Liabilities to which such  indemnified  party may become
subject under the Act or  otherwise,  arising from or relating to (A) any untrue
statement or alleged  untrue  statement of any material  fact  contained in such
registration  statement,  any prospectus  contained  therein or any amendment or
supplement  thereto,  or (B) the omission or alleged omission to state therein a
material fact required to be stated  therein or necessary to make the statements
therein,  in light of the circumstances in which they were made, not misleading;
provided,  that such  holders  will be liable in any such case to the extent and
only to the extent,  that any such  Liability  arises out of or is based upon an
untrue  statement or alleged  untrue  statement or omission or alleged  omission
made in such  registration  statement,  prospectus  or amendment  or  supplement
thereto in reliance upon and in conformity with written information furnished by
such holder specifically for use in the preparation thereof.

     (iii)  Promptly  after  receipt by any  indemnified  party of notice of the
commencement of any action,  such indemnified party shall, if a claim in respect
thereof  is  to  be  made  against  another  party  (the  "indemnifying  party")
hereunder,  notify such party in writing thereof,  but the omission so to notify
such party shall not relieve such party from any Liability  which it may have to
the  indemnified  party other than under this  Section and shall only relieve it
from any Liability which it may have to the indemnified party under this section
if and to the extent an  indemnifying  party is  materially  prejudiced  by such
omission. In case any such action shall be brought against any indemnified party
and  such  indemnified   party  shall  notify  an  indemnifying   party  of  the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and  undertake  the defense  thereof
with counsel  reasonably  satisfactory  to such  indemnified  party,  and, after
notice from the indemnifying  party to the indemnified  party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to the  indemnified  party  under  this  section  for any legal  expenses
subsequently  incurred by the  indemnified  party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected; provided however, that if the defendants in any such action include
both parties and the  indemnified  party shall have  reasonably  concluded  that
there may be reasonable  defenses  available to them which are different from or
additional to those available to the  indemnifying  party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying  party, the indemnified  party shall have the right to select a
separate  counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of one such
separate counsel and other reasonable  expenses related to such participation to
be reimbursed by the indemnifying party as incurred.

     (g) (i) With  respect  to the  inclusion  of  Registrable  Securities  in a
registration  statement  pursuant to Subsections (b) or (c), all fees, costs and
expenses of and incidental to such  registration,  inclusion and public offering
shall be borne  by the  Company,  provided,  however,  that any  securityholders
participating  in such  registration  shall  bear  their  pro-rata  share of the
underwriting  discounts and commissions,  if any, incurred by them in connection
with such registration.

     (ii) The  fees,  costs  and  expenses  of  registration  to be borne by the
Company as provided in this Subsection shall include,  without  limitation,  all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and  accountants for the Company,  and all legal fees and  disbursements
and other  expenses of complying  with state  securities or Blue Sky laws of any
jurisdiction  or  jurisdictions  in which  securities  to be  offered  are to be
registered   and   qualified.   Subject   to   appropriate   agreements   as  to
confidentiality,  the Company shall make available to the holders of Registrable
Securities  and their  counsel its  documents  and  personnel  for due diligence
purposes. Except as otherwise provided herein, fees and disbursements of counsel
and  accountants  for  the  selling  security  holders  shall  be  borne  by the
respective selling security holders.

     (h) The  rights to cause the  Company  to  register  all or any  portion of
Registrable Securities pursuant to this Section 1.4 may be assigned by Purchaser
to a transferee or assignee.  Within a reasonable time after such transfer,  the
Purchaser shall notify the Company of the name and address of such transferee or
assignee,  and the securities with respect to which such registration rights are
being  assigned.  Such  assignment  shall  be  effective  only  if,  immediately
following  such  transfer,  the further  disposition  of such  securities by the
transferee or assignee is  restricted  under the Act. Any  transferee  asserting
registration  rights  hereunder  shall be bound by the applicable  provisions of
this Agreement.

     (i) The Company  shall not agree to allow the holders of any  securities of
the Company to include any of their  securities  in any  registration  statement
filed by the Company  pursuant to Subsection  (b) unless such inclusion will not
reduce the amount of the Registrable Securities included therein.

     Section  1.5  Company  Standoff,  Except  in  a  corporate  reorganization,
business combination,  stock or asset purchase,  merger or consolidation,  under
existing  employee  stock  incentive  or  purchase  plans  or  pursuant  to this
Agreement,  the Company shall not for its own account  effect any public sale or
distribution  of any  securities  similar to the  Registrable  Securities or any
securities  exercisable  for or convertible or changeable  into the  Registrable
Securities  during the thirty (30) days prior to, and during the sixty (60) days
immediately following, the effective date of any registration statement filed or
amended  pursuant to Section  1.4(b);  provided,  however,  that the Company may
effect such public sale or distribution  during the sixty (60) days  immediately
following  the  effective  date of such  registration  statement if such sale or
distribution  of  securities  is at a price equal to or greater than 125% of the
last trade price of the Company's Common Stock on the day of Closing.

     Section 2.1 Representations and Warranties of the Purchaser.  The Purchaser
makes the following representations and warranties to the Company.

     (a) Accredited Investor. The Purchaser is an "accredited investor", as such
term is defined in Rule 50 1 (a) of Regulation D, promulgated under the Act.

     (b)  Speculative  Investment.  The Purchaser is aware that an investment in
the Shares is highly speculative and subject to substantial risks. The Purchaser
is capable of bearing the high  degree of  economic  risk and the burden of this
venture,  including, but not limited to, the possibility of complete loss of the
Purchaser's  investment  in the Shares and  underlying  Common  Stock which make
liquidation of this investment impossible for the indefinite future.

     (c) Disposition.  The Purchaser understands that (i) except as provided for
in Section  1.4,  the Shares and  underlying  Common  Stock of the Company  (the
"Securities"),  have not been and are not being  registered under the Securities
Act or any applicable state  securities laws, and may not be transferred  unless
(A)  subsequently  registered  thereunder,  or (B) the Securities may be sold or
transferred  pursuant to an exemption  from  securities  registration  under the
Securities Act and any applicable  state securities laws or (C) sold pursuant to
Rule 144,  promulgated under the Securities Act (or any successor Rule), or (ii)
any sale of such  Securities  made in  reliance  on Rule 144 may be made only in
accordance  with  the  terms  of such  Rule  and  further,  if such  Rule is not
applicable,  any  resale of such  Securities  under  circumstances  in which the
seller  (or the  person  through  whom the sale is made)  may be deemed to be an
underwriter  (as  that  term is  defined  in the  Securities  Act)  may  require
compliance  with another  exemption under the Securities Act or the rules of the
SEC thereunder.  Notwithstanding any provision to the contrary contained herein,
a holder may pledge such  Securities as collateral  for a revolving  credit note
pursuant to a loan and security agreement with a lending institution.

     (d)  Privately  Offered.  The offer to  acquire  the  Shares  was  directly
communicated  to the Purchaser in such manner that the Purchaser was able to ask
questions of and receive  answers  concerning  the terms and  conditions of this
transaction.  At no time was the  Purchaser  presented  with or  solicited by or
through any leaflet, public promotional meeting,  television  advertisement,  or
any other form of general advertising.

     (e) Purchase for  Investment,  The Securities are being acquired solely for
the  Purchaser's own account,  for investment,  and are not being purchased with
view to the  resale,  distribution,  subdivision  or  fractionalization  thereof
without proper registration with applicable securities administrators.

     Section 2.2  Representations  and  Warranties  of the Company.  The Company
hereby makes the following representations and warranties to the Purchaser:

     (a)  Organizations  and  Qualifications.  The Company is a corporation duly
incorporated and existing in good standing under the laws of the Commonwealth of
Massachusetts and has the requisite corporate power to own its properties and to
carry on its  business as now being  conducted.  The  Company  does not have any
subsidiaries  except as listed in Exhibit B,  attached  hereto and  incorporated
herein by  reference.  The  Company  and each such  subsidiary,  if any, is duly
qualified as a foreign  corporation  to do business  and is in good  standing in
every  jurisdiction  in which the nature of the  business  conducted or property
owned by it makes  such  qualification  necessary  other than those in which the
failure  so to  qualify  would not have a  Material  Adverse  Effect.  "Material
Adverse Effect", for purposes of this Agreement, means any adverse effect on the
business operations, properties, prospects, or financial condition of the entity
with respect to which such term is used and which is material to such entity and
other entities controlled by such entity taken as a whole.

     (b) Authorizations Enforcement. (i) The Company has the requisite corporate
power and  authority to enter into and perform this  Agreement  and to issue the
Shares and Registrable  Securities in accordance with the terms hereof, (ii) the
execution and delivery of this Agreement by the Company and the  consummation by
it of the  transactions  contemplated  hereby have been duly  authorized  by all
necessary  corporate  action,  and no further  consent or  authorization  of the
Company  or its Board of  Directors  or  stockholders  is  required,  (iii) this
Agreement  has been  duly  executed  and  delivered  by the  Company,  (iv) this
Agreement  constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms (except as such  enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting  generally the enforcement
of,  creditor'  rights and remedies or by other equitable  principles of general
application)  and (v) prior to the Closing Date,  any necessary  Certificate  of
Amendment  to the  Company's  Charter  authorizing  Company  to issue all of the
Shares and  Registerable  Securities,  in accordance  with Schedule 1, will have
been filed with the  Massachusetts  Secretary of State and will be in full force
and effect enforceable  against the Company in accordance with the terms of such
amended Charter.

     (c)  Authorized  Capital  Rights or  Commitments  to Stock.  The authorized
capital stock of the Company  consists of 22,200,000  shares of Common Stock and
1,000,000  shares of Series B Preferred  Stock;  there are  4,704,956  shares of
Common  Stock  issued and 730,292  shares of Class B Common  Stock  outstanding;
there are no shares of such Preferred  Stock issued and  outstanding;  and, upon
issuance  of the  Shares in  accordance  with the terms  hereof,  there  will be
4,704,956  shares of Class B Common Stock and 950 shares of such Preferred Stock
issued and outstanding.

      All of the  outstanding  shares of the Company's  Common Stock have been
validly  issued and are fully paid and  nonassessable.  Except as set forth in
Exhibit B hereto or as  described  in the SEC  Documents,  no shares of Common
Stock are entitled to preemptive  rights or registration  rights and there are
no  outstanding  options,  warrants,  scrip,  rights to subscribe to, calls or
commitments of any character  whatsoever  relating to, or securities or rights
convertible  into,  any shares of capital stock of the Company,  or contracts,
commitments,  understandings,  or  arrangements by which the Company is or may
become  bound to issue  additional  shares of capital  stock of the Company or
options,  warrants,  scrip, rights to subscribe to, or commitments to purchase
or acquire,  any shares.  or securities or rights  convertible into shares, of
capital stock of the Company.  The Company has furnished or made  available to
the  Purchaser  true  and  correct   copies  of  the  Company's   Articles  of
Organization  as in  effect  on the  date  hereof  (the  "Charter"),  and  the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").

     (d) Issuance of Shares. The issuance of the Shares has been duly authorized
and, when paid for and issued in accordance with the terms hereof,  the shall be
validly  issued,  fully paid and  non-assessable  and entitled to the rights and
preferences  set forth in  Schedule I hereto.  The Common  Stock  issuable  upon
conversion of the Shares will be duly  authorized and reserved for issuance and,
upon conversion,  will be validly issued,  fully paid and non-assessable and the
holders shall be entitled to all rights and preferences  accorded to a holder of
Common Stock.

     (e) No Conflicts. The execution, delivery and performance of this Agreement
by the  Company  and  the  consummation  by  the  Company  of  the  transactions
contemplated  hereby  do not and  will  not (i)  result  in a  violation  of the
Company's  Charter or By-Laws or (ii) conflict with, or constitute a default (or
an event  which  with  notice or lapse of time or both  would  become a default)
under, or give to others any rights of termination,  amendment,  acceleration or
cancellation of, any agreement,  indenture or instrument to which the Company or
any of its  subsidiaries  is a party,  or result in a violation  of any federal,
state,  local or  foreign  law,  rule,  regulation,  order,  judgment  or decree
(including Federal and state securities laws and regulations)  applicable to the
Company or any of its  subsidiaries  or by which any  property  or assets of the
Company  or any of its  subsidiaries  is  bound  or  affected  (except  for such
conflicts, defaults, terminations, amendments, accelerations,  cancellations and
violations  as would  not,  individually  or in the  aggregate,  have a Material
Adverse  Effect);  provided  that,  for  purposes of such  representation  as to
Federal,  state, local or foreign law, rule or regulation,  no representation is
made herein with respect to any of the same  applicable  solely to the Purchaser
and not to the Company.  The  business of the Company is not being  conducted in
violation  of any law,  ordinance or  regulations  of any  governmental  entity,
except for  violations  which either  singly or in the aggregate do not and will
not have a Material  Adverse Effect.  The Company is not required under Federal,
state or local  law,  rule or  regulation  in the  United  States to obtain  any
consent, authorization or order of, or make any filing (other than any filing of
a vote establishing a class or series of stock with the Massachusetts  Secretary
of State) or registration with, any court or governmental agency in order for it
to execute,  deliver or perform any of its  obligations  under this Agreement or
issue and sell the Shares in  accordance  with the terms hereof  (other than any
SEC,  NASD or state  securities  filings which may be required to be made by the
Company subsequent to the Closing,  and any registration  statement which may be
filed pursuant hereto);  provided that, for purposes of the representation  made
in this  sentence,  the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchaser herein.

     (f) SEC Documents, Financial Statements. The Common Stock of the Company is
registered  pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange  Act") and, except as set forth in Exhibit B, the Company
has filed on a timely basis all reports,  schedules, forms, statements and other
documents  required  to be filed by it with the SEC  pursuant  to the  reporting
requirements of the Exchange Act,  including  material filed pursuant to Section
13(a)  or  15(d),  in  addition  to  one or  more  registration  statements  and
amendments  thereto  heretofore  filed by the Company with the SEC under the Act
(all of the foregoing including filings  incorporated by reference therein being
referred to herein as the "SEC Documents").  The Company directly or through its
agent  has  delivered  to the  Purchaser  true and  complete  copies  of the SEC
Documents  except for the exhibits and incorporated  documents.  The Company has
not provided to the Purchaser  any  information  which,  according to applicable
law, rule or regulation,  should have been disclosed publicly by the Company but
which has not been so  disclosed,  other than with  respect to the  transactions
contemplated by this Agreement.

     Except  as set forth in  Exhibit  B, as of their  respective  dates the SEC
Documents  complied in all material respects with the requirements of the Act or
the  Exchange  Act as the case may be and the rules and  regulations  of the SEC
promulgated  thereunder  and other  federal,  state and  local  laws,  rules and
regulations  applicable  to such SEC  Documents,  and none of the SEC  Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated  therein or necessary in order to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.  Except as set forth in Exhibit B, the  financial  statements of the
Company included in the SEC Documents comply as to form in all material respects
with applicable accounting  requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto.  Such
financial  statements have been prepared in accordance  with generally  accepted
accounting  principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise  indicated in such  financial  statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include  footnotes or may be condensed or summary  statements)  and
fairly present in all material respects the financial position of the Company as
of the dates  thereof  and the  results  of  operations  and cash  flows for the
periods  then ended  (subject,  in the case of unaudited  statements,  to normal
year-end audit adjustments).

     (g) No  Material  Adverse  Change.  Since the date  through  which the most
recent  quarterly report of the Company on Form 10-Q has been prepared and filed
with the SEC, a copy of which is  included  in the SEC  Documents,  no  Material
Adverse  Effect has occurred or exists with respect to the Company or any of its
subsidiaries.

     (h) No Undisclosed  Liabilities.  The Company and its subsidiaries  have no
material  liabilities or obligations  not disclosed in the SEC Documents,  other
than  those  incurred  in the  ordinary  course of the  Company's  or any of its
subsidiaries'  respective  businesses  since the date of the most recently filed
SEC Documents which,  individually or in the aggregate, do not or would not have
a Material Adverse Effect on the Company or any of its subsidiaries.

     (i) No Undisclosed  Events or  Circumstances.  No event or circumstance has
occurred or exists with  respect to the  Company or any of its  subsidiaries  or
their  respective  businesses,  properties,  prospects,  operations or financial
condition  which,  under  applicable  law, rule or regulation,  requires  public
disclosure  or  announcement  by the  Company but which has not been so publicly
announced or disclosed.

     (j)  No  General  Solicitation.   Neither  the  Company,  nor  any  of  its
affiliates,  or, to the best of its knowledge, any person acting on its or their
behalf, has engaged in any form of general  solicitation or general  advertising
(within the meaning of Regulation D under the Act) in connection  with the offer
or sale of the Shares.

     (k) No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has,  directly or indirectly,  made
any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Shares under the Act.

     Section 3.1  Securities  Compliance.  The Company  shall notify the SEC and
NASD, in accordance with their requirements, of the transactions contemplated by
this Agreement, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation,  for the legal
and valid issuance of the Shares,  and the Common Stock issuable upon conversion
thereof, to the Purchaser.

     Section 3.2 Registration  and Listing.  Until. at least two (2) years after
all Shares have been converted  into  Registrable  Securities,  the Company will
cause its Common  Stock to continue to be  registered  under  Sections  12(b) or
12(g) of the Exchange  Act,  will comply in all respects  with its reporting and
filing  obligations  under such Exchange Act, will comply with all  requirements
related to any registration  statement filed pursuant to this Agreement and will
not take any action or file any document (whether or not permitted by the Act or
the  Exchange  Act or  the  rules  thereunder)  to  terminate  or  suspend  such
registration  or to terminate or suspend its  reporting  and filing  obligations
under said Acts, except as permitted herein.  Until at least two (2) years after
all Shares  have been  converted  into Common  Stock the  Company  will take all
action  within its power to continue  the listing or trading of its Common Stock
on the  NASDAQ  Small  Cap  Market  and will  comply  in all  respects  with the
Company's  reporting,  filing and other obligations under the bylaws or rules of
the NASD and NASDAQ.  The  covenants  set forth in this Section 3.2 shall not be
deemed  to   prohibit  a  merger,   sale  of  all  assets  or  other   corporate
reorganization  if the entity surviving or succeeding to the Company is bound by
this  Agreement  with  respect to its  securities  issued in exchange  for or in
replacement of the Shares or Common Stock or the  consideration  received for or
in replacement of the Shares or Common Stock is cash.

     Section 3.3 Right of First Refusal and  Most-Favored-Nation  Clause.  If at
any time  during the period  beginning  on the fifth (5th) day prior to (but not
including) the Closing Date and ending sixty (60) days immediately following the
effective date of the Initial Registration, the Company proposes to issue Common
Stock or securities  convertible  into or exercisable  for Common Stock or other
convertible  securities,  pursuant to an offering exempt from registration under
the Act, the Company shall provide to Purchaser reasonable advance notice of all
the terms of such  proposed  issuance.  The  Purchaser  shall  have the right to
purchase or refuse to purchase all or any part of such securities proposed to be
issued in such  offering,  and shall have at least  seventy two (72) hours after
receipt of such notice to review the terms of the proposed issuance.

     If the  Company  issues  Common  Stock or  securities  convertible  into or
exercisable for Common Stock or other convertible securities, at a time when any
of the Shares  remain  outstanding,  at an  effective  price per share of Common
Stock which is lower than the conversion  price of the Shares at that time, then
the Company shall,  within five (5) business  days,  deliver to each holder upon
conversion  an additional  number of shares of Common Stock  necessary to reduce
the effective conversion price to such lower issue price. This Section shall not
be  applicable  to  issuances  of  Common  Stock  pursuant  to (a) any  business
combination,  acquisition transaction, stock or asset purchase undertaken by the
Company or (b) any  shareholder-approved  option plan covering not more than 10%
of the Company's outstanding stock.

     Section 4.1  Conditions  Precedent to the Obligation of the Company to Sell
the Shares.  The  obligation  hereunder  of the Company to issue and/or sell the
Shares to the  Purchaser  is  subject  to the  satisfaction,  at or  before  the
Closing,  of each of the  conditions  set forth below.  These  conditions may be
waived by the Company at any time in its sole discretion.

     (a)  Accuracy  of  the  Purchaser's  Representations  and  Warranting.  The
representations and warranties of the Purchaser shall be true and correct in all
material  respects as of the date when made and as of the Closing Date as though
made at that time (except for  representations and warranties that speak as of a
particular date).

     (b)  Performance by the Purchaser.  The Purchaser  shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Purchaser at or prior to the Closing.

     (c) No Injunction.  No statute, rule, regulation.  executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

     (d) Legal action.  No legal action,  suit or proceeding shall be pending or
threatened which seeks to restrain or prohibit the transactions  contemplated by
this Agreement.

     (e)  Execution.  The  Purchaser  shall have executed  this  Agreement,  and
delivered such Agreement to the Company.

     (f) Purchase  Price.  The Purchaser shall have delivered the Purchase Price
in accordance with Section 1.3(b) above.

     Section 4.2  Conditions  Precedent to the  Obligation  of the  Purchaser to
Purchase the Shares.  The  obligation  hereunder of the Purchaser to acquire and
pay for the Shares is subject to the satisfaction,  at or before the Closing, of
each of the  conditions set forth below.  These  conditions may be waived by the
Purchaser at any time in its sole discretion.

     (a)  Accuracy  of  the  Company's   Representations  and  Warranties.   The
representations  and  warranties of the Company shall be true and correct in all
material  respects as of the date when made and as of the Closing Date as though
made at that time (except for  representations and warranties that speak as of a
particular date).

     (b)  Performance  by the  Company.  The Company  shall have  performed  all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.

     (c)  NASDAO.  From the date  hereof to the  Closing  Date,  trading  in the
Company's  Common  Stock shall not have been  suspended by the SEC or the NASDAQ
Small Cap Market  (except  for any  suspension  of  trading of limited  duration
agreed to between the Company and the NASDAQ  Small Cap Market  solely to permit
dissemination  of material  information  regarding the Company),  and trading in
securities  generally  as reported by NASDAQ  shall not have been  suspended  or
limited or minimum prices shall not have been established on
securities whose trades are reported by NASDAQ.

     (d) No Injunction.  No statute, rule, regulation,  executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

     (e) Opinion of Counsel Etc. The Purchaser  shall have received before or at
the Closing an opinion of counsel to the Company (covering,  without limitation,
such of the matters set forth in Section 2.2(a) through (e)), as are in form and
substance  reasonably  satisfactory  to the Purchaser and its counsel,  and such
other  certificates  and  documents  as  the  Purchaser  or  its  counsel  shall
reasonably require incident to the Closing.

     (f)  Execution.  The  Company  shall  have  executed  this  Agreement,  and
delivered such Agreement to the Purchaser.

     Section 5.1 Legend on Stock. Each certificate  representing the Shares and,
if necessary,  Common Stock issued upon conversion thereof,  shall be stamped or
otherwise imprinted with a legend substantially in the following form:

THESE  SECURITIES  [AND THE SHARES OF COMMON STOCK  ISSUABLE UPON THE CONVERSION
HEREOF] HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE  SECURITIES  LAWS.  THEY MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS
THERE IS AN EFFECTIVE  REGISTRATION  STATEMENT UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR, IN THE OPINION OF COUNSEL,  REGISTRATION UNDER SUCH ACT
OR APPLICABLE  STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH SUCH SALE
OR OFFER, AND SUCH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY.

     The Company agrees to reissue  certificates  representing the Shares or, if
applicable,  the Common Stock issued upon conversion thereof, without the legend
set forth above at such time as (a) the holder  thereof is  permitted to dispose
of such Shares (or securities  issued upon conversion  thereof) pursuant to Rule
144(k) under the Act, (b) the  securities  are sold to a purchaser or purchasers
who (in the opinion of counsel to such holders, in form and substance reasonably
satisfactory  to the  Company  and its  counsel)  are  able to  dispose  of such
securities publicly without registration under the Act, or (iii) such securities
are registered under the Act

     Section 6.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the mutual  written  consent of the Company,
and the Purchaser.

     Section 6.2 Other  Termination.  This Agreement may be terminated by action
of the  Board of  Directors  or other  governing  body of the  Purchaser  or the
Company at any time if the Closing shall not have been  consummated by the fifth
(5th) business day following the date of this Agreement, provided that the party
seeking to terminate the Agreement is not in breach of the Agreement.

     Section 6.3  Automatic  Termination.  This  Agreement  shall  automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the seventh  (7th)  business day following the date of this
Agreement,  provided, however, that any such termination shall not terminate the
liability of any party which is then in breach of the Agreement.

     Section 7.1 Fees and Expenses. Except as otherwise set forth in Section 1.4
hereof with respect to the registration of Registrable  Securities,  the Company
shall pay the fees, commissions and expenses of its advisers,  brokers, finders,
counsel,  accountants  and  other  experts,  if  any,  and  all  other  expenses
associated therewith, and shall on the Closing Date reimburse ProFutures Special
Equities  Fund,  L.P.  up to $5,000  for fees and  expenses  of its  counsel  in
connection with the preparation, negotiation and coordination of this Agreement.
The Company  shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares and Common Stock pursuant hereto.

     Section 7.2 Specific Enforcement, Consent to Jurisdiction.

     (a) The Company and the Purchaser  acknowledge  and agree that  irreparable
damage  would occur in the event that any of the  provisions  of this  Agreement
were not performed in accordance  with their  specific  terms or were  otherwise
breached.  It is  accordingly  agreed that the  parties  shall be entitled to an
injunction or  injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce  specifically  the terms and  provisions  hereof,  this
being in addition to any other remedy to which either of them may be entitled by
law or equity.

     (b) The Company and the Purchaser  each (i) hereby  irrevocably  submits to
the  jurisdiction  of the United States  District  Court and other courts of the
United States sitting in the State of Texas for the purposes of any suit, action
or  proceeding  arising  out of or relating  to this  Agreement  and (ii) hereby
waives,  and agrees not to assert in any such suit,  action or  proceeding,  any
claim that it is not personally  subject to the jurisdiction of such court, that
the suit,  action or proceeding is brought in an inconvenient  forum or that the
venue of the  suit,  action or  proceeding  is  improper.  The  Company  and the
Purchaser  each  consents to process  being  served in any such suit,  action or
proceeding  by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and  sufficient  service of process  and  notice  thereof.  Nothing in this
paragraph  shall affect or limit any right to serve  process in any other manner
permitted by law.

     Section 7.3 Entire Agreement: Amendment. This Agreement contains the entire
understanding  of the parties  with respect to the matters  covered  hereby and,
except as specifically  set forth herein,  neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by a
written  instrument  signed by the party  against whom  enforcement  of any such
amendment or waiver is sought.

     Section  7.4  Notices.  Any  notice  or  other  communication  required  or
permitted to be given  hereunder  shall be in writing and shall be effective (a)
upon hand  delivery or delivery by telex (with  correct  answer back  received),
telecopy or facsimile at the address or number designated below (if delivered on
a  business  day  during  normal  business  hours  where  such  notice  is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal  business  hours where such notice is to be
received) or (b) on the second (2nd)  business day following the date of mailing
by express courier service,  fully prepaid,  addressed to such address,  or upon
actual receipt of such mailing, whichever shall first occur.

     The addresses for such communications shall be:

to the Company:   Bruce A. Shear, President and Chief Executive Officer
                  PHC, Inc.
                  200 Lake Street -- Suite 102
                  Peabody, Massachusetts 01960

to the Purchaser: At the address set forth at the foot of this Agreement or
                  as specified in writing by Purchaser.

Any party  hereto may from time to time change its address for notices by giving
at least ten (10)  days'  written  notice of such  changed  address to the other
party hereto.

     Section 7.5 Waivers.  No waiver by either party of any default with respect
to any provision,  condition or requirement of this Agreement shall be deemed to
be a  continuing  waiver  in the  future  or a waiver  of any  other  provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right  hereunder  in any manner  impair the exercise of any such
right accruing to it thereafter.

     Section 7.6 Headings.  The headings herein are for convenience only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof.

     Section  7.7  Governing  Law.  This  Agreement  shall  be  governed  by and
construed and enforced in accordance with the internal laws of the present state
of  incorporation  of the Company  without regard to such state's  principles of
conflict of laws.

     Section 7.8 Survival. The representations and warranties of the Company and
the Purchaser  contained in herein and the agreements and covenants set forth in
Sections 1.1 through 1.5, 3.1 through 3.3 and 7.1 through 7.16 shall survive the
Closing for a period of two (2) years.

     Section 7.9 Publicity.  The Company  agrees that it will not disclose,  and
will not include in any public  announcement,  the name of the Purchaser without
its consent,  unless and until such  disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.

     Section 7.10 NASDAO.  The term "NASDAQ" or "NASDAQ Small Cap Market" herein
refers to the  principal  market on which the  Common  Stock of the  Company  is
traded.  If the Common Stock is listed on a securities  exchange.  or if another
market  becomes  the  principal  market on which the  Common  Stock is traded or
through  which price  quotations  for the Common  Stock are  reported,  the term
"NASDAQ" or "NASDAQ  Small Cap Market" shall be deemed to refer to such exchange
or other principal market.

     Section 7.11  Acceptance.  Execution and delivery of this  Agreement  shall
constitute  an offer to purchase  the Shares,  which  offer,  unless  previously
revoked by the  Purchaser,  may be accepted or rejected by the  Company,  in its
sole  discretion  for any cause or for no cause  and  without  liability  to the
Purchaser. The Company shall indicate acceptance of this Agreement by signing as
indicated on the signature page hereof.

     Section 7.12 Binding  Agreement.  Upon  acceptance of this Agreement by the
Company,  the Purchaser  agrees that he may not cancel,  terminate or revoke any
agreement of the Purchaser made hereunder, and that this Agreement shall survive
the death or  disability  of the  Purchaser  and shall be  binding  upon  heirs,
successors,  assigns,  executors,  administrators,  guardians,  conservators  or
personal representatives of the Purchaser.

     Section 7.13  Incorporation by Reference.  All information set forth on the
signature page is incorporated as integral terms of this Agreement.

     Section  7.14  Counterparts.  This  Agreement  may be  signed  in  multiple
counterparts,  which  counterparts  shall  constitute  one and the same original
instrument.

     Section 7.15  Severability.  If any portion of this Agreement shall be held
illegal,  unenforceable,  void or  voidable  by any court each of the  remaining
terms  hereof shall  nevertheless  remain in full force and effect as a separate
contract.

     Section 7.16  Successors and Assigns.  This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their  respective  successors
and permitted assigns.




   [This space has been left blank intentionally. The signature page follows.]

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $500,000 (500 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         26,315 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      ProFutures Special Equities Fund, L.P.

Address of Purchaser:   % ProFutures Fund Management, Inc.
                        1030 Highway 620 South - Suite 200
                        Austin, TX  78734

Social Security or IRS Employer Identification Number(s):

      74-2786952

Signature of Purchaser:                              Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

______________________________________________
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  ProFutures Special Equities Fund, L.P.
                 By ProFutures Fund Management, Inc., a General Partner


By:  ______________________________________
          (Signature)

Name:      /s/ Gary D. Halbert
Title:         President

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $150,000 (150 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         7,890 shares

The exact name(s)(Including  correct,legible spelling) and the information under
which title to the Shares will be taken is as follows (Please print or type):

      Gary D. Halbert

Address of Purchaser:   1030 Highway 620 South - Suite 200
                        Austin, TX  78734

Social Security or IRS Employer Identification Number(s):

      ###-##-####

Signature of Purchaser:                                 Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

/s/ Gary D. Halbert
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  _______________________________________

By:  ______________________________________
          (Signature)

Name:     ____________________________________________
Title:    ____________________________________________

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $100,000 (100 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         5,260 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      John F. Mauldin

Address of Purchaser:   1000 Ballpark in Arlington - Suite 216
                        Arlington, TX  76011

Social Security or IRS Employer Identification Number(s):

      ###-##-####

Signature of Purchaser:                                 Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

/s/ John F. Mauldin
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  ________________________________


By:  ______________________________________
          (Signature)

Name:     _________________________________
Title:    _________________________________

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $200,000 (200 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         10,525 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      Augustine Fund, L.P.

Address of Purchaser:   141 West Jackson Boulevard - Suite 2182
                        Chicago, IL  60604

Social Security or IRS Employer Identification Number(s):

      36-418-6782

Signature of Purchaser:                                  Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

______________________________________________
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  Augustine Fund, L.P.
            By Augustine Capital Management, Inc., the General Partner

By:  ______________________________________
          (Signature)

Name:      /s/ Thomas Duszynski
Title:         Chief Operating Officer

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name: /s/ Bruce A. Shear
Title:    President

<PAGE>
                                   SCHEDULE I

                                    PHC, INC.

                 RESOLUTIONS ESTABLISHING RIGHTS AND PREFERENCES
                    FOR SERIES B CONVERTIBLE PREFERRED STOCK

     RESOLVED,  that  there  shall  be a series  of  shares  of the  Corporation
designated "Series B Convertible  Preferred Stock"; that the number of shares of
such series shall be 1,000, that the Corporation issue such shares, and that the
rights and  preferences of such series (the "6%  Preferred") and the limitations
or restrictions thereon, shall be as set forth herein.

     The following  terms and conditions  shall be adopted and  incorporated  by
reference into the foregoing resolutions as if fully set forth therein:

     1. Dividends.

     (a) The holders of the 6% Preferred shall be entitled to receive out of any
assets legally available  therefor  cumulative  dividends at the rate of $60 per
share per annum,  accrued  daily and payable  quarterly  in arrears on March 31,
June 30,  September 30 and December 31 of each year, in preference  and priority
to any payment of any  dividend on the Common Stock or any other class or series
of stock of the Corporation. Such dividends shall accrue on any given share from
the day of  original  issuance  of such share and shall  accrue  from day to day
whether or not earned or declared.  If at any time dividends on the  outstanding
6%  Preferred  at the rate set forth  above shall not have been paid or declared
and set apart for payment with respect to all preceding  periods,  the amount of
the  deficiency  shall be fully paid or declared and set apart for payment,  but
without  interest,  before  any  distribution,  whether  by way of  dividend  or
otherwise,  shall be  declared  or paid upon or set apart for the  shares of any
other class or series of stock of the Corporation.

     (b) Any dividend  payable on a dividend  payment  date may be paid,  at the
option of the Corporation,  either (i) in cash or (ii) in shares of 6% Preferred
valued at $1,000 per share, if the Common Stock issuable upon conversion of such
shares has been  registered  for resale  under the  Securities  Act of 1933,  as
amended  (the  "Act"),  and  the  registration  statement  including  a  current
prospectus  with  respect  thereto  remains in effect at the date of delivery of
such  shares,  and if the  Corporation  shall have given  written  notice of its
intention  to pay such  dividend in stock to all holders of the 6%  Preferred at
least ten (10) days before the record date for such dividend.

     2. Liquidation Preference, Redemption.

     (a) In the  event of any  liquidation,  dissolution  or  winding  up of the
Corporation,  either  voluntary or involuntary,  the holders of the 6% Preferred
shall be entitled to receive, prior and in preference to any distribution of any
assets of the Corporation to the holders of any other class or series of shares,
the amount of $1,000  per share  plus any  accrued  but  unpaid  dividends  (the
"Liquidation Preference").

     (b) A  consolidation  or merger of the  Corporation  with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation  (other than a sale or transfer to a wholly-owned  subsidiary
of the Corporation), shall, at the option of the holders of the 6% Preferred, be
deemed a  liquidation,  dissolution  or winding  up within  the  meaning of this
Section 2 if the  shares  of stock of the  Corporation  outstanding  immediately
prior to such transaction represent immediately after such transaction less than
a majority of the voting power of the surviving  corporation (or of the acquirer
of the Corporation's assets in the case of a sale of assets). Such option may be
exercised  by the vote or written  consent  of  holders of a majority  of the 6%
Preferred at any time within thirty (30) days after written  notice (which shall
be given  promptly) of the essential terms of such  transaction  shall have been
given to the holders of the 6% Preferred  in the manner  provided by law for the
giving of notice of meetings of shareholders.




                                      - 1 -
<PAGE>

     (c) The Corporation may, at its option, cause all outstanding shares of the
6% Preferred  to be redeemed  after the date on which a  registration  statement
under  the Act  ("Registration  Statement")  has been  declared  effective  (the
"effective date"); provided the Corporation has given notice of its intention to
redeem to the  holders of the 6%  Preferred  at least five (5) days prior to the
redemption date. In addition, if any conversion of 6% Preferred, when aggregated
with all prior  conversions,  will cause the Company to issue a number of shares
of Common Stock which exceeds twenty percent (20%) of the shares of Common Stock
then issued and  outstanding,  the Company shall redeem such number of shares of
6% Preferred  as is  necessary to limit such  issuance of Common Stock to twenty
percent (20%) of the shares of Common Stock then issued and outstanding,  unless
the Company has previously obtained  stockholder  approval to issue in excess of
twenty percent (20%) of the shares of Common Stock then issued and  outstanding.
If a  redemption  will occur under  either of the  preceding  sentences,  on the
redemption  date,  the  Corporation  shall pay such holders by cashiers check or
wire transfer in immediately  available  funds the amount of $1,300 per share of
6% Preferred plus all accrued but unpaid  dividends.  Promptly  thereafter,  the
holders shall  surrender the  certificate or  certificates  representing  the 6%
Preferred,  duly endorsed,  at the office of the  Corporation or of any transfer
agent for such shares, or at such other place designated by the Corporation.

     3. 6% Preferred - Forced Conversion.

     (a) The Corporation may, at its option, cause all outstanding shares of the
6%  Preferred to be converted  into Common Stock at any time  beginning  one (1)
year after the date of issuance,  on at least twenty (20) days' advance  notice,
at a  conversion  price  determined  as set  forth  in  Section  4  hereof  (the
"Conversion  Price") as of the date  specified  in such notice (the  "Conversion
Date") and otherwise on the terms set forth in Section 4 hereof,  provided, that
the Corporation may not exercise such right of conversion unless (i) the Closing
Price  (last  trade  price) of the Common  Stock as  reported  by NASDAQ for the
twenty (20) consecutive  trading days prior to the date the Conversion Notice is
mailed has not on any day been less than one hundred forty percent (140%) of the
last trade price of the Company's Common Stock on the day of Closing (subject to
adjustment for stock dividends, stock splits and reverse stock splits), and (ii)
the shares  issuable  upon  conversion of the 6% Preferred  are  registered  for
resale by an effective  Registration  Statement which became  effective not more
than  one  hundred  twenty  (120)  days  after  the date of  issuance  of the 6%
Preferred,  and a current  prospectus  meeting the requirements of Section 10 of
the Act is available for delivery at the Conversion Date.

     (b) At least twenty (20) days prior to the Conversion Date,  written notice
(the "Conversion  Notice") shall be mailed,  first class postage prepaid, by the
Corporation  to each holder of record of the 6%  Preferred,  at the address last
shown on the records of the Corporation  for such holder,  notifying such holder
of the conversion  which is to be effected,  specifying the Conversion  Date and
calling upon each such holder to surrender to the Corporation, in the manner and
at the place designated,  a certificate or certificates  representing the number
of shares of 6% Preferred held by such holder.  Subject to the provisions of the
following  subsection  (c), on or after the Conversion  Date,  each holder of 6%
Preferred  shall  surrender to the  Corporation  the certificate or certificates
representing  the  shares  of 6%  Preferred  owned  by  such  holder  as of  the
Conversion  Date, in the manner and at the place  designated  in the  Conversion
Notice,  and  thereupon  the  shares  issuable  upon  such  conversion  shall be
delivered as provided in Section 4(b) hereof.

     (c) If, on the Conversion  Date, the  registration  condition  specified in
clause (ii) of subsection  (a) shall not be  satisfied,  then no shares shall be
converted and the  Conversion  Notice shall be deemed to be  withdrawn.  In such
event,  any  certificates  for 6%  Preferred  which  have been  surrendered  for
conversion  shall be returned to the persons  surrendering  the same;  provided,
however, that if a holder has received shares of Common Stock upon conversion of
6% Preferred  after the  Conversion  Notice was given but before the  Conversion
Date,  such holder may elect  either to retain such Common Stock or rescind such
conversion by tendering such shares of Common Stock to the Corporation.

     (d) On the second anniversary of the issuance of the 6% Preferred, all then
outstanding shares of 6% Preferred shall be automatically  converted into Common
Stock  at  the  Conversion  Price  and  otherwise  pursuant  to  the  applicable
provisions set forth in Section 4 hereof.


                                      - 2 -



<PAGE>

     4. 6%  Preferred - Optional  Conversion.  The  holders of the 6%  Preferred
shall have optional conversion rights as follows:

     (a) Right to  Convert.  At any time  after the  earlier  of (i) the date on
which a Registration Statement has been declared effective, or (ii) the close of
business on the ninety first (91st) day following the date of issuance of the 6%
Preferred, shares of 6% Preferred shall become convertible, at the option of the
holder  thereof,  into such  number of fully  paid and  nonassessable  shares of
Common Stock as is determined by dividing (A) the Liquidation  Preference of the
6% Preferred  determined  pursuant to Section 2 hereof on the date the notice of
conversion is given,  by (B) the  Conversion  Price  determined  as  hereinafter
provided in effect on the applicable conversion date.

     (b) Mechanics of Conversion.  To convert shares of 6% Preferred into shares
of Common Stock, the holder shall give written notice to the Corporation  (which
notice  may be given by  facsimile  transmission)  that  such  holder  elects to
convert the shares and shall state therein date of the conversion, the number of
shares to be  converted  and the name or names in which such  holder  wishes the
certificate or  certificates  for shares of Common Stock to be issued.  Promptly
thereafter,   the  holder  shall   surrender  the  certificate  or  certificates
representing  the shares to be converted,  duly  endorsed,  at the office of the
Corporation  or of any transfer  agent for such  shares,  or at such other place
designated by the Corporation; provided that the holder shall not be required to
deliver the  certificates  representing  such shares if the holder is waiting to
receive all or part of such certificates  from the Corporation.  The Corporation
shall, immediately upon receipt of such notice, issue and deliver to or upon the
order of such holder,  against  delivery of the  certificates  representing  the
shares which have been converted,  a certificate or certificates  for the number
of  shares of Common  Stock to which  such  holder  shall be  entitled  and such
certificate or certificates shall not bear any restrictive legend;  provided (A)
the  Common  Stock   evidenced   thereby  are  sold  pursuant  to  an  effective
registration  statement  under the Act, (B) the holder  provides the Corporation
with an opinion of  counsel  reasonably  acceptable  to the  Corporation  to the
effect that a public sale of such shares may be made without  registration under
the Act, or (C) such holder provides the Corporation  with reasonable  assurance
that  such  shares  can be sold  free of any  limitations  imposed  by Rule 144,
promulgated  under the Act.  The  Corporation  shall  cause  such  issuance  and
delivery to be effected  within three (3) business  days and shall  transmit the
certificates  by messenger or  overnight  delivery  service to reach the address
designated  by such holder  within three (3) business  days after the receipt of
such  notice.  The  notice  of  conversion  may be given by a holder at any time
during the day up to 5:00 p.m.  Boston,  Massachusetts  time and such conversion
shall be deemed to have been made immediately  prior to the close of business on
the date such notice of conversion is given (a "conversion date"). The person or
persons  entitled  to receive  the  shares of Common  Stock  issuable  upon such
conversion  shall be treated for all purposes as the record holder or holders of
such shares of Common Stock at the close of business on such date.

     (c)  Conversion,  Redemption and Note Delivery  Required.  The  Corporation
acknowledges  and  understands  that a delay in the issuance of the Common Stock
upon conversion or pursuant to a redemption  according to the provisions hereof,
or a delay in delivering the Promissory Note set forth in Subsection (d) hereof,
could  result  in  economic  loss  to  the  holders  of  the  6%  Preferred.  As
compensation  to any holder when the Corporation has failed with respect to such
holder to comply  with the  Corporation's  obligations  hereunder,  and not as a
penalty, the Corporation shall pay to such holder liquidated damages of $500 per
day plus an amount equal to: (i) two percent (2%) of the total Purchase Price of
Shares for the first  thirty (30) day period  after the date on which the Common
Stock should have been issued by the Corporation (i.e., the end of the three (3)
business  day  period  described  in  Subsection  (b)),  shares of 6%  Preferred
redeemed by the  Corporation or Promissory  Note delivered to holder (i.e.,  the
end of the three (3)  business  day period  described  in  Subsection  (d)),  as
applicable;  plus  (ii) an  amount  equal to  three  percent  (3%) of the  total
Purchase Price of Shares for each subsequent thirty (30) day period  thereafter.
Amounts  payable  shall be  pro-rated  daily as to a periods of less than thirty
(30) days.  Such amounts shall be paid to the holder at the end of each month in
which such amounts have accrued.  Payment shall be made immediately by cashier's
check or wire transfer in immediately  available  funds to such account as shall
be  designated  in writing by the holder.  Each  holder  shall be entitled to an
injunction  or  injunctions  to prevent or cure  breaches of the  provisions  of
hereof and. to enforce specifically the terms and provisions hereof, this being,
in  addition  to any other  remedy to which a holder may be  entitled  by law or
equity.



                                      - 3 -

<PAGE>

     (d) Determination of Conversion Price:

     (i )The "Conversion  Price" for purposes of hereof shall be equal to eighty
percent  (80%) of the average of the  closing bid prices of the Common  Stock as
reported by NASDAQ during the five (5)  consecutive  trading days  preceding the
conversion  date (but not including such date);  provided,  however,  that in no
event may the  Conversion  Price be more than three  dollars  and  twenty  cents
($3.20)  (the  "Maximum  Conversion  Price") or less than an amount equal to the
closing bid price per share of the Common  Stock on the date of  issuance  minus
fifty cents ($0.50) (the "Minimum Conversion  Price").  If, but for this Section
4(d)(i),  the Conversion Price would have been below Minimum  Conversion  Price,
the Company shall pay the holder by delivering to holder a Promissory  Note, the
form which has been delivered to the Corporation  and is incorporated  herein by
reference,  bearing the principal amount equal to the difference between (A) the
number of shares of Common  Stock that would have been  issued at the amount the
Conversion Price would have been but for this Section 4(d)(i) multiplied by 100%
of the  closing  bid  price  of the  Common  Stock  on the  conversion  date  as
determined  in  accordance  with the  Subsection  (d) (the latter  amount  being
referred  to herein as the  "Conversion  Date  Price"),  minus (B) the number of
shares of Common Stock actually issued pursuant to the conversion  multiplied by
the Conversion Date Price.  Such Promissory Note shall be delivered to holder by
the third (3rd) day following the applicable conversion date.

     (ii) The  "closing bid price" of the Common Stock on a trading day shall be
the closing bid price of the Common  Stock on the NASDAQ Small Cap Market or any
other principal  securities  price quotation system or market on which prices of
the  Common  Stock are  reported.  The term  "trading  day" means a day on which
trading is reported on the principal  quotation system or market on which prices
of the Common Stock are reported.

     (iii) If, during the period of consecutive trading days provided for above,
the Corporation shall declare or pay any dividend on the Common Stock payable in
Common Stock or in rights to acquire Common Stock, or shall effect a stock split
or reverse stock split, or a combination,  consolidation or  reclassification of
the Common Stock,  the Conversion  Price,  Maximum  Conversion Price and Minimum
Conversion   Price  shall  be   proportionately   decreased  or  increased,   as
appropriate, to give effect to such event.

     (e)  Distributions.  If the  Corporation  shall at any time or from time to
time make or issue,  or fix a record  date for the  determination  of holders of
Common Stock entitled to receive,  a dividend or other  distribution  payable in
securities of the Corporation or any of its  subsidiaries  other than additional
shares of Common Stock,  then in each such event provision shall be made so that
the holders of 6% Preferred  shall  receive,  upon the conversion  thereof,  the
securities of the  Corporation  which they would have received had they been the
owners  on the date of such  event of the  number  of  shares  of  Common  Stock
issuable to them upon conversion.

     (f)  Certificates as to Adjustments.  Upon the occurrence of any adjustment
or  readjustment  of the  Conversion  Price,  the Maximum  Conversion  Price and
Minimum  Conversion  Price  pursuant to this Section 4, the  Corporation  at its
expense shall promptly  compute such  adjustment or  readjustment  in accordance
with the terms hereof and cause the  independent  public  accountants  regularly
employed to audit the  financial  statements of the  Corporation  to verify such
computation and prepare and furnish to each holder of 6% Preferred a certificate
setting forth such  adjustment or  readjustment  and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of 6%. Preferred, furnish or cause
to be furnished to such holder a like  certificate  prepared by the  Corporation
setting forth (i) such  adjustments  and  readjustments,  and (ii) the number of
other  securities  and the amount,  if any, of other  property which at the time
would be received upon the conversion of 6% Preferred with respect to each share
of Common Stock received upon such conversion.

     (g) Notice of Record Date. In the event of any taking by the Corporation of
a  record  of the  holders  of any  class  of  securities  for  the  purpose  of
determining  the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other  distribution,  any security or right convertible
into or  entitling  the holder  thereof to receive  additional  shares of Common
Stock, or any right to subscribe for,  purchase or otherwise  acquire any shares
of stock of any class or any other  securities  or  property,  or to receive any
other right, the Corporation  shall mail to each holder of 6% Preferred at least
ten (10) days prior to the date specified  therein, a notice specifying the date
on which  any such  record  is to be taken  for the  purpose  of such  dividend,
distribution,  security or right and the amount and character of such  dividend,
distribution, security or right.

                                      - 4 -
<PAGE>

     (h)  Issue  Taxes.  The  Corporation  shall pay any and all issue and other
taxes, excluding any income,  franchise or similar taxes, that may be payable in
respect of any issue or  delivery  of shares of Common  Stock on  conversion  of
shares of 6% Preferred pursuant hereto; provided,  however, that the Corporation
shall not be  obligated to pay any transfer  taxes  resulting  from any transfer
requested by any holder in connection with any such conversion.

     (i) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
all times reserve and keep available out of its  authorized but unissued  shares
of Common  Stock,  solely for the purpose of  effecting  the  conversion  of the
shares of the 6%  Preferred,  such number of its shares of Common Stock as shall
from time to time be  sufficient  to effect the  conversion  of all  outstanding
shares of the 6%  Preferred,  and if at any time the  number of  authorized  but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then  outstanding  shares of the 6% Preferred,  the Corporation will take
such  corporate  action as may be  necessary  to  increase  its  authorized  but
unissued  shares of Common Stock to such number of shares as shall be sufficient
for such purpose,  including,  without  limitation,  engaging in best efforts to
obtain any requisite shareholder approval.

     (j)  Fractional  Shares.  No  fractional  shares  shall be issued  upon the
conversion  of any share or shares of 6%  Preferred.  All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
6% Preferred by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share. If,
after  the  aforementioned  aggregation,  the  conversion  would  result  in the
issuance of a fraction of a share of Common Stock,  the  Corporation  shall,  in
lieu of issuing any fractional share, pay the holder otherwise  entitled to such
fraction a sum in cash equal to the fair  market  value of such  fraction on the
date of conversion (as determined in good faith by the Board of Directors of the
Corporation or an authorized Committee thereof).

     (k) Notices.  Any notice  required by the  provisions of this Section to be
given  to the  holders  of  shares  of 6%  Preferred  shall be  deemed  given if
deposited in the United  States mail,  postage  prepaid,  and  addressed to each
holder of record at its address appearing on the books of the Corporation.

     (1)  Reorganization  or  Merger.  In  case  of  any  reorganization  or any
reclassification of the capital stock of the Corporation or any consolidation or
merger of the Corporation with or into any other  corporation or corporations or
a sale of all or substantially all of the assets of the Corporation to any other
person  (other  than a sale or  transfer  to a wholly  owned  subsidiary  of the
Corporation),  and the  holders  of 6%  Preferred  do not  elect to  treat  such
transaction as a liquidation, dissolution or winding up as provided in Section 2
hereof,  then, as part of such  reorganization,  consolidation,  merger or sale,
provision shall be made so that each share of 6% Preferred  shall  thereafter be
convertible  into the number of shares of stock or other  securities or property
(including  cash) to which a holder of the  number  of  shares  of Common  Stock
deliverable  upon  conversion  of such  share of 6%  Preferred  would  have been
entitled  upon the record  date of (or date of, if no record date is fixed) such
event and, in any case,  appropriate  adjustment  (as determined by the Board of
Directors)  shall be made in the application of the provisions  herein set forth
with  respect to the rights and  interests  thereafter  of the holders of the 6%
Preferred,  to the end that the provisions set forth herein shall  thereafter be
applicable, as nearly as equivalent as is practicable, in relation to any shares
of stock or the securities or property  (including cash) thereafter  deliverable
upon the conversion of the shares of 6% Preferred.

     5.  Re-issuance  of  Certificates.  In the event of a  conversion  (or,  if
applicable,  redemption) of 6% Preferred in which less than all of the shares of
6% Preferred of a particular  certificate are converted or redeemed, as the case
may be, the  Corporation  shall  promptly  without  delay cause to be issued and
delivered to the holder of such  certificate,  a  certificate  representing  the
remaining shares of 6% Preferred which have not been so
converted or redeemed.





                                      - 5 -

<PAGE>

     6. Other Provisions. For all purposes of this Resolution, the term "date of
issuance" and the terms  "Closing" or "Closing Date" shall mean the day on which
shares of the 6% Preferred  are first issued by the  Corporation.  Any provision
herein which conflicts with or violates any applicable usury law shall be deemed
modified to the extent  necessary to avoid such conflict or violation.  The term
"NASDAQ" herein refers to the principal  market on which the Common Stock of the
Corporation is traded.  If the Common Stock is listed on a securities  exchange,
or if another market  becomes the principal  market on which the Common Stock is
traded or through which price quotations for the Common Stock are reported,  the
term  "NASDAQ"  shall be deemed  to refer to such  exchange  or other  principal
market.

     7.  Restrictions and Limitations.  The Corporation  shall not undertake the
following  actions  without  the  consent of the holders of a majority of the 6%
Preferred:  (i) modify its Articles of  Organization or Bylaws so as to amend or
change any of the rights,  preferences,  or privileges of the 6% Preferred, (ii)
authorize or issue any other preferred  equity security senior to or on a parity
with the 6%  Preferred  as to  dividends,  liquidation  preferences,  conversion
rights,  redemption  rights or other rights,  preferences  or  privileges  for a
period of thirty (30) days after  Closing,  as applicable or (iii),  purchase or
otherwise  acquire for value any Common  Stock or other  equity  security of the
Corporation  either  junior or senior  to or on a parity  with the 6%  Preferred
while  there  exists  any  arrearage  in the  payment  of  cumulative  dividends
hereunder other than redemptions of stock from terminating employees pursuant to
contractual rights in favor of the Corporation.

     8. Voting Rights.  Except as provided herein or as provided for by law, the
6% Preferred shall have no voting rights.

     9. Attorney's Fees. Any holder of 6% Preferred shall be entitled to recover
from the  Corporation the reasonable  attorneys'  fees and expenses  incurred by
such holder in connection  with  enforcement by such holder of any obligation of
the Corporation hereunder.

     10. No Adverse Actions. The Corporation shall not in any manner, whether by
amendment of the Articles of Organization  (including,  without limitation,  any
vote  establishing  a  class  or  series  of  stock),  merger,   reorganization,
recapitalization,  consolidation,  sales of assets,  sale of stock tender offer,
dissolution  or  otherwise,  take any action,  or permit any action to be taken,
solely or  primarily  for the  purpose of  increasing  the value of any class of
stock of the  Corporation if the effect of such action is to reduce the value or
security of the 6% Preferred.





                                      - 6 -
<PAGE>


                     EXHIBIT A to the Subscription Agreement

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN EFFECTIVE  REGISTRATION  STATEMENT  FOR THIS WARRANT OR COMMON
STOCK PURCHASABLE HEREUNDER, AS APPLICABLE, UNDER THE ACTS, OR (B) AN OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March ___, 1998

     1. Basic Terms.  This Warrant (as it may be amended from time to time,  the
"Warrant")  certifies that, for value received,  the registered holder specified
below or its  registered  assigns  ("Holder"),  is the owner of warrants of PHC,
Inc., a Massachusetts corporation (the "Corporation"),  and is entitled, subject
to the terms and conditions of this Warrant,  including  adjustments as provided
herein,  to purchase  ______ ( ) (number to be  pro-rated  for a total of 50,000
share) shares of the Common Stock (the "Common Stock") of the  Corporation  from
the Corporation at the price per share shown below (the "Exercise Price").

              Holder:



              Exercise   Price  per   share:   ______   Dollars   and   ______
              Cents ($     )per share

                               [This amount will be the Closing Bid Price of the
                                Corporation's Common Stock on the Issue Date]

     Except as specifically  provided otherwise,  all references in this Warrant
to the  Exercise  Price and the  number of  shares of Common  Stock  purchasable
hereunder  shall be to the  Exercise  Price  and  number  of  shares  after  any
adjustments are made thereto pursuant to this Warrant.

     2. Corporation's Representations/Covenants.  The Corporation represents and
covenants  that the shares of Common  Stock  issuable  upon the exercise of this
Warrant shall at delivery be fully paid and  non-assessable and free from taxes,
liens,  encumbrances and charges with respect to their purchase. The Corporation
shall take any  necessary  actions to assure that the par value per share of the
Common  Stock is at all times  equal to or less than the then  current  Exercise
Price  per  share  of  Common  Stock  issuable  pursuant  to this  Warrant.  The
Corporation  shall at all times reserve and hold available  sufficient shares of
Common  Stock to satisfy  all  conversion  and  purchase  rights of  outstanding
convertible securities, options and warrants of the Corporation,  including this
Warrant.





                                      - 1 -
<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts time) three (3) years after the issue date.
To  exercise  this  Warrant,  the Holder  shall  surrender  this  Warrant at the
principal  office of the  Corporation or that of the duly  authorized and acting
transfer  agent for its Common Stock,  together with the executed  exercise form
(substantially  in the form of that  attached  hereto) and together with payment
for the Common Stock purchased under this Warrant.  The principal  office of the
Corporation  is located at the address  specified on the signature  page of this
Warrant; provided, however, that the Corporation may change its principal office
upon notice to the  Holder.  At the option of the Holder  payment  shall be made
either in cash (by wire) or by certified or bank cashier's  check payable to the
order of the  Corporation  or the Holder  may elect to receive  shares of Common
Stock  calculated  pursuant to paragraph 4. The Corporation  shall,  immediately
upon  receipt  of such  notice,  issue and  deliver to or upon the order of such
Holder a certificate or certificates for the number of shares of Common Stock to
which such Holder shall be entitled and such  certificate or certificates  shall
not bear any restrictive legend; provided (A) the Common Stock evidenced thereby
are sold pursuant to an effective  registration statement under the Act, (B) the
holder provides the Corporation with an opinion of counsel reasonably acceptable
to the  Corporation  to the effect that a public sale of such shares may be made
without  registration under the Act, or (C) such holder provides the Corporation
with  reasonable  assurance that such shares can be sold free of any limitations
imposed by Rule 144, promulgated under the Act. The Corporation shall cause such
issuance  and delivery to be effected  within three (3) business  days and shall
transmit the  certificates by messenger or overnight  delivery  service to reach
the address  designated  by such holder within three (3) business days after the
receipt of such  notice.  This  Warrant  is not  exercisable  with  respect to a
fraction  of a share of Common  Stock.  In lieu of issuing a fraction of a share
remaining  after  exercise of this Warrant as to all full shares covered by this
Warrant the  Corporation  shall either at its option (a) pay for the  fractional
share cash equal to the same  fraction at the fair market  price for such share;
or (b) issue scrip for the fraction in the registered or bearer form which shall
entitle the Holder to receive a certificate  for a full share of Common Stock on
surrender of scrip  aggregating a full share. As compensation to the Holder when
the  Corporation  has  failed  with  respect to such  Holder to comply  with the
Corporation's obligations hereunder, and not as a penalty, the Corporation shall
pay to such holder liquidated damages of $500 per day until the certificates are
delivered as  instructed.  Such damages  shall be paid to the Holder by cashiers
check or wire transfer in immediately  available  funds to such account as shall
be  designated  in  writing by the Holder at the end of each month in which such
amounts have accrued.  Holder shall be entitled to an injunction or  injunctions
to  prevent  or  cure  breaches  of the  provisions  of  hereof  and to  enforce
specifically  the terms and  provisions  hereof,  this being in  addition to any
other remedy to which Holder may be entitled by law or equity.

     4. Cashless Exercise.

     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -
<PAGE>

     If at any time the Common Stock is not listed on any  domestic  exchange or
quoted in the NASDAQ System or the domestic  over-the-counter  market,  the fair
market value shall be the higher of (i) the book value thereof, as determined by
any firm of independent  public  accountants of recognized  standing selected by
the   Corporation   (which  may  be  the   Corporation's   regular   independent
accountants), as of the last day of any month ending within sixty days preceding
the date as of which the  determination  is to be made;  or (ii) the fair market
value thereof,  which shall be reasonably  determined by the Corporation and the
Holder  as of a date  which is within  fifteen  days of the date as of which the
determination is to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case,  the  Exercise  Price  shall be adjusted to that
price determined by multiplying the Exercise Price in effect  immediately  prior
to such event by a fraction  (A) the  numerator  of which is the total number of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.





                                      - 3 -
<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted  number an kind of securities or other
property  purchasable  under this  Warrant  resulting  from the event and settin
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until,
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -

<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this  Warrant.All  notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -
<PAGE>

     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the
Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  ________________________________
                                                 Authorized Officer


                                       Printed Name:  _______________________
                                       Title:  ______________________________

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ________________________________
       ________________________________
                 Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________         ____________________________________
                                            Signature








                                      - 8 -





<PAGE>

      Incorporated by Reference into the Resolutions Establishing Right and
              Preferences for Series B Convertible Preferred Stock.


                          PROMISSORY NOTE (the "Note")



Date:  __________________,  ________________________

Maker: PHC, Inc.

Maker's Mailing Address:     200 Lake Street -- Suite 102
                             Peabody, Massachusetts 01960

Payee:

Place for Payment:

Principal Amount: $_________________________________

Annual Interest Rate on Unpaid Principal From Date: Eight percent (8%).

Annual Past Due  Interest  Rate on Unpaid  Principal  from  Maturity to Payment:
Fifteen percent (15%).

Terms of Payment:  Principal  and  interest  shall be due and payable in six (6)
equal  consecutive  monthly payments of $  ________________  (based on a six (6)
month  amortization)  with the first  payment being due and payable on the first
day of _____________________.

The Maker  promises  to pay to the order of Payee at the place for  payment  and
according to the terms of payment the outstanding principal and accrued interest
at the rates stated above. All unpaid amounts owing on this Note shall be due by
the final scheduled payment date of ________________________.

Additional Provisions:

If Maker defaults in the payment of this Note, or in any instrument  securing or
collateral  to it, then Payee may declare the unpaid  principal  balance of this
Note and all  accrued  interest  immediately  due and  payable.  Maker  and each
surety,  endorser,  and  guarantor  or other party liable for the payment of any
sums of money  payable on this Note  severally  waive all demands  for  payment,
presentations  for  payment,  notices  of  dishonor,  notices  of  intention  to
accelerate maturity, notices of acceleration of maturity,  protests, and notices
of protest, to the extent permitted by law.

     If this Note or any instrument  securing or collateral to it is given to an
attorney for collection or enforcement.  or if suit is brought for collection or
enforcement or if it is collected or enforced  through probate,  bankruptcy,  or
other  judicial  proceedings  then Maker shall pay Payee all costs of collection
and  enforcement,  including  reasonable  attorneys  fees and  court  costs,  in
addition to other amounts due.


                           PHC. INC., PROMISSORY NOTE
Page 1



<PAGE>

     Interest that may be contracted for, taken,  reserved,  charged or received
under law; any  interest in excess of that  maximum  amount shall be credited on
the  principal  of the  debt  or,  if  that  has  been  paid,  refunded.  On any
acceleration  or  required or  permitted  prepayment,  any such excess  shall be
canceled automatically as of the acceleration or prepayment or, if already paid,
credited on the  principal of the debt or, if the principal of the debt has been
paid, refunded.  This provision overrides other provisions in this and all other
instruments concerning the debt.

     When the context requires, singular nouns and pronouns include the plural.

     This Note is to be governed and  construed in  accordance  with the laws of
the State of Texas.

     MAKER, FOR GOOD AND VALUABLE CONSIDERATION,  THE RECEIPT AND SUFFICIENCY OF
WHICH  ARE  HEREBY   ACKNOWLEDGED,   (I)  HEREBY  IRREVOCABLY   SUBMITS  TO  THE
JURISDICTION  OF THE UNITED STATES DISTRICT COURT AND OTHER COURTS OF THE UNITED
STATES  SITTING  IN TEXAS FOR THE  PURPOSES  OF ANY SUIT,  ACTION OR  PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (ii) HEREBY WAIVES,  AND AGREES
NOT TO ASSERT IN ANY SUCH SUIT,  ACTION OR PROCEEDING,  ANY CLAIM THAT IT IS NOT
PERSONALLY  SUBJECT TO THE JURISDICTION OF SUCH COURT,  THAT THE SUIT, ACTION OR
PROCEEDING  IS BROUGHT IN AN  INCONVENIENT  FORUM OR THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER.  MAKER CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT,  ACTION OR  PROCEEDING BY MAILING A COPY THEREOF TO MAKER AT ITS MAIN
BUSINESS  OFFICE  AND  AGREES  THAT  SUCH  SERVICE  SHALL  CONSTITUTE  GOOD  AND
SUFFICIENT  SERVICE OF PROCESS  AND NOTICE  THEREOF.  NOTHING IN THIS  PARAGRAPH
SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE  PROCESS IN ANY OTHER MANNER  PERMITTED
BY LAW.

     Executed as of date first above written.

                  PHC Inc., a Massachusetts corporation

                  By:  _______________________________________
                  Name of
                  Authorized Officer:  __________________________
                  Title:  ______________________________________








                           PHC. INC., PROMISSORY NOTE
Page 2


<PAGE>


                     EXHIBIT B to the Subscription Agreement

Section 2.2(a): PHC, Inc. Subsidiaries:

PHC of Utah, Inc.                       Pioneer Counseling of Virginia, Inc.
D/B/A Highland Ridge Hospital           (80% Owned)
4578 Highland Drive                     D/B/A Pioneer Counseling of Virginia
Salt Lake City, UT 94117                D/B/A Counseling Associates of Virginia
                                        400 East Burwell street
                                        Salem, VA 24153

PHC of Virginia, Inc.                   PHC of Kansas, Inc.
D/B/A Mount Regis Center                D/B/A Total Concept EAP
D/B/A Changes                           7451 Szwitzer, Suite 101
405 Kimball Avenue                      Shawnee Mission, KS 66203
Salem, VA 24153

Quality Care Centers of Mass, Inc.      PHC of California, Inc.
D/B/A Franvale Nursing & Rehab Center   D/B/A Marin Grove
20 Pond Street                          42 Grove Street
Braintree, MA 02194                     San Rafael, CA 94901

PHC of Nevada, Inc.                     Professional Health Associates
D/B/A Harmony Healthcare                94-19 59 Avenue
2340 Paseo del Prado, Bldg.D           Elmhum NY 11373
Las Vegas, NV 89102

Northpoint - Pioneer, Inc.              STL, Inc.
D/B/A Pioneer Counseling Center         200 Lake Street
31700 W. 13 Mile; Suite 201             Suite 102
Farmington Hills, MI 48334              Peabody, MA 0 1960

BSC-NY, Inc.                            Harmony Behavioral Health
D/B/A Behavioral Stress Center          2340 Paseo del Prado, Bldg.D
94-19 59 Avenue                         Las Vegas, NV 89102
Elmhurst, NY 11373

PHC of Michigan, Inc.                   PHC of Rhode island, Inc.
D/B/A Harbor Oaks Hospital              D/B/A Good Hope Center
35031 23 Mile Road                      P.O. Box 1491
New Baltimore, MI 48047                 Coventry, RI 02816-0029



<PAGE>


                               EXHIBIT B (cont'd.)
     Section 2.2(f):

     The Company failed to file two years' of audited  financial  statements for
Behavioral   Stress  Centers,   Inc.  and  Clinical   Diagnostics  and  Clinical
Associates,  as described  in the  December 18, 1996 letter from Choate,  Hall &
Stewart to Mr. Robert Bayless of the Securities and Exchange Commission.



<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  "Holder"),  is the owner of  warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase  Twenty Six Thousand Three Hundred  Fifteen  (26,315) shares of Class A
Common Stock (the "Common Stock") of the Corporation from the Corporation at the
price per share shown below (the "Exercise Price").

     Holder: ProFutures Special Equities Fund, L.P.


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2.  Corporations  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.


     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading shall be average of the
closing  prices on such day of the Common  Stock on all  domestic  exchanges  on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges  at he end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                       - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant,. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.



                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  /s/ Bruce A Shear
                                                Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)

For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ______________________             _____________________________________
                                               Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________          __________________________________
                                                Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase  Seven  Thousand  Eight Hundred Ninety (7,890) shares of Class A Common
Stock (the "Common Stock") of the Corporation  from the Corporation at the price
per share shown below (the "Exercise Price").

         Holder:                                Gary D. Halbert


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock s at all times equal to or less than the then current  Exercise  Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System ("NASDA", the average of the daily market prices of such stock on the ten
(10) trading days  immediately  preceeding the date as of which such value is to
be  determined.  The market  price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restriction  s on transfer  contained  herein,  in the names  designated  by the
Holder at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing  Law. This  Agreement  hall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:   /s/ Bruce A Shear
                                                 Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                     -6-



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee: ____________________________________________

Address:  ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ________________________       ________________________________
                                         Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________________
       __________________________________
                  Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase Five Thousand Two Hundred Sixty (5,260)  shares of Class A Common Stock
(the "Common  Stock") of the  Corporation  from the Corporation at the price per
share shown below (the "Exercise Price").

            Holder:      John F. Mauldin


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances  and charges with respect to their purchase.  he Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashiers  check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.

     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -

<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices  required or permitted t be given to the Holder shall
be in writing and shall be given by first class mail, postage repaid,  addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16.  Headings The headings in this Warrant are for purposes of  convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  /s/ Bruce A Shear
                                                Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:
Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  _________________________         _____________________________________
                                             Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  _________________________         ____________________________________
                                          Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.
                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase Ten Thousand Five Hundred Twenty Five (10,525) shares of Class A Common
Stock (the "Common Stock") of the Corporation  from the Corporation at the price
per share shown below (the "Exercise Price").

            Holder:                                 Augustine Fund, L.P.


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDA"),  the average of the daily market  prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.
                                      - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of Regulation D, promulgated under the Securities Act of
1933, as amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.



                                      - 5 -

<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.




                                       PHC, INC., a Massachusetts corporation


                                       By:   /s/ Bruce A Shear
                                                 Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ______________________                 ________________________________
                                                Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  _________________________              _________________________________
                                                 Signature








                                      - 8 -
<PAGE>
Exhibit 10.133

                            ASSET PURCHASE AGREEMENT


     This Asset Purchase Agreement is made and entered into as of the 2nd day of
February,  1998, by and between  Lexington  Healthcare  Group,  Inc., a Delaware
corporation  having  its  principal  place of  business  at 35 Park  Place,  New
Britain, Connecticut 06052 (together with its successors and assigns hereinafter
collectively  referred  to  as  the  "Buyer"),   and  Quality  Care  Centers  of
Massachusetts,  a  Massachusetts  corporation  having  its  principal  place  of
business at 200 Lake Street,  Suite 102, Peabody,  Massachusetts 01960 (together
with its  successors  and assigns  hereinafter  collectively  referred to as the
"Seller").

                              W I T N E S S E T H:

     WHEREAS,  the Seller owns and leases certain assets in connection with, and
operates the 128-bed  licensed  skilled nursing care facility known as, Franvale
Nursing and Rehabilitation  Center at 20 Pond Street,  Braintree,  Massachusetts
02184 (the "Facility"); and

     WHEREAS,  the Buyer  desires to  acquire  from the  Seller,  and the Seller
desires  to sell to the  Buyer,  certain  of the  assets of the  Seller  used in
connection with the operation of the Facility, all upon Exhibit 4.28


                             SUBSCRIPTION AGREEMENT

                                    PHC, INC.


THE SECURITIES WHICH ARE THE SUBJECT OF THIS  SUBSCRIPTION  AGREEMENT (AS IT MAY
BE AMENDED FROM TIME TO TIME, THE  "AGREEMENT")  HAVE NOT BEEN REGISTERED  UNDER
THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES  ACT") OR UNDER THE
APPLICABLE SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE
ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THESE LAWS BY VIRTUE OF PHC,
INC.'S  INTENDED  COMPLIANCE WITH SECTIONS 3(b), 4(2) AND 4(6) OF THE SECURITIES
ACT, THE PROVISIONS OF REGULATION D UNDER SUCH ACT AND SIMILAR  EXEMPTIONS UNDER
STATE LAW.  THESE  SECURITIES  HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION ("SEC"),  ANY STATE SECURITIES  COMMISSION OR
ANY OTHER REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

     The undersigned  purchaser  (hereafter,  the "Purchaser")  hereby offers to
purchase  certain Series B Convertible  Preferred Stock (referred to herein as a
"Share" or  collectively as "Shares") of PHC, Inc. (the  "Company"),  a publicly
held  corporation  formed under the laws of the  Commonwealth of  Massachusetts.
This  offer to  purchase  may,  for any  reason  whatsoever,  be  revoked by the
Purchaser or rejected by the Company  prior to  acceptance  of this offer by the
Company.

     Section  1.1  Purchase  and Sale of Shares.  Upon the  following  terms and
conditions, the Company shall issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company,  the number of Shares indicated  herein,  which
Shares shall have the rights, designations and preferences set forth in Schedule
I hereto.

     Section  1.2  Purchase  Price.  The  purchase  price  for the  Shares  (the
"Purchase Price") shall be $1,000 per Share.

     Section 1.3 The Closing.

     (a) The closing of the  purchase  and sale of the Shares  (the  "Closing"),
shall take place at the law offices of Arent, Fox, Kintner, Plotkin & Kahn, 1050
Connecticut  Avenue,  N.W.,  Washington,   D.C.  20036,  at  10:00  a.m.,  local
Washington,  D.C. time, on the later of the following: (i) the date on which the
last to be  fulfilled or waived of the  conditions  set forth in Section 4.1 and
4.2  hereof  and  applicable  to the  Closing  shall be  fulfilled  or waived in
accordance herewith, or (ii) such other time and place and/or on such other date
as the Purchaser and the Company may agree. The date on which the Closing occurs
is referred to herein as the "Closing Date."

     (b) On the Closing  Date,  the Company shall deliver to the Purchaser (i) a
certificate  representing the Shares  registered in the name of the Purchaser or
deposit  such Shares into  accounts  designated  by the  Purchaser  and (ii) the
Warrant for the number of shares of the Company's Common Stock indicated herein,
in the form attached hereto as Exhibit A, incorporated herein by reference.  The
Purchaser  shall on the Closing Date  deliver to the Company the Purchase  Price
for all the Shares by cashier's check or wire transfer in immediately  available
funds to such  account as shall be  designated  in writing  by the  Company.  In
addition,  each party shall  deliver all  documents,  instruments  and  writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Closing.

     Section 1.4 Covenant to Register.

     (a) For purposes of this Section, the following definitions shall apply:

     The  terms  "register,"   "registered,"  and  "registration"   refer  to  a
registration under the Securities Act of 1933, as amended (the "Act"),  effected
by  preparing  and  filing a  registration  statement  or  similar  document  in
compliance  with the Act, and the  declaration or ordering of  effectiveness  of
such registration statement, document or amendment thereto.

     (ii) The term  "Registrable  Securities"  means the shares of the Company's
Class A Common Stock,  par value $.01 per share (the "Common  Stock"),  issuable
upon  conversion  of shares of the Shares and upon  exercise of the Warrant,  or
upon  conversion of any other stock issued in payment of dividends on the Shares
or otherwise issuable pursuant to this Agreement or the provisions of Schedule I
hereto,  and any  securities  of the  Company  or  securities  of any  successor
corporation  issued as, or  issuable  upon the  conversion  or  exercise  of any
warrant  right  or  other  security  that  is  issued  as a  dividend  or  other
distribution  with  respect to, or in exchange  for, or in  replacement  of, the
Shares.

     (iii) The term "holder of Registrable  Securities"  means the Purchaser and
any permitted assignee of registration rights pursuant to Section 1.4(h).

     (b) (i) The Company shall as soon as possible file a registration statement
on Form SB-2 or Form S-3  covering  at least 200% of the  number of  Registrable
Securities  which would then be issuable  upon  conversion  of the Shares at the
conversion  price then in effect,  and shall use its best  efforts to cause such
registration  statement to become  effective on or before ninety (90) days after
the Closing Date (the "Initial Registration"). In the event such registration is
not so declared  effective  or does not include all  Registrable  Securities,  a
holder of  Registrable  Securities  shall have the right to require by notice in
writing that the Company register all or any part of the Registrable  Securities
held by such holder (a "Demand  Registration")  and the Company shall  thereupon
effect such  registration in accordance  herewith (which may include adding such
shares to an existing shelf registration).  The parties agree that if the holder
of  Registrable  Securities  demands  registration  of  less  than  all  of  the
Registrable  Securities,  the Company,  at its option,  may nevertheless  file a
registration  statement  covering  all of the  Registrable  Securities.  If such
registration  statement is declared  effective  with respect to all  Registrable
Securities  and  the  Company  is  in  compliance  with  its  obligations  under
Subsection  (d) of this  Section  1.4, the demand  registration  rights  granted
pursuant to this Subsection (b)(i) shall cease. If such  registration  statement
is not declared  effective with respect to all Registrable  Securities or if the
Company is not in  compliance  with such  obligations,  the demand  registration
rights described herein shall remain in effect.

     (ii) The Company  shall not be  obligated  to effect a Demand  Registration
under Subsection (b)(i) above: (A) if all of the Registrable  Securities held by
the holder of  Registrable  Securities  which are  demanded to be covered by the
Demand  Registration  are, at the time of such demand,  included in an effective
registration  statement  and the Company is in compliance  with its  obligations
under  Subsection  (d) of  this  Section  1.4;  (B)  if  all of the  Registrable
Securities  may be sold under Rule 144(k) of the Act and the Company's  transfer
agent has accepted an instruction from the Company to such effect; or (C) at any
time after two (2) years from the Closing Date.

     (iii) Subject to  Subsection  (iv)(B)  hereof,  the Company may suspend the
effectiveness of any such registration  effected pursuant to this Subsection (b)
in the event and for such  period of time as, such a  suspension  is required by
the rules and regulations of the Securities and Exchange Commission ("SEC"). The
Company will use its best efforts to cause such  suspension  to terminate at the
earliest possible date.

     (iv) (A) If the Company is advised by the SEC that a registration statement
filed hereunder is subject to a "no-review" and such  registration  statement is
not  declared   effective   within  five  (5)  business  days   thereafter   (an
"Acceleration  Date")  or,  irrespective  of  the  SEC  review,  a  registration
statement  is not  declared  effective  by the ninety first (91st) day after the
Closing Date (the "Target Date"),  the Company shall pay Purchaser as liquidated
damages an amount equal to two percent (2%) of the total  Purchase  Price of the
Shares for each thirty (30) day period following the earlier of the Acceleration
Date or  Target  Date,  as  applicable,  until  such  time  as the  registration
statement is declared effective;  provided, however, that such damages shall not
be  payable if the  failure to meet the  Acceleration  Date or Target  Date,  as
applicable,  is due to action or inaction by Purchaser with respect to providing
information for the registration statement. The payment set forth above shall be
pro-rated  daily as to any period of less than  thirty (30) days.  Such  payment
shall be made to the Purchaser either (I) by cashier's check or wire transfer in
immediately available funds to such account as shall be designated in writing by
the  Purchaser  or (II) in  Shares,  the  number of which  shall be equal to the
amount due under this  Subsection  divided  by $1,000 per Share.  The  foregoing
amount shall be paid  irrespective of the amount of Registrable  Securities then
held by Purchaser.

     (B) If, following effectiveness of a registration, either the effectiveness
of the registration  statement is suspended or a current  prospectus meeting the
requirements  of  Section 10 of the Act is not  available  for  delivery  by the
Purchaser  (either  referred to herein as a  "suspension"),  the  Company  shall
thereupon pay to Purchaser as liquidated  damages an amount equal to two percent
(2%) of the Purchase  Price of the Shares for each thirty (30) day period of the
suspension.  The payment set forth above shall be pro-rated  daily as to periods
of less than thirty (30) days.  Such payment  shall be made to the  Purchaser by
cashiers check or wire transfer in immediately  available  funds to such account
as  shall  be  designated  in  writing  by the  Purchaser,  and  shall  be  paid
irrespective  of the amount of  Registrable  Securities  held by Purchaser on or
after the date following the suspension.

     (C)  Any  amount  payable  pursuant  to the  foregoing  provisions  of this
Subsection  (iv) shall be delivered  on or before the fifth (5th) day  following
the end of the  calendar  month in which  such  payment  obligation  arose.  The
"Purchase  Price"  of  Registrable  Securities  shall  be  (1) if  derived  from
conversion or substitution of Shares,  the Purchase Price of the Shares, and (2)
if received in satisfaction of a Company  obligation,  the dollar amount of such
obligation.

     (D) This  Subsection  is in addition to the  provisions  of Section  7.2(a)
hereof.

     (c) If the  Company  proposes  to register  (including  for this  purpose a
registration  effected by the Company for shareholders other than the Purchaser)
any of its stock or other  securities  under the Act in connection with a public
offering of such securities  (other than a registration on Form S-4, Form S-8 or
other limited purpose form) and all Registrable  Securities have not theretofore
been included in a registration  statement under  Subsection (b) of this Section
1.4 which remains effective,  the Company shall, at such time, promptly give all
holders of Registrable Securities written notice of such registration.  Upon the
written request of any holder of Registrable Securities given within twenty (20)
days after receipt of such notice by the holder of Registrable  Securities,  the
Company shall use its best efforts to cause to be  registered  under the Act all
Registrable Securities that such holder of Registrable Securities requests to be
registered.  However, the Company shall have no obligation under this Subsection
(c) if (i) the  Registrable  Securities may be sold without  registration  under
Rule 144(k) and the Company's  transfer agent has accepted an  instruction  from
the Company to such effect,  (ii) the Registration  Statement is filed more than
two (2) years after the Closing Date, or (iii) to the extent that,  with respect
to any  underwritten  offering  initiated by the Company later than one calendar
year following the Closing, the managing underwriter of such offering reasonably
notifies such  holder(s) in writing of its  determination  that the  Registrable
Securities or a portion thereof shall be excluded therefrom.

     (d) Whenever  required under this Section 1.4 to effect the registration of
any  Registrable   Securities   including,   without  limitation,   the  Initial
Registration, the Company shall, as expeditiously as reasonably possible:

     (i) Prepare and file with the SEC a registration  statement with respect to
such Registrable  Securities and use its best efforts to cause such registration
to become effective as provided in Section 1.4(b)(i), and keep such registration
statement effective for so long as any holder of Registrable  Securities desires
to dispose of the securities covered by such registration  statement;  provided,
however, that in no event shall the Company be required to keep the Registration
Statement  effective  for a period  greater  than two (2) years from the Closing
Date;

     (ii)  Respond to comments  made by the SEC with  respect to a  registration
statement  filed pursuant to this Agreement  within ten (10) business days after
the  date of the  comment  letter,  and  prepare  and  file  with  the SEC  such
amendments  and  supplements to such  registration  statement and the prospectus
used in  connection  with such  registration  statement  as may be  necessary to
comply with the  provisions  of the Act with respect to the  disposition  of all
securities covered by such registration  statement and notify the holders of the
filing and  effectiveness of such  Registration  Statement and any amendments or
supplements;

     (iii)  Furnish to each holder of  Registrable  Securities  such  numbers of
copies of a current prospectus,  including a preliminary prospectus,  conforming
with the  requirements  of the Act,  copies of the  registration  statement  any
amendment  or  supplement  to any  thereof  and any  documents  incorporated  by
reference  therein and such other documents,  all free of charge, as such holder
of  Registrable  Securities  may  reasonably  require in order to facilitate the
disposition  of  Registrable  Securities  owned by such  holder  of  Registrable
Securities;

     (iv) Use its best efforts to register and qualify the securities covered by
such  registration  statement under such other  securities or "Blue Sky" laws of
such jurisdictions as shall be reasonably requested by the holder of Registrable
Securities;

     (v)  Notify  each  holder  of  Registrable  Securities  immediately  of the
happening  of any  event as a result of which the  prospectus  included  in such
registration  statement,  as then in effect,  includes  an untrue  statement  of
material fact or omits to state a material fact required to be stated therein or
necessary  to make  the  statements  therein  not  misleading  in  light  of the
circumstances then existing,  and use its best efforts to promptly update and/or
correct such prospectus;

     (vi)  Furnish,  at the request of any holder of  Registrable  Securities in
connection with any underwritten  public offering,  (A) an opinion of counsel of
the Company, dated the effective date of the registration statement, in form and
substance  reasonably  satisfactory  to the holder and its counsel and covering,
without  limitation,  such matters as the due  authorization and issuance of the
securities being  registered and certain matters  pertaining to disclosure under
and  compliance  with  securities  laws by the  Company in  connection  with the
registration  thereof and/or (B) a "comfort"  letter or letters of the Company's
independent  public  accountants  provided at the Company's  expense in form and
substance reasonably satisfactory to the holder and its counsel;

     (vii) Use its best efforts to list the  Registrable  Securities  covered by
such registration  statement with any national market or securities  exchange on
which such securities are then listed;

     (viii)  Make   available  for  inspection  by  the  holder  of  Registrable
Securities,  upon request, all SEC Documents (as defined below) filed subsequent
to the Closing and require the  Company's  officers,  directors and employees to
supply  all  information  reasonably  requested  by any  holder  of  Registrable
Securities in connection with such registration statement: and

     (ix) Furnish to each holder of Registrable  Securities prompt notice of the
commencement of any stop-order  proceedings  under the Act, together with copies
of all  documents in  connection  therewith,  and use its best efforts to obtain
withdrawal of any such stop order as soon as possible.

     (e) Upon request of the Company, each holder of Registrable Securities will
furnish to the Company in connection  with any  registration  under this Section
such  information  regarding  itself,  the  Registrable   Securities  and  other
securities of the Company held by it, and the intended  method of disposition of
such  securities as shall be reasonably  required to effect the  registration of
the Registrable  Securities held by such holder of Registrable  Securities.  The
intended method of disposition  (Plan of  Distribution) of such securities as so
provided by Purchaser shall be included  without  alteration in the Registration
Statement  covering the Registrable  Securities and shall not be changed without
the prior written consent of the Purchaser.

     (f) (i) The Company shall  indemnify,  defend and hold harmless each holder
of  Registrable  Securities  which  are  included  in a  registration  statement
pursuant  to the  provisions  of  Subsections  (b) or (c) hereof and each of its
officers, directors,  employees, agents, partners or controlling persons (within
the meaning of the Act) (each,  an  "indemnified  party") from and against,  and
shall  reimburse  such  indemnified  party with  respect to, any and all claims,
suits,  demands,  causes  of  action,  losses,  damages,  liabilities,  costs or
expenses  ("Liabilities")  to which such  indemnified  party may become  subject
under the Act or otherwise, arising from or relating to (A) any untrue statement
or alleged untrue statement of any material fact contained in such  registration
statement,  any  prospectus  contained  therein or any  amendment or  supplement
thereto,  or (B) the  omission or alleged  omission to state  therein a material
fact required to be stated therein or necessary to make the statements  therein,
in light of the circumstances in which they were made, not misleading; provided,
however,  that the  Company  shall not be liable in any such case to the  extent
that any such  Liability  arises out of or is based upon an untrue  statement or
omission  so  made in  strict  conformity  with  information  furnished  by such
indemnified party in writing specifically for use in a registration statement.

     (ii)  In the  event  of  any  registration  under  the  Act of  Registrable
Securities  pursuant to Subsections (b) or (c), each holder of such  Registrable
Securities  hereby severally  agrees to indemnity,  defend and hold harmless the
Company,  and  its  officers,   directors,   employees,   agents,  partners,  or
controlling  persons  (within  the meaning of the Act)  (each,  an  "indemnified
party")  from and  against,  and shall  reimburse  such  indemnified  party with
respect to, any and all Liabilities to which such  indemnified  party may become
subject under the Act or  otherwise,  arising from or relating to (A) any untrue
statement or alleged  untrue  statement of any material  fact  contained in such
registration  statement,  any prospectus  contained  therein or any amendment or
supplement  thereto,  or (B) the omission or alleged omission to state therein a
material fact required to be stated  therein or necessary to make the statements
therein,  in light of the circumstances in which they were made, not misleading;
provided,  that such  holders  will be liable in any such case to the extent and
only to the extent,  that any such  Liability  arises out of or is based upon an
untrue  statement or alleged  untrue  statement or omission or alleged  omission
made in such  registration  statement,  prospectus  or amendment  or  supplement
thereto in reliance upon and in conformity with written information furnished by
such holder specifically for use in the preparation thereof.

     (iii)  Promptly  after  receipt by any  indemnified  party of notice of the
commencement of any action,  such indemnified party shall, if a claim in respect
thereof  is  to  be  made  against  another  party  (the  "indemnifying  party")
hereunder,  notify such party in writing thereof,  but the omission so to notify
such party shall not relieve such party from any Liability  which it may have to
the  indemnified  party other than under this  Section and shall only relieve it
from any Liability which it may have to the indemnified party under this section
if and to the extent an  indemnifying  party is  materially  prejudiced  by such
omission. In case any such action shall be brought against any indemnified party
and  such  indemnified   party  shall  notify  an  indemnifying   party  of  the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and  undertake  the defense  thereof
with counsel  reasonably  satisfactory  to such  indemnified  party,  and, after
notice from the indemnifying  party to the indemnified  party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to the  indemnified  party  under  this  section  for any legal  expenses
subsequently  incurred by the  indemnified  party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected; provided however, that if the defendants in any such action include
both parties and the  indemnified  party shall have  reasonably  concluded  that
there may be reasonable  defenses  available to them which are different from or
additional to those available to the  indemnifying  party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying  party, the indemnified  party shall have the right to select a
separate  counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of one such
separate counsel and other reasonable  expenses related to such participation to
be reimbursed by the indemnifying party as incurred.

     (g) (i) With  respect  to the  inclusion  of  Registrable  Securities  in a
registration  statement  pursuant to Subsections (b) or (c), all fees, costs and
expenses of and incidental to such  registration,  inclusion and public offering
shall be borne  by the  Company,  provided,  however,  that any  securityholders
participating  in such  registration  shall  bear  their  pro-rata  share of the
underwriting  discounts and commissions,  if any, incurred by them in connection
with such registration.

     (ii) The  fees,  costs  and  expenses  of  registration  to be borne by the
Company as provided in this Subsection shall include,  without  limitation,  all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and  accountants for the Company,  and all legal fees and  disbursements
and other  expenses of complying  with state  securities or Blue Sky laws of any
jurisdiction  or  jurisdictions  in which  securities  to be  offered  are to be
registered   and   qualified.   Subject   to   appropriate   agreements   as  to
confidentiality,  the Company shall make available to the holders of Registrable
Securities  and their  counsel its  documents  and  personnel  for due diligence
purposes. Except as otherwise provided herein, fees and disbursements of counsel
and  accountants  for  the  selling  security  holders  shall  be  borne  by the
respective selling security holders.

     (h) The  rights to cause the  Company  to  register  all or any  portion of
Registrable Securities pursuant to this Section 1.4 may be assigned by Purchaser
to a transferee or assignee.  Within a reasonable time after such transfer,  the
Purchaser shall notify the Company of the name and address of such transferee or
assignee,  and the securities with respect to which such registration rights are
being  assigned.  Such  assignment  shall  be  effective  only  if,  immediately
following  such  transfer,  the further  disposition  of such  securities by the
transferee or assignee is  restricted  under the Act. Any  transferee  asserting
registration  rights  hereunder  shall be bound by the applicable  provisions of
this Agreement.

     (i) The Company  shall not agree to allow the holders of any  securities of
the Company to include any of their  securities  in any  registration  statement
filed by the Company  pursuant to Subsection  (b) unless such inclusion will not
reduce the amount of the Registrable Securities included therein.

     Section  1.5  Company  Standoff,  Except  in  a  corporate  reorganization,
business combination,  stock or asset purchase,  merger or consolidation,  under
existing  employee  stock  incentive  or  purchase  plans  or  pursuant  to this
Agreement,  the Company shall not for its own account  effect any public sale or
distribution  of any  securities  similar to the  Registrable  Securities or any
securities  exercisable  for or convertible or changeable  into the  Registrable
Securities  during the thirty (30) days prior to, and during the sixty (60) days
immediately following, the effective date of any registration statement filed or
amended  pursuant to Section  1.4(b);  provided,  however,  that the Company may
effect such public sale or distribution  during the sixty (60) days  immediately
following  the  effective  date of such  registration  statement if such sale or
distribution  of  securities  is at a price equal to or greater than 125% of the
last trade price of the Company's Common Stock on the day of Closing.

     Section 2.1 Representations and Warranties of the Purchaser.  The Purchaser
makes the following representations and warranties to the Company.

     (a) Accredited Investor. The Purchaser is an "accredited investor", as such
term is defined in Rule 50 1 (a) of Regulation D, promulgated under the Act.

     (b)  Speculative  Investment.  The Purchaser is aware that an investment in
the Shares is highly speculative and subject to substantial risks. The Purchaser
is capable of bearing the high  degree of  economic  risk and the burden of this
venture,  including, but not limited to, the possibility of complete loss of the
Purchaser's  investment  in the Shares and  underlying  Common  Stock which make
liquidation of this investment impossible for the indefinite future.

     (c) Disposition.  The Purchaser understands that (i) except as provided for
in Section  1.4,  the Shares and  underlying  Common  Stock of the Company  (the
"Securities"),  have not been and are not being  registered under the Securities
Act or any applicable state  securities laws, and may not be transferred  unless
(A)  subsequently  registered  thereunder,  or (B) the Securities may be sold or
transferred  pursuant to an exemption  from  securities  registration  under the
Securities Act and any applicable  state securities laws or (C) sold pursuant to
Rule 144,  promulgated under the Securities Act (or any successor Rule), or (ii)
any sale of such  Securities  made in  reliance  on Rule 144 may be made only in
accordance  with  the  terms  of such  Rule  and  further,  if such  Rule is not
applicable,  any  resale of such  Securities  under  circumstances  in which the
seller  (or the  person  through  whom the sale is made)  may be deemed to be an
underwriter  (as  that  term is  defined  in the  Securities  Act)  may  require
compliance  with another  exemption under the Securities Act or the rules of the
SEC thereunder.  Notwithstanding any provision to the contrary contained herein,
a holder may pledge such  Securities as collateral  for a revolving  credit note
pursuant to a loan and security agreement with a lending institution.

     (d)  Privately  Offered.  The offer to  acquire  the  Shares  was  directly
communicated  to the Purchaser in such manner that the Purchaser was able to ask
questions of and receive  answers  concerning  the terms and  conditions of this
transaction.  At no time was the  Purchaser  presented  with or  solicited by or
through any leaflet, public promotional meeting,  television  advertisement,  or
any other form of general advertising.

     (e) Purchase for  Investment,  The Securities are being acquired solely for
the  Purchaser's own account,  for investment,  and are not being purchased with
view to the  resale,  distribution,  subdivision  or  fractionalization  thereof
without proper registration with applicable securities administrators.

     Section 2.2  Representations  and  Warranties  of the Company.  The Company
hereby makes the following representations and warranties to the Purchaser:

     (a)  Organizations  and  Qualifications.  The Company is a corporation duly
incorporated and existing in good standing under the laws of the Commonwealth of
Massachusetts and has the requisite corporate power to own its properties and to
carry on its  business as now being  conducted.  The  Company  does not have any
subsidiaries  except as listed in Exhibit B,  attached  hereto and  incorporated
herein by  reference.  The  Company  and each such  subsidiary,  if any, is duly
qualified as a foreign  corporation  to do business  and is in good  standing in
every  jurisdiction  in which the nature of the  business  conducted or property
owned by it makes  such  qualification  necessary  other than those in which the
failure  so to  qualify  would not have a  Material  Adverse  Effect.  "Material
Adverse Effect", for purposes of this Agreement, means any adverse effect on the
business operations, properties, prospects, or financial condition of the entity
with respect to which such term is used and which is material to such entity and
other entities controlled by such entity taken as a whole.

     (b) Authorizations Enforcement. (i) The Company has the requisite corporate
power and  authority to enter into and perform this  Agreement  and to issue the
Shares and Registrable  Securities in accordance with the terms hereof, (ii) the
execution and delivery of this Agreement by the Company and the  consummation by
it of the  transactions  contemplated  hereby have been duly  authorized  by all
necessary  corporate  action,  and no further  consent or  authorization  of the
Company  or its Board of  Directors  or  stockholders  is  required,  (iii) this
Agreement  has been  duly  executed  and  delivered  by the  Company,  (iv) this
Agreement  constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms (except as such  enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting  generally the enforcement
of,  creditor'  rights and remedies or by other equitable  principles of general
application)  and (v) prior to the Closing Date,  any necessary  Certificate  of
Amendment  to the  Company's  Charter  authorizing  Company  to issue all of the
Shares and  Registerable  Securities,  in accordance  with Schedule 1, will have
been filed with the  Massachusetts  Secretary of State and will be in full force
and effect enforceable  against the Company in accordance with the terms of such
amended Charter.

     (c)  Authorized  Capital  Rights or  Commitments  to Stock.  The authorized
capital stock of the Company  consists of 22,200,000  shares of Common Stock and
1,000,000  shares of Series B Preferred  Stock;  there are  4,704,956  shares of
Common  Stock  issued and 730,292  shares of Class B Common  Stock  outstanding;
there are no shares of such Preferred  Stock issued and  outstanding;  and, upon
issuance  of the  Shares in  accordance  with the terms  hereof,  there  will be
4,704,956  shares of Class B Common Stock and 950 shares of such Preferred Stock
issued and outstanding.

      All of the  outstanding  shares of the Company's  Common Stock have been
validly  issued and are fully paid and  nonassessable.  Except as set forth in
Exhibit B hereto or as  described  in the SEC  Documents,  no shares of Common
Stock are entitled to preemptive  rights or registration  rights and there are
no  outstanding  options,  warrants,  scrip,  rights to subscribe to, calls or
commitments of any character  whatsoever  relating to, or securities or rights
convertible  into,  any shares of capital stock of the Company,  or contracts,
commitments,  understandings,  or  arrangements by which the Company is or may
become  bound to issue  additional  shares of capital  stock of the Company or
options,  warrants,  scrip, rights to subscribe to, or commitments to purchase
or acquire,  any shares.  or securities or rights  convertible into shares, of
capital stock of the Company.  The Company has furnished or made  available to
the  Purchaser  true  and  correct   copies  of  the  Company's   Articles  of
Organization  as in  effect  on the  date  hereof  (the  "Charter"),  and  the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").

     (d) Issuance of Shares. The issuance of the Shares has been duly authorized
and, when paid for and issued in accordance with the terms hereof,  the shall be
validly  issued,  fully paid and  non-assessable  and entitled to the rights and
preferences  set forth in  Schedule I hereto.  The Common  Stock  issuable  upon
conversion of the Shares will be duly  authorized and reserved for issuance and,
upon conversion,  will be validly issued,  fully paid and non-assessable and the
holders shall be entitled to all rights and preferences  accorded to a holder of
Common Stock.

     (e) No Conflicts. The execution, delivery and performance of this Agreement
by the  Company  and  the  consummation  by  the  Company  of  the  transactions
contemplated  hereby  do not and  will  not (i)  result  in a  violation  of the
Company's  Charter or By-Laws or (ii) conflict with, or constitute a default (or
an event  which  with  notice or lapse of time or both  would  become a default)
under, or give to others any rights of termination,  amendment,  acceleration or
cancellation of, any agreement,  indenture or instrument to which the Company or
any of its  subsidiaries  is a party,  or result in a violation  of any federal,
state,  local or  foreign  law,  rule,  regulation,  order,  judgment  or decree
(including Federal and state securities laws and regulations)  applicable to the
Company or any of its  subsidiaries  or by which any  property  or assets of the
Company  or any of its  subsidiaries  is  bound  or  affected  (except  for such
conflicts, defaults, terminations, amendments, accelerations,  cancellations and
violations  as would  not,  individually  or in the  aggregate,  have a Material
Adverse  Effect);  provided  that,  for  purposes of such  representation  as to
Federal,  state, local or foreign law, rule or regulation,  no representation is
made herein with respect to any of the same  applicable  solely to the Purchaser
and not to the Company.  The  business of the Company is not being  conducted in
violation  of any law,  ordinance or  regulations  of any  governmental  entity,
except for  violations  which either  singly or in the aggregate do not and will
not have a Material  Adverse Effect.  The Company is not required under Federal,
state or local  law,  rule or  regulation  in the  United  States to obtain  any
consent, authorization or order of, or make any filing (other than any filing of
a vote establishing a class or series of stock with the Massachusetts  Secretary
of State) or registration with, any court or governmental agency in order for it
to execute,  deliver or perform any of its  obligations  under this Agreement or
issue and sell the Shares in  accordance  with the terms hereof  (other than any
SEC,  NASD or state  securities  filings which may be required to be made by the
Company subsequent to the Closing,  and any registration  statement which may be
filed pursuant hereto);  provided that, for purposes of the representation  made
in this  sentence,  the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchaser herein.

     (f) SEC Documents, Financial Statements. The Common Stock of the Company is
registered  pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange  Act") and, except as set forth in Exhibit B, the Company
has filed on a timely basis all reports,  schedules, forms, statements and other
documents  required  to be filed by it with the SEC  pursuant  to the  reporting
requirements of the Exchange Act,  including  material filed pursuant to Section
13(a)  or  15(d),  in  addition  to  one or  more  registration  statements  and
amendments  thereto  heretofore  filed by the Company with the SEC under the Act
(all of the foregoing including filings  incorporated by reference therein being
referred to herein as the "SEC Documents").  The Company directly or through its
agent  has  delivered  to the  Purchaser  true and  complete  copies  of the SEC
Documents  except for the exhibits and incorporated  documents.  The Company has
not provided to the Purchaser  any  information  which,  according to applicable
law, rule or regulation,  should have been disclosed publicly by the Company but
which has not been so  disclosed,  other than with  respect to the  transactions
contemplated by this Agreement.

     Except  as set forth in  Exhibit  B, as of their  respective  dates the SEC
Documents  complied in all material respects with the requirements of the Act or
the  Exchange  Act as the case may be and the rules and  regulations  of the SEC
promulgated  thereunder  and other  federal,  state and  local  laws,  rules and
regulations  applicable  to such SEC  Documents,  and none of the SEC  Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated  therein or necessary in order to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.  Except as set forth in Exhibit B, the  financial  statements of the
Company included in the SEC Documents comply as to form in all material respects
with applicable accounting  requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto.  Such
financial  statements have been prepared in accordance  with generally  accepted
accounting  principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise  indicated in such  financial  statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include  footnotes or may be condensed or summary  statements)  and
fairly present in all material respects the financial position of the Company as
of the dates  thereof  and the  results  of  operations  and cash  flows for the
periods  then ended  (subject,  in the case of unaudited  statements,  to normal
year-end audit adjustments).

     (g) No  Material  Adverse  Change.  Since the date  through  which the most
recent  quarterly report of the Company on Form 10-Q has been prepared and filed
with the SEC, a copy of which is  included  in the SEC  Documents,  no  Material
Adverse  Effect has occurred or exists with respect to the Company or any of its
subsidiaries.

     (h) No Undisclosed  Liabilities.  The Company and its subsidiaries  have no
material  liabilities or obligations  not disclosed in the SEC Documents,  other
than  those  incurred  in the  ordinary  course of the  Company's  or any of its
subsidiaries'  respective  businesses  since the date of the most recently filed
SEC Documents which,  individually or in the aggregate, do not or would not have
a Material Adverse Effect on the Company or any of its subsidiaries.

     (i) No Undisclosed  Events or  Circumstances.  No event or circumstance has
occurred or exists with  respect to the  Company or any of its  subsidiaries  or
their  respective  businesses,  properties,  prospects,  operations or financial
condition  which,  under  applicable  law, rule or regulation,  requires  public
disclosure  or  announcement  by the  Company but which has not been so publicly
announced or disclosed.

     (j)  No  General  Solicitation.   Neither  the  Company,  nor  any  of  its
affiliates,  or, to the best of its knowledge, any person acting on its or their
behalf, has engaged in any form of general  solicitation or general  advertising
(within the meaning of Regulation D under the Act) in connection  with the offer
or sale of the Shares.

     (k) No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has,  directly or indirectly,  made
any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Shares under the Act.

     Section 3.1  Securities  Compliance.  The Company  shall notify the SEC and
NASD, in accordance with their requirements, of the transactions contemplated by
this Agreement, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation,  for the legal
and valid issuance of the Shares,  and the Common Stock issuable upon conversion
thereof, to the Purchaser.

     Section 3.2 Registration  and Listing.  Until. at least two (2) years after
all Shares have been converted  into  Registrable  Securities,  the Company will
cause its Common  Stock to continue to be  registered  under  Sections  12(b) or
12(g) of the Exchange  Act,  will comply in all respects  with its reporting and
filing  obligations  under such Exchange Act, will comply with all  requirements
related to any registration  statement filed pursuant to this Agreement and will
not take any action or file any document (whether or not permitted by the Act or
the  Exchange  Act or  the  rules  thereunder)  to  terminate  or  suspend  such
registration  or to terminate or suspend its  reporting  and filing  obligations
under said Acts, except as permitted herein.  Until at least two (2) years after
all Shares  have been  converted  into Common  Stock the  Company  will take all
action  within its power to continue  the listing or trading of its Common Stock
on the  NASDAQ  Small  Cap  Market  and will  comply  in all  respects  with the
Company's  reporting,  filing and other obligations under the bylaws or rules of
the NASD and NASDAQ.  The  covenants  set forth in this Section 3.2 shall not be
deemed  to   prohibit  a  merger,   sale  of  all  assets  or  other   corporate
reorganization  if the entity surviving or succeeding to the Company is bound by
this  Agreement  with  respect to its  securities  issued in exchange  for or in
replacement of the Shares or Common Stock or the  consideration  received for or
in replacement of the Shares or Common Stock is cash.

     Section 3.3 Right of First Refusal and  Most-Favored-Nation  Clause.  If at
any time  during the period  beginning  on the fifth (5th) day prior to (but not
including) the Closing Date and ending sixty (60) days immediately following the
effective date of the Initial Registration, the Company proposes to issue Common
Stock or securities  convertible  into or exercisable  for Common Stock or other
convertible  securities,  pursuant to an offering exempt from registration under
the Act, the Company shall provide to Purchaser reasonable advance notice of all
the terms of such  proposed  issuance.  The  Purchaser  shall  have the right to
purchase or refuse to purchase all or any part of such securities proposed to be
issued in such  offering,  and shall have at least  seventy two (72) hours after
receipt of such notice to review the terms of the proposed issuance.

     If the  Company  issues  Common  Stock or  securities  convertible  into or
exercisable for Common Stock or other convertible securities, at a time when any
of the Shares  remain  outstanding,  at an  effective  price per share of Common
Stock which is lower than the conversion  price of the Shares at that time, then
the Company shall,  within five (5) business  days,  deliver to each holder upon
conversion  an additional  number of shares of Common Stock  necessary to reduce
the effective conversion price to such lower issue price. This Section shall not
be  applicable  to  issuances  of  Common  Stock  pursuant  to (a) any  business
combination,  acquisition transaction, stock or asset purchase undertaken by the
Company or (b) any  shareholder-approved  option plan covering not more than 10%
of the Company's outstanding stock.

     Section 4.1  Conditions  Precedent to the Obligation of the Company to Sell
the Shares.  The  obligation  hereunder  of the Company to issue and/or sell the
Shares to the  Purchaser  is  subject  to the  satisfaction,  at or  before  the
Closing,  of each of the  conditions  set forth below.  These  conditions may be
waived by the Company at any time in its sole discretion.

     (a)  Accuracy  of  the  Purchaser's  Representations  and  Warranting.  The
representations and warranties of the Purchaser shall be true and correct in all
material  respects as of the date when made and as of the Closing Date as though
made at that time (except for  representations and warranties that speak as of a
particular date).

     (b)  Performance by the Purchaser.  The Purchaser  shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Purchaser at or prior to the Closing.

     (c) No Injunction.  No statute, rule, regulation.  executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

     (d) Legal action.  No legal action,  suit or proceeding shall be pending or
threatened which seeks to restrain or prohibit the transactions  contemplated by
this Agreement.

     (e)  Execution.  The  Purchaser  shall have executed  this  Agreement,  and
delivered such Agreement to the Company.

     (f) Purchase  Price.  The Purchaser shall have delivered the Purchase Price
in accordance with Section 1.3(b) above.

     Section 4.2  Conditions  Precedent to the  Obligation  of the  Purchaser to
Purchase the Shares.  The  obligation  hereunder of the Purchaser to acquire and
pay for the Shares is subject to the satisfaction,  at or before the Closing, of
each of the  conditions set forth below.  These  conditions may be waived by the
Purchaser at any time in its sole discretion.

     (a)  Accuracy  of  the  Company's   Representations  and  Warranties.   The
representations  and  warranties of the Company shall be true and correct in all
material  respects as of the date when made and as of the Closing Date as though
made at that time (except for  representations and warranties that speak as of a
particular date).

     (b)  Performance  by the  Company.  The Company  shall have  performed  all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.

     (c)  NASDAO.  From the date  hereof to the  Closing  Date,  trading  in the
Company's  Common  Stock shall not have been  suspended by the SEC or the NASDAQ
Small Cap Market  (except  for any  suspension  of  trading of limited  duration
agreed to between the Company and the NASDAQ  Small Cap Market  solely to permit
dissemination  of material  information  regarding the Company),  and trading in
securities  generally  as reported by NASDAQ  shall not have been  suspended  or
limited or minimum prices shall not have been established on
securities whose trades are reported by NASDAQ.

     (d) No Injunction.  No statute, rule, regulation,  executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

     (e) Opinion of Counsel Etc. The Purchaser  shall have received before or at
the Closing an opinion of counsel to the Company (covering,  without limitation,
such of the matters set forth in Section 2.2(a) through (e)), as are in form and
substance  reasonably  satisfactory  to the Purchaser and its counsel,  and such
other  certificates  and  documents  as  the  Purchaser  or  its  counsel  shall
reasonably require incident to the Closing.

     (f)  Execution.  The  Company  shall  have  executed  this  Agreement,  and
delivered such Agreement to the Purchaser.

     Section 5.1 Legend on Stock. Each certificate  representing the Shares and,
if necessary,  Common Stock issued upon conversion thereof,  shall be stamped or
otherwise imprinted with a legend substantially in the following form:

THESE  SECURITIES  [AND THE SHARES OF COMMON STOCK  ISSUABLE UPON THE CONVERSION
HEREOF] HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE  SECURITIES  LAWS.  THEY MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS
THERE IS AN EFFECTIVE  REGISTRATION  STATEMENT UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR, IN THE OPINION OF COUNSEL,  REGISTRATION UNDER SUCH ACT
OR APPLICABLE  STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH SUCH SALE
OR OFFER, AND SUCH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY.

     The Company agrees to reissue  certificates  representing the Shares or, if
applicable,  the Common Stock issued upon conversion thereof, without the legend
set forth above at such time as (a) the holder  thereof is  permitted to dispose
of such Shares (or securities  issued upon conversion  thereof) pursuant to Rule
144(k) under the Act, (b) the  securities  are sold to a purchaser or purchasers
who (in the opinion of counsel to such holders, in form and substance reasonably
satisfactory  to the  Company  and its  counsel)  are  able to  dispose  of such
securities publicly without registration under the Act, or (iii) such securities
are registered under the Act

     Section 6.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the mutual  written  consent of the Company,
and the Purchaser.

     Section 6.2 Other  Termination.  This Agreement may be terminated by action
of the  Board of  Directors  or other  governing  body of the  Purchaser  or the
Company at any time if the Closing shall not have been  consummated by the fifth
(5th) business day following the date of this Agreement, provided that the party
seeking to terminate the Agreement is not in breach of the Agreement.

     Section 6.3  Automatic  Termination.  This  Agreement  shall  automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the seventh  (7th)  business day following the date of this
Agreement,  provided, however, that any such termination shall not terminate the
liability of any party which is then in breach of the Agreement.

     Section 7.1 Fees and Expenses. Except as otherwise set forth in Section 1.4
hereof with respect to the registration of Registrable  Securities,  the Company
shall pay the fees, commissions and expenses of its advisers,  brokers, finders,
counsel,  accountants  and  other  experts,  if  any,  and  all  other  expenses
associated therewith, and shall on the Closing Date reimburse ProFutures Special
Equities  Fund,  L.P.  up to $5,000  for fees and  expenses  of its  counsel  in
connection with the preparation, negotiation and coordination of this Agreement.
The Company  shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares and Common Stock pursuant hereto.

     Section 7.2 Specific Enforcement, Consent to Jurisdiction.

     (a) The Company and the Purchaser  acknowledge  and agree that  irreparable
damage  would occur in the event that any of the  provisions  of this  Agreement
were not performed in accordance  with their  specific  terms or were  otherwise
breached.  It is  accordingly  agreed that the  parties  shall be entitled to an
injunction or  injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce  specifically  the terms and  provisions  hereof,  this
being in addition to any other remedy to which either of them may be entitled by
law or equity.

     (b) The Company and the Purchaser  each (i) hereby  irrevocably  submits to
the  jurisdiction  of the United States  District  Court and other courts of the
United States sitting in the State of Texas for the purposes of any suit, action
or  proceeding  arising  out of or relating  to this  Agreement  and (ii) hereby
waives,  and agrees not to assert in any such suit,  action or  proceeding,  any
claim that it is not personally  subject to the jurisdiction of such court, that
the suit,  action or proceeding is brought in an inconvenient  forum or that the
venue of the  suit,  action or  proceeding  is  improper.  The  Company  and the
Purchaser  each  consents to process  being  served in any such suit,  action or
proceeding  by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and  sufficient  service of process  and  notice  thereof.  Nothing in this
paragraph  shall affect or limit any right to serve  process in any other manner
permitted by law.

     Section 7.3 Entire Agreement: Amendment. This Agreement contains the entire
understanding  of the parties  with respect to the matters  covered  hereby and,
except as specifically  set forth herein,  neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by a
written  instrument  signed by the party  against whom  enforcement  of any such
amendment or waiver is sought.

     Section  7.4  Notices.  Any  notice  or  other  communication  required  or
permitted to be given  hereunder  shall be in writing and shall be effective (a)
upon hand  delivery or delivery by telex (with  correct  answer back  received),
telecopy or facsimile at the address or number designated below (if delivered on
a  business  day  during  normal  business  hours  where  such  notice  is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal  business  hours where such notice is to be
received) or (b) on the second (2nd)  business day following the date of mailing
by express courier service,  fully prepaid,  addressed to such address,  or upon
actual receipt of such mailing, whichever shall first occur.

     The addresses for such communications shall be:

to the Company:   Bruce A. Shear, President and Chief Executive Officer
                  PHC, Inc.
                  200 Lake Street -- Suite 102
                  Peabody, Massachusetts 01960

to the Purchaser: At the address set forth at the foot of this Agreement or
                  as specified in writing by Purchaser.

Any party  hereto may from time to time change its address for notices by giving
at least ten (10)  days'  written  notice of such  changed  address to the other
party hereto.

     Section 7.5 Waivers.  No waiver by either party of any default with respect
to any provision,  condition or requirement of this Agreement shall be deemed to
be a  continuing  waiver  in the  future  or a waiver  of any  other  provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right  hereunder  in any manner  impair the exercise of any such
right accruing to it thereafter.

     Section 7.6 Headings.  The headings herein are for convenience only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof.

     Section  7.7  Governing  Law.  This  Agreement  shall  be  governed  by and
construed and enforced in accordance with the internal laws of the present state
of  incorporation  of the Company  without regard to such state's  principles of
conflict of laws.

     Section 7.8 Survival. The representations and warranties of the Company and
the Purchaser  contained in herein and the agreements and covenants set forth in
Sections 1.1 through 1.5, 3.1 through 3.3 and 7.1 through 7.16 shall survive the
Closing for a period of two (2) years.

     Section 7.9 Publicity.  The Company  agrees that it will not disclose,  and
will not include in any public  announcement,  the name of the Purchaser without
its consent,  unless and until such  disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.

     Section 7.10 NASDAO.  The term "NASDAQ" or "NASDAQ Small Cap Market" herein
refers to the  principal  market on which the  Common  Stock of the  Company  is
traded.  If the Common Stock is listed on a securities  exchange.  or if another
market  becomes  the  principal  market on which the  Common  Stock is traded or
through  which price  quotations  for the Common  Stock are  reported,  the term
"NASDAQ" or "NASDAQ  Small Cap Market" shall be deemed to refer to such exchange
or other principal market.

     Section 7.11  Acceptance.  Execution and delivery of this  Agreement  shall
constitute  an offer to purchase  the Shares,  which  offer,  unless  previously
revoked by the  Purchaser,  may be accepted or rejected by the  Company,  in its
sole  discretion  for any cause or for no cause  and  without  liability  to the
Purchaser. The Company shall indicate acceptance of this Agreement by signing as
indicated on the signature page hereof.

     Section 7.12 Binding  Agreement.  Upon  acceptance of this Agreement by the
Company,  the Purchaser  agrees that he may not cancel,  terminate or revoke any
agreement of the Purchaser made hereunder, and that this Agreement shall survive
the death or  disability  of the  Purchaser  and shall be  binding  upon  heirs,
successors,  assigns,  executors,  administrators,  guardians,  conservators  or
personal representatives of the Purchaser.

     Section 7.13  Incorporation by Reference.  All information set forth on the
signature page is incorporated as integral terms of this Agreement.

     Section  7.14  Counterparts.  This  Agreement  may be  signed  in  multiple
counterparts,  which  counterparts  shall  constitute  one and the same original
instrument.

     Section 7.15  Severability.  If any portion of this Agreement shall be held
illegal,  unenforceable,  void or  voidable  by any court each of the  remaining
terms  hereof shall  nevertheless  remain in full force and effect as a separate
contract.

     Section 7.16  Successors and Assigns.  This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their  respective  successors
and permitted assigns.




   [This space has been left blank intentionally. The signature page follows.]

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $500,000 (500 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         26,315 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      ProFutures Special Equities Fund, L.P.

Address of Purchaser:   % ProFutures Fund Management, Inc.
                        1030 Highway 620 South - Suite 200
                        Austin, TX  78734

Social Security or IRS Employer Identification Number(s):

      74-2786952

Signature of Purchaser:                              Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

______________________________________________
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  ProFutures Special Equities Fund, L.P.
                 By ProFutures Fund Management, Inc., a General Partner


By:  ______________________________________
          (Signature)

Name:      /s/ Gary D. Halbert
Title:         President

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $150,000 (150 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         7,890 shares

The exact name(s)(Including  correct,legible spelling) and the information under
which title to the Shares will be taken is as follows (Please print or type):

      Gary D. Halbert

Address of Purchaser:   1030 Highway 620 South - Suite 200
                        Austin, TX  78734

Social Security or IRS Employer Identification Number(s):

      ###-##-####

Signature of Purchaser:                                 Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

/s/ Gary D. Halbert
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  _______________________________________

By:  ______________________________________
          (Signature)

Name:     ____________________________________________
Title:    ____________________________________________

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $100,000 (100 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         5,260 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      John F. Mauldin

Address of Purchaser:   1000 Ballpark in Arlington - Suite 216
                        Arlington, TX  76011

Social Security or IRS Employer Identification Number(s):

      ###-##-####

Signature of Purchaser:                                 Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

/s/ John F. Mauldin
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  ________________________________


By:  ______________________________________
          (Signature)

Name:     _________________________________
Title:    _________________________________

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $200,000 (200 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         10,525 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      Augustine Fund, L.P.

Address of Purchaser:   141 West Jackson Boulevard - Suite 2182
                        Chicago, IL  60604

Social Security or IRS Employer Identification Number(s):

      36-418-6782

Signature of Purchaser:                                  Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

______________________________________________
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  Augustine Fund, L.P.
            By Augustine Capital Management, Inc., the General Partner

By:  ______________________________________
          (Signature)

Name:      /s/ Thomas Duszynski
Title:         Chief Operating Officer

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name: /s/ Bruce A. Shear
Title:    President

<PAGE>
                                   SCHEDULE I

                                    PHC, INC.

                 RESOLUTIONS ESTABLISHING RIGHTS AND PREFERENCES
                    FOR SERIES B CONVERTIBLE PREFERRED STOCK

     RESOLVED,  that  there  shall  be a series  of  shares  of the  Corporation
designated "Series B Convertible  Preferred Stock"; that the number of shares of
such series shall be 1,000, that the Corporation issue such shares, and that the
rights and  preferences of such series (the "6%  Preferred") and the limitations
or restrictions thereon, shall be as set forth herein.

     The following  terms and conditions  shall be adopted and  incorporated  by
reference into the foregoing resolutions as if fully set forth therein:

     1. Dividends.

     (a) The holders of the 6% Preferred shall be entitled to receive out of any
assets legally available  therefor  cumulative  dividends at the rate of $60 per
share per annum,  accrued  daily and payable  quarterly  in arrears on March 31,
June 30,  September 30 and December 31 of each year, in preference  and priority
to any payment of any  dividend on the Common Stock or any other class or series
of stock of the Corporation. Such dividends shall accrue on any given share from
the day of  original  issuance  of such share and shall  accrue  from day to day
whether or not earned or declared.  If at any time dividends on the  outstanding
6%  Preferred  at the rate set forth  above shall not have been paid or declared
and set apart for payment with respect to all preceding  periods,  the amount of
the  deficiency  shall be fully paid or declared and set apart for payment,  but
without  interest,  before  any  distribution,  whether  by way of  dividend  or
otherwise,  shall be  declared  or paid upon or set apart for the  shares of any
other class or series of stock of the Corporation.

     (b) Any dividend  payable on a dividend  payment  date may be paid,  at the
option of the Corporation,  either (i) in cash or (ii) in shares of 6% Preferred
valued at $1,000 per share, if the Common Stock issuable upon conversion of such
shares has been  registered  for resale  under the  Securities  Act of 1933,  as
amended  (the  "Act"),  and  the  registration  statement  including  a  current
prospectus  with  respect  thereto  remains in effect at the date of delivery of
such  shares,  and if the  Corporation  shall have given  written  notice of its
intention  to pay such  dividend in stock to all holders of the 6%  Preferred at
least ten (10) days before the record date for such dividend.

     2. Liquidation Preference, Redemption.

     (a) In the  event of any  liquidation,  dissolution  or  winding  up of the
Corporation,  either  voluntary or involuntary,  the holders of the 6% Preferred
shall be entitled to receive, prior and in preference to any distribution of any
assets of the Corporation to the holders of any other class or series of shares,
the amount of $1,000  per share  plus any  accrued  but  unpaid  dividends  (the
"Liquidation Preference").

     (b) A  consolidation  or merger of the  Corporation  with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation  (other than a sale or transfer to a wholly-owned  subsidiary
of the Corporation), shall, at the option of the holders of the 6% Preferred, be
deemed a  liquidation,  dissolution  or winding  up within  the  meaning of this
Section 2 if the  shares  of stock of the  Corporation  outstanding  immediately
prior to such transaction represent immediately after such transaction less than
a majority of the voting power of the surviving  corporation (or of the acquirer
of the Corporation's assets in the case of a sale of assets). Such option may be
exercised  by the vote or written  consent  of  holders of a majority  of the 6%
Preferred at any time within thirty (30) days after written  notice (which shall
be given  promptly) of the essential terms of such  transaction  shall have been
given to the holders of the 6% Preferred  in the manner  provided by law for the
giving of notice of meetings of shareholders.




                                      - 1 -
<PAGE>

     (c) The Corporation may, at its option, cause all outstanding shares of the
6% Preferred  to be redeemed  after the date on which a  registration  statement
under  the Act  ("Registration  Statement")  has been  declared  effective  (the
"effective date"); provided the Corporation has given notice of its intention to
redeem to the  holders of the 6%  Preferred  at least five (5) days prior to the
redemption date. In addition, if any conversion of 6% Preferred, when aggregated
with all prior  conversions,  will cause the Company to issue a number of shares
of Common Stock which exceeds twenty percent (20%) of the shares of Common Stock
then issued and  outstanding,  the Company shall redeem such number of shares of
6% Preferred  as is  necessary to limit such  issuance of Common Stock to twenty
percent (20%) of the shares of Common Stock then issued and outstanding,  unless
the Company has previously obtained  stockholder  approval to issue in excess of
twenty percent (20%) of the shares of Common Stock then issued and  outstanding.
If a  redemption  will occur under  either of the  preceding  sentences,  on the
redemption  date,  the  Corporation  shall pay such holders by cashiers check or
wire transfer in immediately  available  funds the amount of $1,300 per share of
6% Preferred plus all accrued but unpaid  dividends.  Promptly  thereafter,  the
holders shall  surrender the  certificate or  certificates  representing  the 6%
Preferred,  duly endorsed,  at the office of the  Corporation or of any transfer
agent for such shares, or at such other place designated by the Corporation.

     3. 6% Preferred - Forced Conversion.

     (a) The Corporation may, at its option, cause all outstanding shares of the
6%  Preferred to be converted  into Common Stock at any time  beginning  one (1)
year after the date of issuance,  on at least twenty (20) days' advance  notice,
at a  conversion  price  determined  as set  forth  in  Section  4  hereof  (the
"Conversion  Price") as of the date  specified  in such notice (the  "Conversion
Date") and otherwise on the terms set forth in Section 4 hereof,  provided, that
the Corporation may not exercise such right of conversion unless (i) the Closing
Price  (last  trade  price) of the Common  Stock as  reported  by NASDAQ for the
twenty (20) consecutive  trading days prior to the date the Conversion Notice is
mailed has not on any day been less than one hundred forty percent (140%) of the
last trade price of the Company's Common Stock on the day of Closing (subject to
adjustment for stock dividends, stock splits and reverse stock splits), and (ii)
the shares  issuable  upon  conversion of the 6% Preferred  are  registered  for
resale by an effective  Registration  Statement which became  effective not more
than  one  hundred  twenty  (120)  days  after  the date of  issuance  of the 6%
Preferred,  and a current  prospectus  meeting the requirements of Section 10 of
the Act is available for delivery at the Conversion Date.

     (b) At least twenty (20) days prior to the Conversion Date,  written notice
(the "Conversion  Notice") shall be mailed,  first class postage prepaid, by the
Corporation  to each holder of record of the 6%  Preferred,  at the address last
shown on the records of the Corporation  for such holder,  notifying such holder
of the conversion  which is to be effected,  specifying the Conversion  Date and
calling upon each such holder to surrender to the Corporation, in the manner and
at the place designated,  a certificate or certificates  representing the number
of shares of 6% Preferred held by such holder.  Subject to the provisions of the
following  subsection  (c), on or after the Conversion  Date,  each holder of 6%
Preferred  shall  surrender to the  Corporation  the certificate or certificates
representing  the  shares  of 6%  Preferred  owned  by  such  holder  as of  the
Conversion  Date, in the manner and at the place  designated  in the  Conversion
Notice,  and  thereupon  the  shares  issuable  upon  such  conversion  shall be
delivered as provided in Section 4(b) hereof.

     (c) If, on the Conversion  Date, the  registration  condition  specified in
clause (ii) of subsection  (a) shall not be  satisfied,  then no shares shall be
converted and the  Conversion  Notice shall be deemed to be  withdrawn.  In such
event,  any  certificates  for 6%  Preferred  which  have been  surrendered  for
conversion  shall be returned to the persons  surrendering  the same;  provided,
however, that if a holder has received shares of Common Stock upon conversion of
6% Preferred  after the  Conversion  Notice was given but before the  Conversion
Date,  such holder may elect  either to retain such Common Stock or rescind such
conversion by tendering such shares of Common Stock to the Corporation.

     (d) On the second anniversary of the issuance of the 6% Preferred, all then
outstanding shares of 6% Preferred shall be automatically  converted into Common
Stock  at  the  Conversion  Price  and  otherwise  pursuant  to  the  applicable
provisions set forth in Section 4 hereof.


                                      - 2 -



<PAGE>

     4. 6%  Preferred - Optional  Conversion.  The  holders of the 6%  Preferred
shall have optional conversion rights as follows:

     (a) Right to  Convert.  At any time  after the  earlier  of (i) the date on
which a Registration Statement has been declared effective, or (ii) the close of
business on the ninety first (91st) day following the date of issuance of the 6%
Preferred, shares of 6% Preferred shall become convertible, at the option of the
holder  thereof,  into such  number of fully  paid and  nonassessable  shares of
Common Stock as is determined by dividing (A) the Liquidation  Preference of the
6% Preferred  determined  pursuant to Section 2 hereof on the date the notice of
conversion is given,  by (B) the  Conversion  Price  determined  as  hereinafter
provided in effect on the applicable conversion date.

     (b) Mechanics of Conversion.  To convert shares of 6% Preferred into shares
of Common Stock, the holder shall give written notice to the Corporation  (which
notice  may be given by  facsimile  transmission)  that  such  holder  elects to
convert the shares and shall state therein date of the conversion, the number of
shares to be  converted  and the name or names in which such  holder  wishes the
certificate or  certificates  for shares of Common Stock to be issued.  Promptly
thereafter,   the  holder  shall   surrender  the  certificate  or  certificates
representing  the shares to be converted,  duly  endorsed,  at the office of the
Corporation  or of any transfer  agent for such  shares,  or at such other place
designated by the Corporation; provided that the holder shall not be required to
deliver the  certificates  representing  such shares if the holder is waiting to
receive all or part of such certificates  from the Corporation.  The Corporation
shall, immediately upon receipt of such notice, issue and deliver to or upon the
order of such holder,  against  delivery of the  certificates  representing  the
shares which have been converted,  a certificate or certificates  for the number
of  shares of Common  Stock to which  such  holder  shall be  entitled  and such
certificate or certificates shall not bear any restrictive legend;  provided (A)
the  Common  Stock   evidenced   thereby  are  sold  pursuant  to  an  effective
registration  statement  under the Act, (B) the holder  provides the Corporation
with an opinion of  counsel  reasonably  acceptable  to the  Corporation  to the
effect that a public sale of such shares may be made without  registration under
the Act, or (C) such holder provides the Corporation  with reasonable  assurance
that  such  shares  can be sold  free of any  limitations  imposed  by Rule 144,
promulgated  under the Act.  The  Corporation  shall  cause  such  issuance  and
delivery to be effected  within three (3) business  days and shall  transmit the
certificates  by messenger or  overnight  delivery  service to reach the address
designated  by such holder  within three (3) business  days after the receipt of
such  notice.  The  notice  of  conversion  may be given by a holder at any time
during the day up to 5:00 p.m.  Boston,  Massachusetts  time and such conversion
shall be deemed to have been made immediately  prior to the close of business on
the date such notice of conversion is given (a "conversion date"). The person or
persons  entitled  to receive  the  shares of Common  Stock  issuable  upon such
conversion  shall be treated for all purposes as the record holder or holders of
such shares of Common Stock at the close of business on such date.

     (c)  Conversion,  Redemption and Note Delivery  Required.  The  Corporation
acknowledges  and  understands  that a delay in the issuance of the Common Stock
upon conversion or pursuant to a redemption  according to the provisions hereof,
or a delay in delivering the Promissory Note set forth in Subsection (d) hereof,
could  result  in  economic  loss  to  the  holders  of  the  6%  Preferred.  As
compensation  to any holder when the Corporation has failed with respect to such
holder to comply  with the  Corporation's  obligations  hereunder,  and not as a
penalty, the Corporation shall pay to such holder liquidated damages of $500 per
day plus an amount equal to: (i) two percent (2%) of the total Purchase Price of
Shares for the first  thirty (30) day period  after the date on which the Common
Stock should have been issued by the Corporation (i.e., the end of the three (3)
business  day  period  described  in  Subsection  (b)),  shares of 6%  Preferred
redeemed by the  Corporation or Promissory  Note delivered to holder (i.e.,  the
end of the three (3)  business  day period  described  in  Subsection  (d)),  as
applicable;  plus  (ii) an  amount  equal to  three  percent  (3%) of the  total
Purchase Price of Shares for each subsequent thirty (30) day period  thereafter.
Amounts  payable  shall be  pro-rated  daily as to a periods of less than thirty
(30) days.  Such amounts shall be paid to the holder at the end of each month in
which such amounts have accrued.  Payment shall be made immediately by cashier's
check or wire transfer in immediately  available  funds to such account as shall
be  designated  in writing by the holder.  Each  holder  shall be entitled to an
injunction  or  injunctions  to prevent or cure  breaches of the  provisions  of
hereof and. to enforce specifically the terms and provisions hereof, this being,
in  addition  to any other  remedy to which a holder may be  entitled  by law or
equity.



                                      - 3 -

<PAGE>

     (d) Determination of Conversion Price:

     (i )The "Conversion  Price" for purposes of hereof shall be equal to eighty
percent  (80%) of the average of the  closing bid prices of the Common  Stock as
reported by NASDAQ during the five (5)  consecutive  trading days  preceding the
conversion  date (but not including such date);  provided,  however,  that in no
event may the  Conversion  Price be more than three  dollars  and  twenty  cents
($3.20)  (the  "Maximum  Conversion  Price") or less than an amount equal to the
closing bid price per share of the Common  Stock on the date of  issuance  minus
fifty cents ($0.50) (the "Minimum Conversion  Price").  If, but for this Section
4(d)(i),  the Conversion Price would have been below Minimum  Conversion  Price,
the Company shall pay the holder by delivering to holder a Promissory  Note, the
form which has been delivered to the Corporation  and is incorporated  herein by
reference,  bearing the principal amount equal to the difference between (A) the
number of shares of Common  Stock that would have been  issued at the amount the
Conversion Price would have been but for this Section 4(d)(i) multiplied by 100%
of the  closing  bid  price  of the  Common  Stock  on the  conversion  date  as
determined  in  accordance  with the  Subsection  (d) (the latter  amount  being
referred  to herein as the  "Conversion  Date  Price"),  minus (B) the number of
shares of Common Stock actually issued pursuant to the conversion  multiplied by
the Conversion Date Price.  Such Promissory Note shall be delivered to holder by
the third (3rd) day following the applicable conversion date.

     (ii) The  "closing bid price" of the Common Stock on a trading day shall be
the closing bid price of the Common  Stock on the NASDAQ Small Cap Market or any
other principal  securities  price quotation system or market on which prices of
the  Common  Stock are  reported.  The term  "trading  day" means a day on which
trading is reported on the principal  quotation system or market on which prices
of the Common Stock are reported.

     (iii) If, during the period of consecutive trading days provided for above,
the Corporation shall declare or pay any dividend on the Common Stock payable in
Common Stock or in rights to acquire Common Stock, or shall effect a stock split
or reverse stock split, or a combination,  consolidation or  reclassification of
the Common Stock,  the Conversion  Price,  Maximum  Conversion Price and Minimum
Conversion   Price  shall  be   proportionately   decreased  or  increased,   as
appropriate, to give effect to such event.

     (e)  Distributions.  If the  Corporation  shall at any time or from time to
time make or issue,  or fix a record  date for the  determination  of holders of
Common Stock entitled to receive,  a dividend or other  distribution  payable in
securities of the Corporation or any of its  subsidiaries  other than additional
shares of Common Stock,  then in each such event provision shall be made so that
the holders of 6% Preferred  shall  receive,  upon the conversion  thereof,  the
securities of the  Corporation  which they would have received had they been the
owners  on the date of such  event of the  number  of  shares  of  Common  Stock
issuable to them upon conversion.

     (f)  Certificates as to Adjustments.  Upon the occurrence of any adjustment
or  readjustment  of the  Conversion  Price,  the Maximum  Conversion  Price and
Minimum  Conversion  Price  pursuant to this Section 4, the  Corporation  at its
expense shall promptly  compute such  adjustment or  readjustment  in accordance
with the terms hereof and cause the  independent  public  accountants  regularly
employed to audit the  financial  statements of the  Corporation  to verify such
computation and prepare and furnish to each holder of 6% Preferred a certificate
setting forth such  adjustment or  readjustment  and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of 6%. Preferred, furnish or cause
to be furnished to such holder a like  certificate  prepared by the  Corporation
setting forth (i) such  adjustments  and  readjustments,  and (ii) the number of
other  securities  and the amount,  if any, of other  property which at the time
would be received upon the conversion of 6% Preferred with respect to each share
of Common Stock received upon such conversion.

     (g) Notice of Record Date. In the event of any taking by the Corporation of
a  record  of the  holders  of any  class  of  securities  for  the  purpose  of
determining  the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other  distribution,  any security or right convertible
into or  entitling  the holder  thereof to receive  additional  shares of Common
Stock, or any right to subscribe for,  purchase or otherwise  acquire any shares
of stock of any class or any other  securities  or  property,  or to receive any
other right, the Corporation  shall mail to each holder of 6% Preferred at least
ten (10) days prior to the date specified  therein, a notice specifying the date
on which  any such  record  is to be taken  for the  purpose  of such  dividend,
distribution,  security or right and the amount and character of such  dividend,
distribution, security or right.

                                      - 4 -
<PAGE>

     (h)  Issue  Taxes.  The  Corporation  shall pay any and all issue and other
taxes, excluding any income,  franchise or similar taxes, that may be payable in
respect of any issue or  delivery  of shares of Common  Stock on  conversion  of
shares of 6% Preferred pursuant hereto; provided,  however, that the Corporation
shall not be  obligated to pay any transfer  taxes  resulting  from any transfer
requested by any holder in connection with any such conversion.

     (i) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
all times reserve and keep available out of its  authorized but unissued  shares
of Common  Stock,  solely for the purpose of  effecting  the  conversion  of the
shares of the 6%  Preferred,  such number of its shares of Common Stock as shall
from time to time be  sufficient  to effect the  conversion  of all  outstanding
shares of the 6%  Preferred,  and if at any time the  number of  authorized  but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then  outstanding  shares of the 6% Preferred,  the Corporation will take
such  corporate  action as may be  necessary  to  increase  its  authorized  but
unissued  shares of Common Stock to such number of shares as shall be sufficient
for such purpose,  including,  without  limitation,  engaging in best efforts to
obtain any requisite shareholder approval.

     (j)  Fractional  Shares.  No  fractional  shares  shall be issued  upon the
conversion  of any share or shares of 6%  Preferred.  All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
6% Preferred by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share. If,
after  the  aforementioned  aggregation,  the  conversion  would  result  in the
issuance of a fraction of a share of Common Stock,  the  Corporation  shall,  in
lieu of issuing any fractional share, pay the holder otherwise  entitled to such
fraction a sum in cash equal to the fair  market  value of such  fraction on the
date of conversion (as determined in good faith by the Board of Directors of the
Corporation or an authorized Committee thereof).

     (k) Notices.  Any notice  required by the  provisions of this Section to be
given  to the  holders  of  shares  of 6%  Preferred  shall be  deemed  given if
deposited in the United  States mail,  postage  prepaid,  and  addressed to each
holder of record at its address appearing on the books of the Corporation.

     (1)  Reorganization  or  Merger.  In  case  of  any  reorganization  or any
reclassification of the capital stock of the Corporation or any consolidation or
merger of the Corporation with or into any other  corporation or corporations or
a sale of all or substantially all of the assets of the Corporation to any other
person  (other  than a sale or  transfer  to a wholly  owned  subsidiary  of the
Corporation),  and the  holders  of 6%  Preferred  do not  elect to  treat  such
transaction as a liquidation, dissolution or winding up as provided in Section 2
hereof,  then, as part of such  reorganization,  consolidation,  merger or sale,
provision shall be made so that each share of 6% Preferred  shall  thereafter be
convertible  into the number of shares of stock or other  securities or property
(including  cash) to which a holder of the  number  of  shares  of Common  Stock
deliverable  upon  conversion  of such  share of 6%  Preferred  would  have been
entitled  upon the record  date of (or date of, if no record date is fixed) such
event and, in any case,  appropriate  adjustment  (as determined by the Board of
Directors)  shall be made in the application of the provisions  herein set forth
with  respect to the rights and  interests  thereafter  of the holders of the 6%
Preferred,  to the end that the provisions set forth herein shall  thereafter be
applicable, as nearly as equivalent as is practicable, in relation to any shares
of stock or the securities or property  (including cash) thereafter  deliverable
upon the conversion of the shares of 6% Preferred.

     5.  Re-issuance  of  Certificates.  In the event of a  conversion  (or,  if
applicable,  redemption) of 6% Preferred in which less than all of the shares of
6% Preferred of a particular  certificate are converted or redeemed, as the case
may be, the  Corporation  shall  promptly  without  delay cause to be issued and
delivered to the holder of such  certificate,  a  certificate  representing  the
remaining shares of 6% Preferred which have not been so
converted or redeemed.





                                      - 5 -

<PAGE>

     6. Other Provisions. For all purposes of this Resolution, the term "date of
issuance" and the terms  "Closing" or "Closing Date" shall mean the day on which
shares of the 6% Preferred  are first issued by the  Corporation.  Any provision
herein which conflicts with or violates any applicable usury law shall be deemed
modified to the extent  necessary to avoid such conflict or violation.  The term
"NASDAQ" herein refers to the principal  market on which the Common Stock of the
Corporation is traded.  If the Common Stock is listed on a securities  exchange,
or if another market  becomes the principal  market on which the Common Stock is
traded or through which price quotations for the Common Stock are reported,  the
term  "NASDAQ"  shall be deemed  to refer to such  exchange  or other  principal
market.

     7.  Restrictions and Limitations.  The Corporation  shall not undertake the
following  actions  without  the  consent of the holders of a majority of the 6%
Preferred:  (i) modify its Articles of  Organization or Bylaws so as to amend or
change any of the rights,  preferences,  or privileges of the 6% Preferred, (ii)
authorize or issue any other preferred  equity security senior to or on a parity
with the 6%  Preferred  as to  dividends,  liquidation  preferences,  conversion
rights,  redemption  rights or other rights,  preferences  or  privileges  for a
period of thirty (30) days after  Closing,  as applicable or (iii),  purchase or
otherwise  acquire for value any Common  Stock or other  equity  security of the
Corporation  either  junior or senior  to or on a parity  with the 6%  Preferred
while  there  exists  any  arrearage  in the  payment  of  cumulative  dividends
hereunder other than redemptions of stock from terminating employees pursuant to
contractual rights in favor of the Corporation.

     8. Voting Rights.  Except as provided herein or as provided for by law, the
6% Preferred shall have no voting rights.

     9. Attorney's Fees. Any holder of 6% Preferred shall be entitled to recover
from the  Corporation the reasonable  attorneys'  fees and expenses  incurred by
such holder in connection  with  enforcement by such holder of any obligation of
the Corporation hereunder.

     10. No Adverse Actions. The Corporation shall not in any manner, whether by
amendment of the Articles of Organization  (including,  without limitation,  any
vote  establishing  a  class  or  series  of  stock),  merger,   reorganization,
recapitalization,  consolidation,  sales of assets,  sale of stock tender offer,
dissolution  or  otherwise,  take any action,  or permit any action to be taken,
solely or  primarily  for the  purpose of  increasing  the value of any class of
stock of the  Corporation if the effect of such action is to reduce the value or
security of the 6% Preferred.





                                      - 6 -
<PAGE>


                     EXHIBIT A to the Subscription Agreement

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN EFFECTIVE  REGISTRATION  STATEMENT  FOR THIS WARRANT OR COMMON
STOCK PURCHASABLE HEREUNDER, AS APPLICABLE, UNDER THE ACTS, OR (B) AN OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March ___, 1998

     1. Basic Terms.  This Warrant (as it may be amended from time to time,  the
"Warrant")  certifies that, for value received,  the registered holder specified
below or its  registered  assigns  ("Holder"),  is the owner of warrants of PHC,
Inc., a Massachusetts corporation (the "Corporation"),  and is entitled, subject
to the terms and conditions of this Warrant,  including  adjustments as provided
herein,  to purchase  ______ ( ) (number to be  pro-rated  for a total of 50,000
share) shares of the Common Stock (the "Common Stock") of the  Corporation  from
the Corporation at the price per share shown below (the "Exercise Price").

              Holder:



              Exercise   Price  per   share:   ______   Dollars   and   ______
              Cents ($     )per share

                               [This amount will be the Closing Bid Price of the
                                Corporation's Common Stock on the Issue Date]

     Except as specifically  provided otherwise,  all references in this Warrant
to the  Exercise  Price and the  number of  shares of Common  Stock  purchasable
hereunder  shall be to the  Exercise  Price  and  number  of  shares  after  any
adjustments are made thereto pursuant to this Warrant.

     2. Corporation's Representations/Covenants.  The Corporation represents and
covenants  that the shares of Common  Stock  issuable  upon the exercise of this
Warrant shall at delivery be fully paid and  non-assessable and free from taxes,
liens,  encumbrances and charges with respect to their purchase. The Corporation
shall take any  necessary  actions to assure that the par value per share of the
Common  Stock is at all times  equal to or less than the then  current  Exercise
Price  per  share  of  Common  Stock  issuable  pursuant  to this  Warrant.  The
Corporation  shall at all times reserve and hold available  sufficient shares of
Common  Stock to satisfy  all  conversion  and  purchase  rights of  outstanding
convertible securities, options and warrants of the Corporation,  including this
Warrant.





                                      - 1 -
<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts time) three (3) years after the issue date.
To  exercise  this  Warrant,  the Holder  shall  surrender  this  Warrant at the
principal  office of the  Corporation or that of the duly  authorized and acting
transfer  agent for its Common Stock,  together with the executed  exercise form
(substantially  in the form of that  attached  hereto) and together with payment
for the Common Stock purchased under this Warrant.  The principal  office of the
Corporation  is located at the address  specified on the signature  page of this
Warrant; provided, however, that the Corporation may change its principal office
upon notice to the  Holder.  At the option of the Holder  payment  shall be made
either in cash (by wire) or by certified or bank cashier's  check payable to the
order of the  Corporation  or the Holder  may elect to receive  shares of Common
Stock  calculated  pursuant to paragraph 4. The Corporation  shall,  immediately
upon  receipt  of such  notice,  issue and  deliver to or upon the order of such
Holder a certificate or certificates for the number of shares of Common Stock to
which such Holder shall be entitled and such  certificate or certificates  shall
not bear any restrictive legend; provided (A) the Common Stock evidenced thereby
are sold pursuant to an effective  registration statement under the Act, (B) the
holder provides the Corporation with an opinion of counsel reasonably acceptable
to the  Corporation  to the effect that a public sale of such shares may be made
without  registration under the Act, or (C) such holder provides the Corporation
with  reasonable  assurance that such shares can be sold free of any limitations
imposed by Rule 144, promulgated under the Act. The Corporation shall cause such
issuance  and delivery to be effected  within three (3) business  days and shall
transmit the  certificates by messenger or overnight  delivery  service to reach
the address  designated  by such holder within three (3) business days after the
receipt of such  notice.  This  Warrant  is not  exercisable  with  respect to a
fraction  of a share of Common  Stock.  In lieu of issuing a fraction of a share
remaining  after  exercise of this Warrant as to all full shares covered by this
Warrant the  Corporation  shall either at its option (a) pay for the  fractional
share cash equal to the same  fraction at the fair market  price for such share;
or (b) issue scrip for the fraction in the registered or bearer form which shall
entitle the Holder to receive a certificate  for a full share of Common Stock on
surrender of scrip  aggregating a full share. As compensation to the Holder when
the  Corporation  has  failed  with  respect to such  Holder to comply  with the
Corporation's obligations hereunder, and not as a penalty, the Corporation shall
pay to such holder liquidated damages of $500 per day until the certificates are
delivered as  instructed.  Such damages  shall be paid to the Holder by cashiers
check or wire transfer in immediately  available  funds to such account as shall
be  designated  in  writing by the Holder at the end of each month in which such
amounts have accrued.  Holder shall be entitled to an injunction or  injunctions
to  prevent  or  cure  breaches  of the  provisions  of  hereof  and to  enforce
specifically  the terms and  provisions  hereof,  this being in  addition to any
other remedy to which Holder may be entitled by law or equity.

     4. Cashless Exercise.

     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -
<PAGE>

     If at any time the Common Stock is not listed on any  domestic  exchange or
quoted in the NASDAQ System or the domestic  over-the-counter  market,  the fair
market value shall be the higher of (i) the book value thereof, as determined by
any firm of independent  public  accountants of recognized  standing selected by
the   Corporation   (which  may  be  the   Corporation's   regular   independent
accountants), as of the last day of any month ending within sixty days preceding
the date as of which the  determination  is to be made;  or (ii) the fair market
value thereof,  which shall be reasonably  determined by the Corporation and the
Holder  as of a date  which is within  fifteen  days of the date as of which the
determination is to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case,  the  Exercise  Price  shall be adjusted to that
price determined by multiplying the Exercise Price in effect  immediately  prior
to such event by a fraction  (A) the  numerator  of which is the total number of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.





                                      - 3 -
<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted  number an kind of securities or other
property  purchasable  under this  Warrant  resulting  from the event and settin
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until,
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -

<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this  Warrant.All  notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -
<PAGE>

     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the
Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  ________________________________
                                                 Authorized Officer


                                       Printed Name:  _______________________
                                       Title:  ______________________________

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ________________________________
       ________________________________
                 Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________         ____________________________________
                                            Signature








                                      - 8 -





<PAGE>

      Incorporated by Reference into the Resolutions Establishing Right and
              Preferences for Series B Convertible Preferred Stock.


                          PROMISSORY NOTE (the "Note")



Date:  __________________,  ________________________

Maker: PHC, Inc.

Maker's Mailing Address:     200 Lake Street -- Suite 102
                             Peabody, Massachusetts 01960

Payee:

Place for Payment:

Principal Amount: $_________________________________

Annual Interest Rate on Unpaid Principal From Date: Eight percent (8%).

Annual Past Due  Interest  Rate on Unpaid  Principal  from  Maturity to Payment:
Fifteen percent (15%).

Terms of Payment:  Principal  and  interest  shall be due and payable in six (6)
equal  consecutive  monthly payments of $  ________________  (based on a six (6)
month  amortization)  with the first  payment being due and payable on the first
day of _____________________.

The Maker  promises  to pay to the order of Payee at the place for  payment  and
according to the terms of payment the outstanding principal and accrued interest
at the rates stated above. All unpaid amounts owing on this Note shall be due by
the final scheduled payment date of ________________________.

Additional Provisions:

If Maker defaults in the payment of this Note, or in any instrument  securing or
collateral  to it, then Payee may declare the unpaid  principal  balance of this
Note and all  accrued  interest  immediately  due and  payable.  Maker  and each
surety,  endorser,  and  guarantor  or other party liable for the payment of any
sums of money  payable on this Note  severally  waive all demands  for  payment,
presentations  for  payment,  notices  of  dishonor,  notices  of  intention  to
accelerate maturity, notices of acceleration of maturity,  protests, and notices
of protest, to the extent permitted by law.

     If this Note or any instrument  securing or collateral to it is given to an
attorney for collection or enforcement.  or if suit is brought for collection or
enforcement or if it is collected or enforced  through probate,  bankruptcy,  or
other  judicial  proceedings  then Maker shall pay Payee all costs of collection
and  enforcement,  including  reasonable  attorneys  fees and  court  costs,  in
addition to other amounts due.


                           PHC. INC., PROMISSORY NOTE
Page 1



<PAGE>

     Interest that may be contracted for, taken,  reserved,  charged or received
under law; any  interest in excess of that  maximum  amount shall be credited on
the  principal  of the  debt  or,  if  that  has  been  paid,  refunded.  On any
acceleration  or  required or  permitted  prepayment,  any such excess  shall be
canceled automatically as of the acceleration or prepayment or, if already paid,
credited on the  principal of the debt or, if the principal of the debt has been
paid, refunded.  This provision overrides other provisions in this and all other
instruments concerning the debt.

     When the context requires, singular nouns and pronouns include the plural.

     This Note is to be governed and  construed in  accordance  with the laws of
the State of Texas.

     MAKER, FOR GOOD AND VALUABLE CONSIDERATION,  THE RECEIPT AND SUFFICIENCY OF
WHICH  ARE  HEREBY   ACKNOWLEDGED,   (I)  HEREBY  IRREVOCABLY   SUBMITS  TO  THE
JURISDICTION  OF THE UNITED STATES DISTRICT COURT AND OTHER COURTS OF THE UNITED
STATES  SITTING  IN TEXAS FOR THE  PURPOSES  OF ANY SUIT,  ACTION OR  PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (ii) HEREBY WAIVES,  AND AGREES
NOT TO ASSERT IN ANY SUCH SUIT,  ACTION OR PROCEEDING,  ANY CLAIM THAT IT IS NOT
PERSONALLY  SUBJECT TO THE JURISDICTION OF SUCH COURT,  THAT THE SUIT, ACTION OR
PROCEEDING  IS BROUGHT IN AN  INCONVENIENT  FORUM OR THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER.  MAKER CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT,  ACTION OR  PROCEEDING BY MAILING A COPY THEREOF TO MAKER AT ITS MAIN
BUSINESS  OFFICE  AND  AGREES  THAT  SUCH  SERVICE  SHALL  CONSTITUTE  GOOD  AND
SUFFICIENT  SERVICE OF PROCESS  AND NOTICE  THEREOF.  NOTHING IN THIS  PARAGRAPH
SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE  PROCESS IN ANY OTHER MANNER  PERMITTED
BY LAW.

     Executed as of date first above written.

                  PHC Inc., a Massachusetts corporation

                  By:  _______________________________________
                  Name of
                  Authorized Officer:  __________________________
                  Title:  ______________________________________








                           PHC. INC., PROMISSORY NOTE
Page 2


<PAGE>


                     EXHIBIT B to the Subscription Agreement

Section 2.2(a): PHC, Inc. Subsidiaries:

PHC of Utah, Inc.                       Pioneer Counseling of Virginia, Inc.
D/B/A Highland Ridge Hospital           (80% Owned)
4578 Highland Drive                     D/B/A Pioneer Counseling of Virginia
Salt Lake City, UT 94117                D/B/A Counseling Associates of Virginia
                                        400 East Burwell street
                                        Salem, VA 24153

PHC of Virginia, Inc.                   PHC of Kansas, Inc.
D/B/A Mount Regis Center                D/B/A Total Concept EAP
D/B/A Changes                           7451 Szwitzer, Suite 101
405 Kimball Avenue                      Shawnee Mission, KS 66203
Salem, VA 24153

Quality Care Centers of Mass, Inc.      PHC of California, Inc.
D/B/A Franvale Nursing & Rehab Center   D/B/A Marin Grove
20 Pond Street                          42 Grove Street
Braintree, MA 02194                     San Rafael, CA 94901

PHC of Nevada, Inc.                     Professional Health Associates
D/B/A Harmony Healthcare                94-19 59 Avenue
2340 Paseo del Prado, Bldg.D           Elmhum NY 11373
Las Vegas, NV 89102

Northpoint - Pioneer, Inc.              STL, Inc.
D/B/A Pioneer Counseling Center         200 Lake Street
31700 W. 13 Mile; Suite 201             Suite 102
Farmington Hills, MI 48334              Peabody, MA 0 1960

BSC-NY, Inc.                            Harmony Behavioral Health
D/B/A Behavioral Stress Center          2340 Paseo del Prado, Bldg.D
94-19 59 Avenue                         Las Vegas, NV 89102
Elmhurst, NY 11373

PHC of Michigan, Inc.                   PHC of Rhode island, Inc.
D/B/A Harbor Oaks Hospital              D/B/A Good Hope Center
35031 23 Mile Road                      P.O. Box 1491
New Baltimore, MI 48047                 Coventry, RI 02816-0029



<PAGE>


                               EXHIBIT B (cont'd.)
     Section 2.2(f):

     The Company failed to file two years' of audited  financial  statements for
Behavioral   Stress  Centers,   Inc.  and  Clinical   Diagnostics  and  Clinical
Associates,  as described  in the  December 18, 1996 letter from Choate,  Hall &
Stewart to Mr. Robert Bayless of the Securities and Exchange Commission.



<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  "Holder"),  is the owner of  warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase  Twenty Six Thousand Three Hundred  Fifteen  (26,315) shares of Class A
Common Stock (the "Common Stock") of the Corporation from the Corporation at the
price per share shown below (the "Exercise Price").

     Holder: ProFutures Special Equities Fund, L.P.


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2.  Corporations  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.


     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading shall be average of the
closing  prices on such day of the Common  Stock on all  domestic  exchanges  on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges  at he end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                       - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant,. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.



                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  /s/ Bruce A Shear
                                                Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)

For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ______________________             _____________________________________
                                               Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________          __________________________________
                                                Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase  Seven  Thousand  Eight Hundred Ninety (7,890) shares of Class A Common
Stock (the "Common Stock") of the Corporation  from the Corporation at the price
per share shown below (the "Exercise Price").

         Holder:                                Gary D. Halbert


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock s at all times equal to or less than the then current  Exercise  Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System ("NASDA", the average of the daily market prices of such stock on the ten
(10) trading days  immediately  preceeding the date as of which such value is to
be  determined.  The market  price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restriction  s on transfer  contained  herein,  in the names  designated  by the
Holder at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing  Law. This  Agreement  hall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:   /s/ Bruce A Shear
                                                 Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                     -6-



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee: ____________________________________________

Address:  ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ________________________       ________________________________
                                         Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________________
       __________________________________
                  Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase Five Thousand Two Hundred Sixty (5,260)  shares of Class A Common Stock
(the "Common  Stock") of the  Corporation  from the Corporation at the price per
share shown below (the "Exercise Price").

            Holder:      John F. Mauldin


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances  and charges with respect to their purchase.  he Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashiers  check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.

     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -

<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices  required or permitted t be given to the Holder shall
be in writing and shall be given by first class mail, postage repaid,  addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16.  Headings The headings in this Warrant are for purposes of  convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  /s/ Bruce A Shear
                                                Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:
Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  _________________________         _____________________________________
                                             Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  _________________________         ____________________________________
                                          Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.
                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase Ten Thousand Five Hundred Twenty Five (10,525) shares of Class A Common
Stock (the "Common Stock") of the Corporation  from the Corporation at the price
per share shown below (the "Exercise Price").

            Holder:                                 Augustine Fund, L.P.


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDA"),  the average of the daily market  prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.
                                      - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of Regulation D, promulgated under the Securities Act of
1933, as amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.



                                      - 5 -

<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.




                                       PHC, INC., a Massachusetts corporation


                                       By:   /s/ Bruce A Shear
                                                 Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ______________________                 ________________________________
                                                Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  _________________________              _________________________________
                                                 Signature








                                      - 8 -
<PAGE>
Exhibit 10.133

                            ASSET PURCHASE AGREEMENT


     This Asset Purchase Agreement is made and entered into as of the 2nd day of
February,  1998, by and between  Lexington  Healthcare  Group,  Inc., a Delaware
corporation  having  its  principal  place of  business  at 35 Park  Place,  New
Britain, Connecticut 06052 (together with its successors and assigns hereinafter
collectively  referred  to  as  the  "Buyer"),   and  Quality  Care  Centers  of
Massachusetts,  a  Massachusetts  corporation  having  its  principal  place  of
business at 200 Lake Street,  Suite 102, Peabody,  Massachusetts 01960 (together
with its  successors  and assigns  hereinafter  collectively  referred to as the
"Seller").

                              W I T N E S S E T H:

     WHEREAS,  the Seller owns and leases certain assets in connection with, and
operates the 128-bed  licensed  skilled nursing care facility known as, Franvale
Nursing and Rehabilitation  Center at 20 Pond Street,  Braintree,  Massachusetts
02184 (the "Facility"); and

     WHEREAS,  the Buyer  desires to  acquire  from the  Seller,  and the Seller
desires  to sell to the  Buyer,  certain  of the  assets of the  Seller  used in
connection with the operation of the Facility, all upoExhibit 4.28


                             SUBSCRIPTION AGREEMENT

                                    PHC, INC.


THE SECURITIES WHICH ARE THE SUBJECT OF THIS  SUBSCRIPTION  AGREEMENT (AS IT MAY
BE AMENDED FROM TIME TO TIME, THE  "AGREEMENT")  HAVE NOT BEEN REGISTERED  UNDER
THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES  ACT") OR UNDER THE
APPLICABLE SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE
ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THESE LAWS BY VIRTUE OF PHC,
INC.'S  INTENDED  COMPLIANCE WITH SECTIONS 3(b), 4(2) AND 4(6) OF THE SECURITIES
ACT, THE PROVISIONS OF REGULATION D UNDER SUCH ACT AND SIMILAR  EXEMPTIONS UNDER
STATE LAW.  THESE  SECURITIES  HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION ("SEC"),  ANY STATE SECURITIES  COMMISSION OR
ANY OTHER REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

     The undersigned  purchaser  (hereafter,  the "Purchaser")  hereby offers to
purchase  certain Series B Convertible  Preferred Stock (referred to herein as a
"Share" or  collectively as "Shares") of PHC, Inc. (the  "Company"),  a publicly
held  corporation  formed under the laws of the  Commonwealth of  Massachusetts.
This  offer to  purchase  may,  for any  reason  whatsoever,  be  revoked by the
Purchaser or rejected by the Company  prior to  acceptance  of this offer by the
Company.

     Section  1.1  Purchase  and Sale of Shares.  Upon the  following  terms and
conditions, the Company shall issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company,  the number of Shares indicated  herein,  which
Shares shall have the rights, designations and preferences set forth in Schedule
I hereto.

     Section  1.2  Purchase  Price.  The  purchase  price  for the  Shares  (the
"Purchase Price") shall be $1,000 per Share.

     Section 1.3 The Closing.

     (a) The closing of the  purchase  and sale of the Shares  (the  "Closing"),
shall take place at the law offices of Arent, Fox, Kintner, Plotkin & Kahn, 1050
Connecticut  Avenue,  N.W.,  Washington,   D.C.  20036,  at  10:00  a.m.,  local
Washington,  D.C. time, on the later of the following: (i) the date on which the
last to be  fulfilled or waived of the  conditions  set forth in Section 4.1 and
4.2  hereof  and  applicable  to the  Closing  shall be  fulfilled  or waived in
accordance herewith, or (ii) such other time and place and/or on such other date
as the Purchaser and the Company may agree. The date on which the Closing occurs
is referred to herein as the "Closing Date."

     (b) On the Closing  Date,  the Company shall deliver to the Purchaser (i) a
certificate  representing the Shares  registered in the name of the Purchaser or
deposit  such Shares into  accounts  designated  by the  Purchaser  and (ii) the
Warrant for the number of shares of the Company's Common Stock indicated herein,
in the form attached hereto as Exhibit A, incorporated herein by reference.  The
Purchaser  shall on the Closing Date  deliver to the Company the Purchase  Price
for all the Shares by cashier's check or wire transfer in immediately  available
funds to such  account as shall be  designated  in writing  by the  Company.  In
addition,  each party shall  deliver all  documents,  instruments  and  writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Closing.

     Section 1.4 Covenant to Register.

     (a) For purposes of this Section, the following definitions shall apply:

     The  terms  "register,"   "registered,"  and  "registration"   refer  to  a
registration under the Securities Act of 1933, as amended (the "Act"),  effected
by  preparing  and  filing a  registration  statement  or  similar  document  in
compliance  with the Act, and the  declaration or ordering of  effectiveness  of
such registration statement, document or amendment thereto.

     (ii) The term  "Registrable  Securities"  means the shares of the Company's
Class A Common Stock,  par value $.01 per share (the "Common  Stock"),  issuable
upon  conversion  of shares of the Shares and upon  exercise of the Warrant,  or
upon  conversion of any other stock issued in payment of dividends on the Shares
or otherwise issuable pursuant to this Agreement or the provisions of Schedule I
hereto,  and any  securities  of the  Company  or  securities  of any  successor
corporation  issued as, or  issuable  upon the  conversion  or  exercise  of any
warrant  right  or  other  security  that  is  issued  as a  dividend  or  other
distribution  with  respect to, or in exchange  for, or in  replacement  of, the
Shares.

     (iii) The term "holder of Registrable  Securities"  means the Purchaser and
any permitted assignee of registration rights pursuant to Section 1.4(h).

     (b) (i) The Company shall as soon as possible file a registration statement
on Form SB-2 or Form S-3  covering  at least 200% of the  number of  Registrable
Securities  which would then be issuable  upon  conversion  of the Shares at the
conversion  price then in effect,  and shall use its best  efforts to cause such
registration  statement to become  effective on or before ninety (90) days after
the Closing Date (the "Initial Registration"). In the event such registration is
not so declared  effective  or does not include all  Registrable  Securities,  a
holder of  Registrable  Securities  shall have the right to require by notice in
writing that the Company register all or any part of the Registrable  Securities
held by such holder (a "Demand  Registration")  and the Company shall  thereupon
effect such  registration in accordance  herewith (which may include adding such
shares to an existing shelf registration).  The parties agree that if the holder
of  Registrable  Securities  demands  registration  of  less  than  all  of  the
Registrable  Securities,  the Company,  at its option,  may nevertheless  file a
registration  statement  covering  all of the  Registrable  Securities.  If such
registration  statement is declared  effective  with respect to all  Registrable
Securities  and  the  Company  is  in  compliance  with  its  obligations  under
Subsection  (d) of this  Section  1.4, the demand  registration  rights  granted
pursuant to this Subsection (b)(i) shall cease. If such  registration  statement
is not declared  effective with respect to all Registrable  Securities or if the
Company is not in  compliance  with such  obligations,  the demand  registration
rights described herein shall remain in effect.

     (ii) The Company  shall not be  obligated  to effect a Demand  Registration
under Subsection (b)(i) above: (A) if all of the Registrable  Securities held by
the holder of  Registrable  Securities  which are  demanded to be covered by the
Demand  Registration  are, at the time of such demand,  included in an effective
registration  statement  and the Company is in compliance  with its  obligations
under  Subsection  (d) of  this  Section  1.4;  (B)  if  all of the  Registrable
Securities  may be sold under Rule 144(k) of the Act and the Company's  transfer
agent has accepted an instruction from the Company to such effect; or (C) at any
time after two (2) years from the Closing Date.

     (iii) Subject to  Subsection  (iv)(B)  hereof,  the Company may suspend the
effectiveness of any such registration  effected pursuant to this Subsection (b)
in the event and for such  period of time as, such a  suspension  is required by
the rules and regulations of the Securities and Exchange Commission ("SEC"). The
Company will use its best efforts to cause such  suspension  to terminate at the
earliest possible date.

     (iv) (A) If the Company is advised by the SEC that a registration statement
filed hereunder is subject to a "no-review" and such  registration  statement is
not  declared   effective   within  five  (5)  business  days   thereafter   (an
"Acceleration  Date")  or,  irrespective  of  the  SEC  review,  a  registration
statement  is not  declared  effective  by the ninety first (91st) day after the
Closing Date (the "Target Date"),  the Company shall pay Purchaser as liquidated
damages an amount equal to two percent (2%) of the total  Purchase  Price of the
Shares for each thirty (30) day period following the earlier of the Acceleration
Date or  Target  Date,  as  applicable,  until  such  time  as the  registration
statement is declared effective;  provided, however, that such damages shall not
be  payable if the  failure to meet the  Acceleration  Date or Target  Date,  as
applicable,  is due to action or inaction by Purchaser with respect to providing
information for the registration statement. The payment set forth above shall be
pro-rated  daily as to any period of less than  thirty (30) days.  Such  payment
shall be made to the Purchaser either (I) by cashier's check or wire transfer in
immediately available funds to such account as shall be designated in writing by
the  Purchaser  or (II) in  Shares,  the  number of which  shall be equal to the
amount due under this  Subsection  divided  by $1,000 per Share.  The  foregoing
amount shall be paid  irrespective of the amount of Registrable  Securities then
held by Purchaser.

     (B) If, following effectiveness of a registration, either the effectiveness
of the registration  statement is suspended or a current  prospectus meeting the
requirements  of  Section 10 of the Act is not  available  for  delivery  by the
Purchaser  (either  referred to herein as a  "suspension"),  the  Company  shall
thereupon pay to Purchaser as liquidated  damages an amount equal to two percent
(2%) of the Purchase  Price of the Shares for each thirty (30) day period of the
suspension.  The payment set forth above shall be pro-rated  daily as to periods
of less than thirty (30) days.  Such payment  shall be made to the  Purchaser by
cashiers check or wire transfer in immediately  available  funds to such account
as  shall  be  designated  in  writing  by the  Purchaser,  and  shall  be  paid
irrespective  of the amount of  Registrable  Securities  held by Purchaser on or
after the date following the suspension.

     (C)  Any  amount  payable  pursuant  to the  foregoing  provisions  of this
Subsection  (iv) shall be delivered  on or before the fifth (5th) day  following
the end of the  calendar  month in which  such  payment  obligation  arose.  The
"Purchase  Price"  of  Registrable  Securities  shall  be  (1) if  derived  from
conversion or substitution of Shares,  the Purchase Price of the Shares, and (2)
if received in satisfaction of a Company  obligation,  the dollar amount of such
obligation.

     (D) This  Subsection  is in addition to the  provisions  of Section  7.2(a)
hereof.

     (c) If the  Company  proposes  to register  (including  for this  purpose a
registration  effected by the Company for shareholders other than the Purchaser)
any of its stock or other  securities  under the Act in connection with a public
offering of such securities  (other than a registration on Form S-4, Form S-8 or
other limited purpose form) and all Registrable  Securities have not theretofore
been included in a registration  statement under  Subsection (b) of this Section
1.4 which remains effective,  the Company shall, at such time, promptly give all
holders of Registrable Securities written notice of such registration.  Upon the
written request of any holder of Registrable Securities given within twenty (20)
days after receipt of such notice by the holder of Registrable  Securities,  the
Company shall use its best efforts to cause to be  registered  under the Act all
Registrable Securities that such holder of Registrable Securities requests to be
registered.  However, the Company shall have no obligation under this Subsection
(c) if (i) the  Registrable  Securities may be sold without  registration  under
Rule 144(k) and the Company's  transfer agent has accepted an  instruction  from
the Company to such effect,  (ii) the Registration  Statement is filed more than
two (2) years after the Closing Date, or (iii) to the extent that,  with respect
to any  underwritten  offering  initiated by the Company later than one calendar
year following the Closing, the managing underwriter of such offering reasonably
notifies such  holder(s) in writing of its  determination  that the  Registrable
Securities or a portion thereof shall be excluded therefrom.

     (d) Whenever  required under this Section 1.4 to effect the registration of
any  Registrable   Securities   including,   without  limitation,   the  Initial
Registration, the Company shall, as expeditiously as reasonably possible:

     (i) Prepare and file with the SEC a registration  statement with respect to
such Registrable  Securities and use its best efforts to cause such registration
to become effective as provided in Section 1.4(b)(i), and keep such registration
statement effective for so long as any holder of Registrable  Securities desires
to dispose of the securities covered by such registration  statement;  provided,
however, that in no event shall the Company be required to keep the Registration
Statement  effective  for a period  greater  than two (2) years from the Closing
Date;

     (ii)  Respond to comments  made by the SEC with  respect to a  registration
statement  filed pursuant to this Agreement  within ten (10) business days after
the  date of the  comment  letter,  and  prepare  and  file  with  the SEC  such
amendments  and  supplements to such  registration  statement and the prospectus
used in  connection  with such  registration  statement  as may be  necessary to
comply with the  provisions  of the Act with respect to the  disposition  of all
securities covered by such registration  statement and notify the holders of the
filing and  effectiveness of such  Registration  Statement and any amendments or
supplements;

     (iii)  Furnish to each holder of  Registrable  Securities  such  numbers of
copies of a current prospectus,  including a preliminary prospectus,  conforming
with the  requirements  of the Act,  copies of the  registration  statement  any
amendment  or  supplement  to any  thereof  and any  documents  incorporated  by
reference  therein and such other documents,  all free of charge, as such holder
of  Registrable  Securities  may  reasonably  require in order to facilitate the
disposition  of  Registrable  Securities  owned by such  holder  of  Registrable
Securities;

     (iv) Use its best efforts to register and qualify the securities covered by
such  registration  statement under such other  securities or "Blue Sky" laws of
such jurisdictions as shall be reasonably requested by the holder of Registrable
Securities;

     (v)  Notify  each  holder  of  Registrable  Securities  immediately  of the
happening  of any  event as a result of which the  prospectus  included  in such
registration  statement,  as then in effect,  includes  an untrue  statement  of
material fact or omits to state a material fact required to be stated therein or
necessary  to make  the  statements  therein  not  misleading  in  light  of the
circumstances then existing,  and use its best efforts to promptly update and/or
correct such prospectus;

     (vi)  Furnish,  at the request of any holder of  Registrable  Securities in
connection with any underwritten  public offering,  (A) an opinion of counsel of
the Company, dated the effective date of the registration statement, in form and
substance  reasonably  satisfactory  to the holder and its counsel and covering,
without  limitation,  such matters as the due  authorization and issuance of the
securities being  registered and certain matters  pertaining to disclosure under
and  compliance  with  securities  laws by the  Company in  connection  with the
registration  thereof and/or (B) a "comfort"  letter or letters of the Company's
independent  public  accountants  provided at the Company's  expense in form and
substance reasonably satisfactory to the holder and its counsel;

     (vii) Use its best efforts to list the  Registrable  Securities  covered by
such registration  statement with any national market or securities  exchange on
which such securities are then listed;

     (viii)  Make   available  for  inspection  by  the  holder  of  Registrable
Securities,  upon request, all SEC Documents (as defined below) filed subsequent
to the Closing and require the  Company's  officers,  directors and employees to
supply  all  information  reasonably  requested  by any  holder  of  Registrable
Securities in connection with such registration statement: and

     (ix) Furnish to each holder of Registrable  Securities prompt notice of the
commencement of any stop-order  proceedings  under the Act, together with copies
of all  documents in  connection  therewith,  and use its best efforts to obtain
withdrawal of any such stop order as soon as possible.

     (e) Upon request of the Company, each holder of Registrable Securities will
furnish to the Company in connection  with any  registration  under this Section
such  information  regarding  itself,  the  Registrable   Securities  and  other
securities of the Company held by it, and the intended  method of disposition of
such  securities as shall be reasonably  required to effect the  registration of
the Registrable  Securities held by such holder of Registrable  Securities.  The
intended method of disposition  (Plan of  Distribution) of such securities as so
provided by Purchaser shall be included  without  alteration in the Registration
Statement  covering the Registrable  Securities and shall not be changed without
the prior written consent of the Purchaser.

     (f) (i) The Company shall  indemnify,  defend and hold harmless each holder
of  Registrable  Securities  which  are  included  in a  registration  statement
pursuant  to the  provisions  of  Subsections  (b) or (c) hereof and each of its
officers, directors,  employees, agents, partners or controlling persons (within
the meaning of the Act) (each,  an  "indemnified  party") from and against,  and
shall  reimburse  such  indemnified  party with  respect to, any and all claims,
suits,  demands,  causes  of  action,  losses,  damages,  liabilities,  costs or
expenses  ("Liabilities")  to which such  indemnified  party may become  subject
under the Act or otherwise, arising from or relating to (A) any untrue statement
or alleged untrue statement of any material fact contained in such  registration
statement,  any  prospectus  contained  therein or any  amendment or  supplement
thereto,  or (B) the  omission or alleged  omission to state  therein a material
fact required to be stated therein or necessary to make the statements  therein,
in light of the circumstances in which they were made, not misleading; provided,
however,  that the  Company  shall not be liable in any such case to the  extent
that any such  Liability  arises out of or is based upon an untrue  statement or
omission  so  made in  strict  conformity  with  information  furnished  by such
indemnified party in writing specifically for use in a registration statement.

     (ii)  In the  event  of  any  registration  under  the  Act of  Registrable
Securities  pursuant to Subsections (b) or (c), each holder of such  Registrable
Securities  hereby severally  agrees to indemnity,  defend and hold harmless the
Company,  and  its  officers,   directors,   employees,   agents,  partners,  or
controlling  persons  (within  the meaning of the Act)  (each,  an  "indemnified
party")  from and  against,  and shall  reimburse  such  indemnified  party with
respect to, any and all Liabilities to which such  indemnified  party may become
subject under the Act or  otherwise,  arising from or relating to (A) any untrue
statement or alleged  untrue  statement of any material  fact  contained in such
registration  statement,  any prospectus  contained  therein or any amendment or
supplement  thereto,  or (B) the omission or alleged omission to state therein a
material fact required to be stated  therein or necessary to make the statements
therein,  in light of the circumstances in which they were made, not misleading;
provided,  that such  holders  will be liable in any such case to the extent and
only to the extent,  that any such  Liability  arises out of or is based upon an
untrue  statement or alleged  untrue  statement or omission or alleged  omission
made in such  registration  statement,  prospectus  or amendment  or  supplement
thereto in reliance upon and in conformity with written information furnished by
such holder specifically for use in the preparation thereof.

     (iii)  Promptly  after  receipt by any  indemnified  party of notice of the
commencement of any action,  such indemnified party shall, if a claim in respect
thereof  is  to  be  made  against  another  party  (the  "indemnifying  party")
hereunder,  notify such party in writing thereof,  but the omission so to notify
such party shall not relieve such party from any Liability  which it may have to
the  indemnified  party other than under this  Section and shall only relieve it
from any Liability which it may have to the indemnified party under this section
if and to the extent an  indemnifying  party is  materially  prejudiced  by such
omission. In case any such action shall be brought against any indemnified party
and  such  indemnified   party  shall  notify  an  indemnifying   party  of  the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and  undertake  the defense  thereof
with counsel  reasonably  satisfactory  to such  indemnified  party,  and, after
notice from the indemnifying  party to the indemnified  party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to the  indemnified  party  under  this  section  for any legal  expenses
subsequently  incurred by the  indemnified  party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected; provided however, that if the defendants in any such action include
both parties and the  indemnified  party shall have  reasonably  concluded  that
there may be reasonable  defenses  available to them which are different from or
additional to those available to the  indemnifying  party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying  party, the indemnified  party shall have the right to select a
separate  counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of one such
separate counsel and other reasonable  expenses related to such participation to
be reimbursed by the indemnifying party as incurred.

     (g) (i) With  respect  to the  inclusion  of  Registrable  Securities  in a
registration  statement  pursuant to Subsections (b) or (c), all fees, costs and
expenses of and incidental to such  registration,  inclusion and public offering
shall be borne  by the  Company,  provided,  however,  that any  securityholders
participating  in such  registration  shall  bear  their  pro-rata  share of the
underwriting  discounts and commissions,  if any, incurred by them in connection
with such registration.

     (ii) The  fees,  costs  and  expenses  of  registration  to be borne by the
Company as provided in this Subsection shall include,  without  limitation,  all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and  accountants for the Company,  and all legal fees and  disbursements
and other  expenses of complying  with state  securities or Blue Sky laws of any
jurisdiction  or  jurisdictions  in which  securities  to be  offered  are to be
registered   and   qualified.   Subject   to   appropriate   agreements   as  to
confidentiality,  the Company shall make available to the holders of Registrable
Securities  and their  counsel its  documents  and  personnel  for due diligence
purposes. Except as otherwise provided herein, fees and disbursements of counsel
and  accountants  for  the  selling  security  holders  shall  be  borne  by the
respective selling security holders.

     (h) The  rights to cause the  Company  to  register  all or any  portion of
Registrable Securities pursuant to this Section 1.4 may be assigned by Purchaser
to a transferee or assignee.  Within a reasonable time after such transfer,  the
Purchaser shall notify the Company of the name and address of such transferee or
assignee,  and the securities with respect to which such registration rights are
being  assigned.  Such  assignment  shall  be  effective  only  if,  immediately
following  such  transfer,  the further  disposition  of such  securities by the
transferee or assignee is  restricted  under the Act. Any  transferee  asserting
registration  rights  hereunder  shall be bound by the applicable  provisions of
this Agreement.

     (i) The Company  shall not agree to allow the holders of any  securities of
the Company to include any of their  securities  in any  registration  statement
filed by the Company  pursuant to Subsection  (b) unless such inclusion will not
reduce the amount of the Registrable Securities included therein.

     Section  1.5  Company  Standoff,  Except  in  a  corporate  reorganization,
business combination,  stock or asset purchase,  merger or consolidation,  under
existing  employee  stock  incentive  or  purchase  plans  or  pursuant  to this
Agreement,  the Company shall not for its own account  effect any public sale or
distribution  of any  securities  similar to the  Registrable  Securities or any
securities  exercisable  for or convertible or changeable  into the  Registrable
Securities  during the thirty (30) days prior to, and during the sixty (60) days
immediately following, the effective date of any registration statement filed or
amended  pursuant to Section  1.4(b);  provided,  however,  that the Company may
effect such public sale or distribution  during the sixty (60) days  immediately
following  the  effective  date of such  registration  statement if such sale or
distribution  of  securities  is at a price equal to or greater than 125% of the
last trade price of the Company's Common Stock on the day of Closing.

     Section 2.1 Representations and Warranties of the Purchaser.  The Purchaser
makes the following representations and warranties to the Company.

     (a) Accredited Investor. The Purchaser is an "accredited investor", as such
term is defined in Rule 50 1 (a) of Regulation D, promulgated under the Act.

     (b)  Speculative  Investment.  The Purchaser is aware that an investment in
the Shares is highly speculative and subject to substantial risks. The Purchaser
is capable of bearing the high  degree of  economic  risk and the burden of this
venture,  including, but not limited to, the possibility of complete loss of the
Purchaser's  investment  in the Shares and  underlying  Common  Stock which make
liquidation of this investment impossible for the indefinite future.

     (c) Disposition.  The Purchaser understands that (i) except as provided for
in Section  1.4,  the Shares and  underlying  Common  Stock of the Company  (the
"Securities"),  have not been and are not being  registered under the Securities
Act or any applicable state  securities laws, and may not be transferred  unless
(A)  subsequently  registered  thereunder,  or (B) the Securities may be sold or
transferred  pursuant to an exemption  from  securities  registration  under the
Securities Act and any applicable  state securities laws or (C) sold pursuant to
Rule 144,  promulgated under the Securities Act (or any successor Rule), or (ii)
any sale of such  Securities  made in  reliance  on Rule 144 may be made only in
accordance  with  the  terms  of such  Rule  and  further,  if such  Rule is not
applicable,  any  resale of such  Securities  under  circumstances  in which the
seller  (or the  person  through  whom the sale is made)  may be deemed to be an
underwriter  (as  that  term is  defined  in the  Securities  Act)  may  require
compliance  with another  exemption under the Securities Act or the rules of the
SEC thereunder.  Notwithstanding any provision to the contrary contained herein,
a holder may pledge such  Securities as collateral  for a revolving  credit note
pursuant to a loan and security agreement with a lending institution.

     (d)  Privately  Offered.  The offer to  acquire  the  Shares  was  directly
communicated  to the Purchaser in such manner that the Purchaser was able to ask
questions of and receive  answers  concerning  the terms and  conditions of this
transaction.  At no time was the  Purchaser  presented  with or  solicited by or
through any leaflet, public promotional meeting,  television  advertisement,  or
any other form of general advertising.

     (e) Purchase for  Investment,  The Securities are being acquired solely for
the  Purchaser's own account,  for investment,  and are not being purchased with
view to the  resale,  distribution,  subdivision  or  fractionalization  thereof
without proper registration with applicable securities administrators.

     Section 2.2  Representations  and  Warranties  of the Company.  The Company
hereby makes the following representations and warranties to the Purchaser:

     (a)  Organizations  and  Qualifications.  The Company is a corporation duly
incorporated and existing in good standing under the laws of the Commonwealth of
Massachusetts and has the requisite corporate power to own its properties and to
carry on its  business as now being  conducted.  The  Company  does not have any
subsidiaries  except as listed in Exhibit B,  attached  hereto and  incorporated
herein by  reference.  The  Company  and each such  subsidiary,  if any, is duly
qualified as a foreign  corporation  to do business  and is in good  standing in
every  jurisdiction  in which the nature of the  business  conducted or property
owned by it makes  such  qualification  necessary  other than those in which the
failure  so to  qualify  would not have a  Material  Adverse  Effect.  "Material
Adverse Effect", for purposes of this Agreement, means any adverse effect on the
business operations, properties, prospects, or financial condition of the entity
with respect to which such term is used and which is material to such entity and
other entities controlled by such entity taken as a whole.

     (b) Authorizations Enforcement. (i) The Company has the requisite corporate
power and  authority to enter into and perform this  Agreement  and to issue the
Shares and Registrable  Securities in accordance with the terms hereof, (ii) the
execution and delivery of this Agreement by the Company and the  consummation by
it of the  transactions  contemplated  hereby have been duly  authorized  by all
necessary  corporate  action,  and no further  consent or  authorization  of the
Company  or its Board of  Directors  or  stockholders  is  required,  (iii) this
Agreement  has been  duly  executed  and  delivered  by the  Company,  (iv) this
Agreement  constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms (except as such  enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting  generally the enforcement
of,  creditor'  rights and remedies or by other equitable  principles of general
application)  and (v) prior to the Closing Date,  any necessary  Certificate  of
Amendment  to the  Company's  Charter  authorizing  Company  to issue all of the
Shares and  Registerable  Securities,  in accordance  with Schedule 1, will have
been filed with the  Massachusetts  Secretary of State and will be in full force
and effect enforceable  against the Company in accordance with the terms of such
amended Charter.

     (c)  Authorized  Capital  Rights or  Commitments  to Stock.  The authorized
capital stock of the Company  consists of 22,200,000  shares of Common Stock and
1,000,000  shares of Series B Preferred  Stock;  there are  4,704,956  shares of
Common  Stock  issued and 730,292  shares of Class B Common  Stock  outstanding;
there are no shares of such Preferred  Stock issued and  outstanding;  and, upon
issuance  of the  Shares in  accordance  with the terms  hereof,  there  will be
4,704,956  shares of Class B Common Stock and 950 shares of such Preferred Stock
issued and outstanding.

      All of the  outstanding  shares of the Company's  Common Stock have been
validly  issued and are fully paid and  nonassessable.  Except as set forth in
Exhibit B hereto or as  described  in the SEC  Documents,  no shares of Common
Stock are entitled to preemptive  rights or registration  rights and there are
no  outstanding  options,  warrants,  scrip,  rights to subscribe to, calls or
commitments of any character  whatsoever  relating to, or securities or rights
convertible  into,  any shares of capital stock of the Company,  or contracts,
commitments,  understandings,  or  arrangements by which the Company is or may
become  bound to issue  additional  shares of capital  stock of the Company or
options,  warrants,  scrip, rights to subscribe to, or commitments to purchase
or acquire,  any shares.  or securities or rights  convertible into shares, of
capital stock of the Company.  The Company has furnished or made  available to
the  Purchaser  true  and  correct   copies  of  the  Company's   Articles  of
Organization  as in  effect  on the  date  hereof  (the  "Charter"),  and  the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").

     (d) Issuance of Shares. The issuance of the Shares has been duly authorized
and, when paid for and issued in accordance with the terms hereof,  the shall be
validly  issued,  fully paid and  non-assessable  and entitled to the rights and
preferences  set forth in  Schedule I hereto.  The Common  Stock  issuable  upon
conversion of the Shares will be duly  authorized and reserved for issuance and,
upon conversion,  will be validly issued,  fully paid and non-assessable and the
holders shall be entitled to all rights and preferences  accorded to a holder of
Common Stock.

     (e) No Conflicts. The execution, delivery and performance of this Agreement
by the  Company  and  the  consummation  by  the  Company  of  the  transactions
contemplated  hereby  do not and  will  not (i)  result  in a  violation  of the
Company's  Charter or By-Laws or (ii) conflict with, or constitute a default (or
an event  which  with  notice or lapse of time or both  would  become a default)
under, or give to others any rights of termination,  amendment,  acceleration or
cancellation of, any agreement,  indenture or instrument to which the Company or
any of its  subsidiaries  is a party,  or result in a violation  of any federal,
state,  local or  foreign  law,  rule,  regulation,  order,  judgment  or decree
(including Federal and state securities laws and regulations)  applicable to the
Company or any of its  subsidiaries  or by which any  property  or assets of the
Company  or any of its  subsidiaries  is  bound  or  affected  (except  for such
conflicts, defaults, terminations, amendments, accelerations,  cancellations and
violations  as would  not,  individually  or in the  aggregate,  have a Material
Adverse  Effect);  provided  that,  for  purposes of such  representation  as to
Federal,  state, local or foreign law, rule or regulation,  no representation is
made herein with respect to any of the same  applicable  solely to the Purchaser
and not to the Company.  The  business of the Company is not being  conducted in
violation  of any law,  ordinance or  regulations  of any  governmental  entity,
except for  violations  which either  singly or in the aggregate do not and will
not have a Material  Adverse Effect.  The Company is not required under Federal,
state or local  law,  rule or  regulation  in the  United  States to obtain  any
consent, authorization or order of, or make any filing (other than any filing of
a vote establishing a class or series of stock with the Massachusetts  Secretary
of State) or registration with, any court or governmental agency in order for it
to execute,  deliver or perform any of its  obligations  under this Agreement or
issue and sell the Shares in  accordance  with the terms hereof  (other than any
SEC,  NASD or state  securities  filings which may be required to be made by the
Company subsequent to the Closing,  and any registration  statement which may be
filed pursuant hereto);  provided that, for purposes of the representation  made
in this  sentence,  the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchaser herein.

     (f) SEC Documents, Financial Statements. The Common Stock of the Company is
registered  pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange  Act") and, except as set forth in Exhibit B, the Company
has filed on a timely basis all reports,  schedules, forms, statements and other
documents  required  to be filed by it with the SEC  pursuant  to the  reporting
requirements of the Exchange Act,  including  material filed pursuant to Section
13(a)  or  15(d),  in  addition  to  one or  more  registration  statements  and
amendments  thereto  heretofore  filed by the Company with the SEC under the Act
(all of the foregoing including filings  incorporated by reference therein being
referred to herein as the "SEC Documents").  The Company directly or through its
agent  has  delivered  to the  Purchaser  true and  complete  copies  of the SEC
Documents  except for the exhibits and incorporated  documents.  The Company has
not provided to the Purchaser  any  information  which,  according to applicable
law, rule or regulation,  should have been disclosed publicly by the Company but
which has not been so  disclosed,  other than with  respect to the  transactions
contemplated by this Agreement.

     Except  as set forth in  Exhibit  B, as of their  respective  dates the SEC
Documents  complied in all material respects with the requirements of the Act or
the  Exchange  Act as the case may be and the rules and  regulations  of the SEC
promulgated  thereunder  and other  federal,  state and  local  laws,  rules and
regulations  applicable  to such SEC  Documents,  and none of the SEC  Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated  therein or necessary in order to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.  Except as set forth in Exhibit B, the  financial  statements of the
Company included in the SEC Documents comply as to form in all material respects
with applicable accounting  requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto.  Such
financial  statements have been prepared in accordance  with generally  accepted
accounting  principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise  indicated in such  financial  statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include  footnotes or may be condensed or summary  statements)  and
fairly present in all material respects the financial position of the Company as
of the dates  thereof  and the  results  of  operations  and cash  flows for the
periods  then ended  (subject,  in the case of unaudited  statements,  to normal
year-end audit adjustments).

     (g) No  Material  Adverse  Change.  Since the date  through  which the most
recent  quarterly report of the Company on Form 10-Q has been prepared and filed
with the SEC, a copy of which is  included  in the SEC  Documents,  no  Material
Adverse  Effect has occurred or exists with respect to the Company or any of its
subsidiaries.

     (h) No Undisclosed  Liabilities.  The Company and its subsidiaries  have no
material  liabilities or obligations  not disclosed in the SEC Documents,  other
than  those  incurred  in the  ordinary  course of the  Company's  or any of its
subsidiaries'  respective  businesses  since the date of the most recently filed
SEC Documents which,  individually or in the aggregate, do not or would not have
a Material Adverse Effect on the Company or any of its subsidiaries.

     (i) No Undisclosed  Events or  Circumstances.  No event or circumstance has
occurred or exists with  respect to the  Company or any of its  subsidiaries  or
their  respective  businesses,  properties,  prospects,  operations or financial
condition  which,  under  applicable  law, rule or regulation,  requires  public
disclosure  or  announcement  by the  Company but which has not been so publicly
announced or disclosed.

     (j)  No  General  Solicitation.   Neither  the  Company,  nor  any  of  its
affiliates,  or, to the best of its knowledge, any person acting on its or their
behalf, has engaged in any form of general  solicitation or general  advertising
(within the meaning of Regulation D under the Act) in connection  with the offer
or sale of the Shares.

     (k) No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has,  directly or indirectly,  made
any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Shares under the Act.

     Section 3.1  Securities  Compliance.  The Company  shall notify the SEC and
NASD, in accordance with their requirements, of the transactions contemplated by
this Agreement, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation,  for the legal
and valid issuance of the Shares,  and the Common Stock issuable upon conversion
thereof, to the Purchaser.

     Section 3.2 Registration  and Listing.  Until. at least two (2) years after
all Shares have been converted  into  Registrable  Securities,  the Company will
cause its Common  Stock to continue to be  registered  under  Sections  12(b) or
12(g) of the Exchange  Act,  will comply in all respects  with its reporting and
filing  obligations  under such Exchange Act, will comply with all  requirements
related to any registration  statement filed pursuant to this Agreement and will
not take any action or file any document (whether or not permitted by the Act or
the  Exchange  Act or  the  rules  thereunder)  to  terminate  or  suspend  such
registration  or to terminate or suspend its  reporting  and filing  obligations
under said Acts, except as permitted herein.  Until at least two (2) years after
all Shares  have been  converted  into Common  Stock the  Company  will take all
action  within its power to continue  the listing or trading of its Common Stock
on the  NASDAQ  Small  Cap  Market  and will  comply  in all  respects  with the
Company's  reporting,  filing and other obligations under the bylaws or rules of
the NASD and NASDAQ.  The  covenants  set forth in this Section 3.2 shall not be
deemed  to   prohibit  a  merger,   sale  of  all  assets  or  other   corporate
reorganization  if the entity surviving or succeeding to the Company is bound by
this  Agreement  with  respect to its  securities  issued in exchange  for or in
replacement of the Shares or Common Stock or the  consideration  received for or
in replacement of the Shares or Common Stock is cash.

     Section 3.3 Right of First Refusal and  Most-Favored-Nation  Clause.  If at
any time  during the period  beginning  on the fifth (5th) day prior to (but not
including) the Closing Date and ending sixty (60) days immediately following the
effective date of the Initial Registration, the Company proposes to issue Common
Stock or securities  convertible  into or exercisable  for Common Stock or other
convertible  securities,  pursuant to an offering exempt from registration under
the Act, the Company shall provide to Purchaser reasonable advance notice of all
the terms of such  proposed  issuance.  The  Purchaser  shall  have the right to
purchase or refuse to purchase all or any part of such securities proposed to be
issued in such  offering,  and shall have at least  seventy two (72) hours after
receipt of such notice to review the terms of the proposed issuance.

     If the  Company  issues  Common  Stock or  securities  convertible  into or
exercisable for Common Stock or other convertible securities, at a time when any
of the Shares  remain  outstanding,  at an  effective  price per share of Common
Stock which is lower than the conversion  price of the Shares at that time, then
the Company shall,  within five (5) business  days,  deliver to each holder upon
conversion  an additional  number of shares of Common Stock  necessary to reduce
the effective conversion price to such lower issue price. This Section shall not
be  applicable  to  issuances  of  Common  Stock  pursuant  to (a) any  business
combination,  acquisition transaction, stock or asset purchase undertaken by the
Company or (b) any  shareholder-approved  option plan covering not more than 10%
of the Company's outstanding stock.

     Section 4.1  Conditions  Precedent to the Obligation of the Company to Sell
the Shares.  The  obligation  hereunder  of the Company to issue and/or sell the
Shares to the  Purchaser  is  subject  to the  satisfaction,  at or  before  the
Closing,  of each of the  conditions  set forth below.  These  conditions may be
waived by the Company at any time in its sole discretion.

     (a)  Accuracy  of  the  Purchaser's  Representations  and  Warranting.  The
representations and warranties of the Purchaser shall be true and correct in all
material  respects as of the date when made and as of the Closing Date as though
made at that time (except for  representations and warranties that speak as of a
particular date).

     (b)  Performance by the Purchaser.  The Purchaser  shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Purchaser at or prior to the Closing.

     (c) No Injunction.  No statute, rule, regulation.  executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

     (d) Legal action.  No legal action,  suit or proceeding shall be pending or
threatened which seeks to restrain or prohibit the transactions  contemplated by
this Agreement.

     (e)  Execution.  The  Purchaser  shall have executed  this  Agreement,  and
delivered such Agreement to the Company.

     (f) Purchase  Price.  The Purchaser shall have delivered the Purchase Price
in accordance with Section 1.3(b) above.

     Section 4.2  Conditions  Precedent to the  Obligation  of the  Purchaser to
Purchase the Shares.  The  obligation  hereunder of the Purchaser to acquire and
pay for the Shares is subject to the satisfaction,  at or before the Closing, of
each of the  conditions set forth below.  These  conditions may be waived by the
Purchaser at any time in its sole discretion.

     (a)  Accuracy  of  the  Company's   Representations  and  Warranties.   The
representations  and  warranties of the Company shall be true and correct in all
material  respects as of the date when made and as of the Closing Date as though
made at that time (except for  representations and warranties that speak as of a
particular date).

     (b)  Performance  by the  Company.  The Company  shall have  performed  all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.

     (c)  NASDAO.  From the date  hereof to the  Closing  Date,  trading  in the
Company's  Common  Stock shall not have been  suspended by the SEC or the NASDAQ
Small Cap Market  (except  for any  suspension  of  trading of limited  duration
agreed to between the Company and the NASDAQ  Small Cap Market  solely to permit
dissemination  of material  information  regarding the Company),  and trading in
securities  generally  as reported by NASDAQ  shall not have been  suspended  or
limited or minimum prices shall not have been established on
securities whose trades are reported by NASDAQ.

     (d) No Injunction.  No statute, rule, regulation,  executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

     (e) Opinion of Counsel Etc. The Purchaser  shall have received before or at
the Closing an opinion of counsel to the Company (covering,  without limitation,
such of the matters set forth in Section 2.2(a) through (e)), as are in form and
substance  reasonably  satisfactory  to the Purchaser and its counsel,  and such
other  certificates  and  documents  as  the  Purchaser  or  its  counsel  shall
reasonably require incident to the Closing.

     (f)  Execution.  The  Company  shall  have  executed  this  Agreement,  and
delivered such Agreement to the Purchaser.

     Section 5.1 Legend on Stock. Each certificate  representing the Shares and,
if necessary,  Common Stock issued upon conversion thereof,  shall be stamped or
otherwise imprinted with a legend substantially in the following form:

THESE  SECURITIES  [AND THE SHARES OF COMMON STOCK  ISSUABLE UPON THE CONVERSION
HEREOF] HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE  SECURITIES  LAWS.  THEY MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS
THERE IS AN EFFECTIVE  REGISTRATION  STATEMENT UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR, IN THE OPINION OF COUNSEL,  REGISTRATION UNDER SUCH ACT
OR APPLICABLE  STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH SUCH SALE
OR OFFER, AND SUCH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY.

     The Company agrees to reissue  certificates  representing the Shares or, if
applicable,  the Common Stock issued upon conversion thereof, without the legend
set forth above at such time as (a) the holder  thereof is  permitted to dispose
of such Shares (or securities  issued upon conversion  thereof) pursuant to Rule
144(k) under the Act, (b) the  securities  are sold to a purchaser or purchasers
who (in the opinion of counsel to such holders, in form and substance reasonably
satisfactory  to the  Company  and its  counsel)  are  able to  dispose  of such
securities publicly without registration under the Act, or (iii) such securities
are registered under the Act

     Section 6.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the mutual  written  consent of the Company,
and the Purchaser.

     Section 6.2 Other  Termination.  This Agreement may be terminated by action
of the  Board of  Directors  or other  governing  body of the  Purchaser  or the
Company at any time if the Closing shall not have been  consummated by the fifth
(5th) business day following the date of this Agreement, provided that the party
seeking to terminate the Agreement is not in breach of the Agreement.

     Section 6.3  Automatic  Termination.  This  Agreement  shall  automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the seventh  (7th)  business day following the date of this
Agreement,  provided, however, that any such termination shall not terminate the
liability of any party which is then in breach of the Agreement.

     Section 7.1 Fees and Expenses. Except as otherwise set forth in Section 1.4
hereof with respect to the registration of Registrable  Securities,  the Company
shall pay the fees, commissions and expenses of its advisers,  brokers, finders,
counsel,  accountants  and  other  experts,  if  any,  and  all  other  expenses
associated therewith, and shall on the Closing Date reimburse ProFutures Special
Equities  Fund,  L.P.  up to $5,000  for fees and  expenses  of its  counsel  in
connection with the preparation, negotiation and coordination of this Agreement.
The Company  shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares and Common Stock pursuant hereto.

     Section 7.2 Specific Enforcement, Consent to Jurisdiction.

     (a) The Company and the Purchaser  acknowledge  and agree that  irreparable
damage  would occur in the event that any of the  provisions  of this  Agreement
were not performed in accordance  with their  specific  terms or were  otherwise
breached.  It is  accordingly  agreed that the  parties  shall be entitled to an
injunction or  injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce  specifically  the terms and  provisions  hereof,  this
being in addition to any other remedy to which either of them may be entitled by
law or equity.

     (b) The Company and the Purchaser  each (i) hereby  irrevocably  submits to
the  jurisdiction  of the United States  District  Court and other courts of the
United States sitting in the State of Texas for the purposes of any suit, action
or  proceeding  arising  out of or relating  to this  Agreement  and (ii) hereby
waives,  and agrees not to assert in any such suit,  action or  proceeding,  any
claim that it is not personally  subject to the jurisdiction of such court, that
the suit,  action or proceeding is brought in an inconvenient  forum or that the
venue of the  suit,  action or  proceeding  is  improper.  The  Company  and the
Purchaser  each  consents to process  being  served in any such suit,  action or
proceeding  by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and  sufficient  service of process  and  notice  thereof.  Nothing in this
paragraph  shall affect or limit any right to serve  process in any other manner
permitted by law.

     Section 7.3 Entire Agreement: Amendment. This Agreement contains the entire
understanding  of the parties  with respect to the matters  covered  hereby and,
except as specifically  set forth herein,  neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by a
written  instrument  signed by the party  against whom  enforcement  of any such
amendment or waiver is sought.

     Section  7.4  Notices.  Any  notice  or  other  communication  required  or
permitted to be given  hereunder  shall be in writing and shall be effective (a)
upon hand  delivery or delivery by telex (with  correct  answer back  received),
telecopy or facsimile at the address or number designated below (if delivered on
a  business  day  during  normal  business  hours  where  such  notice  is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal  business  hours where such notice is to be
received) or (b) on the second (2nd)  business day following the date of mailing
by express courier service,  fully prepaid,  addressed to such address,  or upon
actual receipt of such mailing, whichever shall first occur.

     The addresses for such communications shall be:

to the Company:   Bruce A. Shear, President and Chief Executive Officer
                  PHC, Inc.
                  200 Lake Street -- Suite 102
                  Peabody, Massachusetts 01960

to the Purchaser: At the address set forth at the foot of this Agreement or
                  as specified in writing by Purchaser.

Any party  hereto may from time to time change its address for notices by giving
at least ten (10)  days'  written  notice of such  changed  address to the other
party hereto.

     Section 7.5 Waivers.  No waiver by either party of any default with respect
to any provision,  condition or requirement of this Agreement shall be deemed to
be a  continuing  waiver  in the  future  or a waiver  of any  other  provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right  hereunder  in any manner  impair the exercise of any such
right accruing to it thereafter.

     Section 7.6 Headings.  The headings herein are for convenience only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof.

     Section  7.7  Governing  Law.  This  Agreement  shall  be  governed  by and
construed and enforced in accordance with the internal laws of the present state
of  incorporation  of the Company  without regard to such state's  principles of
conflict of laws.

     Section 7.8 Survival. The representations and warranties of the Company and
the Purchaser  contained in herein and the agreements and covenants set forth in
Sections 1.1 through 1.5, 3.1 through 3.3 and 7.1 through 7.16 shall survive the
Closing for a period of two (2) years.

     Section 7.9 Publicity.  The Company  agrees that it will not disclose,  and
will not include in any public  announcement,  the name of the Purchaser without
its consent,  unless and until such  disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.

     Section 7.10 NASDAO.  The term "NASDAQ" or "NASDAQ Small Cap Market" herein
refers to the  principal  market on which the  Common  Stock of the  Company  is
traded.  If the Common Stock is listed on a securities  exchange.  or if another
market  becomes  the  principal  market on which the  Common  Stock is traded or
through  which price  quotations  for the Common  Stock are  reported,  the term
"NASDAQ" or "NASDAQ  Small Cap Market" shall be deemed to refer to such exchange
or other principal market.

     Section 7.11  Acceptance.  Execution and delivery of this  Agreement  shall
constitute  an offer to purchase  the Shares,  which  offer,  unless  previously
revoked by the  Purchaser,  may be accepted or rejected by the  Company,  in its
sole  discretion  for any cause or for no cause  and  without  liability  to the
Purchaser. The Company shall indicate acceptance of this Agreement by signing as
indicated on the signature page hereof.

     Section 7.12 Binding  Agreement.  Upon  acceptance of this Agreement by the
Company,  the Purchaser  agrees that he may not cancel,  terminate or revoke any
agreement of the Purchaser made hereunder, and that this Agreement shall survive
the death or  disability  of the  Purchaser  and shall be  binding  upon  heirs,
successors,  assigns,  executors,  administrators,  guardians,  conservators  or
personal representatives of the Purchaser.

     Section 7.13  Incorporation by Reference.  All information set forth on the
signature page is incorporated as integral terms of this Agreement.

     Section  7.14  Counterparts.  This  Agreement  may be  signed  in  multiple
counterparts,  which  counterparts  shall  constitute  one and the same original
instrument.

     Section 7.15  Severability.  If any portion of this Agreement shall be held
illegal,  unenforceable,  void or  voidable  by any court each of the  remaining
terms  hereof shall  nevertheless  remain in full force and effect as a separate
contract.

     Section 7.16  Successors and Assigns.  This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their  respective  successors
and permitted assigns.




   [This space has been left blank intentionally. The signature page follows.]

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $500,000 (500 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         26,315 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      ProFutures Special Equities Fund, L.P.

Address of Purchaser:   % ProFutures Fund Management, Inc.
                        1030 Highway 620 South - Suite 200
                        Austin, TX  78734

Social Security or IRS Employer Identification Number(s):

      74-2786952

Signature of Purchaser:                              Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

______________________________________________
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  ProFutures Special Equities Fund, L.P.
                 By ProFutures Fund Management, Inc., a General Partner


By:  ______________________________________
          (Signature)

Name:      /s/ Gary D. Halbert
Title:         President

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $150,000 (150 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         7,890 shares

The exact name(s)(Including  correct,legible spelling) and the information under
which title to the Shares will be taken is as follows (Please print or type):

      Gary D. Halbert

Address of Purchaser:   1030 Highway 620 South - Suite 200
                        Austin, TX  78734

Social Security or IRS Employer Identification Number(s):

      ###-##-####

Signature of Purchaser:                                 Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

/s/ Gary D. Halbert
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  _______________________________________

By:  ______________________________________
          (Signature)

Name:     ____________________________________________
Title:    ____________________________________________

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $100,000 (100 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         5,260 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      John F. Mauldin

Address of Purchaser:   1000 Ballpark in Arlington - Suite 216
                        Arlington, TX  76011

Social Security or IRS Employer Identification Number(s):

      ###-##-####

Signature of Purchaser:                                 Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

/s/ John F. Mauldin
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  ________________________________


By:  ______________________________________
          (Signature)

Name:     _________________________________
Title:    _________________________________

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $200,000 (200 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         10,525 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      Augustine Fund, L.P.

Address of Purchaser:   141 West Jackson Boulevard - Suite 2182
                        Chicago, IL  60604

Social Security or IRS Employer Identification Number(s):

      36-418-6782

Signature of Purchaser:                                  Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

______________________________________________
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  Augustine Fund, L.P.
            By Augustine Capital Management, Inc., the General Partner

By:  ______________________________________
          (Signature)

Name:      /s/ Thomas Duszynski
Title:         Chief Operating Officer

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name: /s/ Bruce A. Shear
Title:    President

<PAGE>
                                   SCHEDULE I

                                    PHC, INC.

                 RESOLUTIONS ESTABLISHING RIGHTS AND PREFERENCES
                    FOR SERIES B CONVERTIBLE PREFERRED STOCK

     RESOLVED,  that  there  shall  be a series  of  shares  of the  Corporation
designated "Series B Convertible  Preferred Stock"; that the number of shares of
such series shall be 1,000, that the Corporation issue such shares, and that the
rights and  preferences of such series (the "6%  Preferred") and the limitations
or restrictions thereon, shall be as set forth herein.

     The following  terms and conditions  shall be adopted and  incorporated  by
reference into the foregoing resolutions as if fully set forth therein:

     1. Dividends.

     (a) The holders of the 6% Preferred shall be entitled to receive out of any
assets legally available  therefor  cumulative  dividends at the rate of $60 per
share per annum,  accrued  daily and payable  quarterly  in arrears on March 31,
June 30,  September 30 and December 31 of each year, in preference  and priority
to any payment of any  dividend on the Common Stock or any other class or series
of stock of the Corporation. Such dividends shall accrue on any given share from
the day of  original  issuance  of such share and shall  accrue  from day to day
whether or not earned or declared.  If at any time dividends on the  outstanding
6%  Preferred  at the rate set forth  above shall not have been paid or declared
and set apart for payment with respect to all preceding  periods,  the amount of
the  deficiency  shall be fully paid or declared and set apart for payment,  but
without  interest,  before  any  distribution,  whether  by way of  dividend  or
otherwise,  shall be  declared  or paid upon or set apart for the  shares of any
other class or series of stock of the Corporation.

     (b) Any dividend  payable on a dividend  payment  date may be paid,  at the
option of the Corporation,  either (i) in cash or (ii) in shares of 6% Preferred
valued at $1,000 per share, if the Common Stock issuable upon conversion of such
shares has been  registered  for resale  under the  Securities  Act of 1933,  as
amended  (the  "Act"),  and  the  registration  statement  including  a  current
prospectus  with  respect  thereto  remains in effect at the date of delivery of
such  shares,  and if the  Corporation  shall have given  written  notice of its
intention  to pay such  dividend in stock to all holders of the 6%  Preferred at
least ten (10) days before the record date for such dividend.

     2. Liquidation Preference, Redemption.

     (a) In the  event of any  liquidation,  dissolution  or  winding  up of the
Corporation,  either  voluntary or involuntary,  the holders of the 6% Preferred
shall be entitled to receive, prior and in preference to any distribution of any
assets of the Corporation to the holders of any other class or series of shares,
the amount of $1,000  per share  plus any  accrued  but  unpaid  dividends  (the
"Liquidation Preference").

     (b) A  consolidation  or merger of the  Corporation  with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation  (other than a sale or transfer to a wholly-owned  subsidiary
of the Corporation), shall, at the option of the holders of the 6% Preferred, be
deemed a  liquidation,  dissolution  or winding  up within  the  meaning of this
Section 2 if the  shares  of stock of the  Corporation  outstanding  immediately
prior to such transaction represent immediately after such transaction less than
a majority of the voting power of the surviving  corporation (or of the acquirer
of the Corporation's assets in the case of a sale of assets). Such option may be
exercised  by the vote or written  consent  of  holders of a majority  of the 6%
Preferred at any time within thirty (30) days after written  notice (which shall
be given  promptly) of the essential terms of such  transaction  shall have been
given to the holders of the 6% Preferred  in the manner  provided by law for the
giving of notice of meetings of shareholders.




                                      - 1 -
<PAGE>

     (c) The Corporation may, at its option, cause all outstanding shares of the
6% Preferred  to be redeemed  after the date on which a  registration  statement
under  the Act  ("Registration  Statement")  has been  declared  effective  (the
"effective date"); provided the Corporation has given notice of its intention to
redeem to the  holders of the 6%  Preferred  at least five (5) days prior to the
redemption date. In addition, if any conversion of 6% Preferred, when aggregated
with all prior  conversions,  will cause the Company to issue a number of shares
of Common Stock which exceeds twenty percent (20%) of the shares of Common Stock
then issued and  outstanding,  the Company shall redeem such number of shares of
6% Preferred  as is  necessary to limit such  issuance of Common Stock to twenty
percent (20%) of the shares of Common Stock then issued and outstanding,  unless
the Company has previously obtained  stockholder  approval to issue in excess of
twenty percent (20%) of the shares of Common Stock then issued and  outstanding.
If a  redemption  will occur under  either of the  preceding  sentences,  on the
redemption  date,  the  Corporation  shall pay such holders by cashiers check or
wire transfer in immediately  available  funds the amount of $1,300 per share of
6% Preferred plus all accrued but unpaid  dividends.  Promptly  thereafter,  the
holders shall  surrender the  certificate or  certificates  representing  the 6%
Preferred,  duly endorsed,  at the office of the  Corporation or of any transfer
agent for such shares, or at such other place designated by the Corporation.

     3. 6% Preferred - Forced Conversion.

     (a) The Corporation may, at its option, cause all outstanding shares of the
6%  Preferred to be converted  into Common Stock at any time  beginning  one (1)
year after the date of issuance,  on at least twenty (20) days' advance  notice,
at a  conversion  price  determined  as set  forth  in  Section  4  hereof  (the
"Conversion  Price") as of the date  specified  in such notice (the  "Conversion
Date") and otherwise on the terms set forth in Section 4 hereof,  provided, that
the Corporation may not exercise such right of conversion unless (i) the Closing
Price  (last  trade  price) of the Common  Stock as  reported  by NASDAQ for the
twenty (20) consecutive  trading days prior to the date the Conversion Notice is
mailed has not on any day been less than one hundred forty percent (140%) of the
last trade price of the Company's Common Stock on the day of Closing (subject to
adjustment for stock dividends, stock splits and reverse stock splits), and (ii)
the shares  issuable  upon  conversion of the 6% Preferred  are  registered  for
resale by an effective  Registration  Statement which became  effective not more
than  one  hundred  twenty  (120)  days  after  the date of  issuance  of the 6%
Preferred,  and a current  prospectus  meeting the requirements of Section 10 of
the Act is available for delivery at the Conversion Date.

     (b) At least twenty (20) days prior to the Conversion Date,  written notice
(the "Conversion  Notice") shall be mailed,  first class postage prepaid, by the
Corporation  to each holder of record of the 6%  Preferred,  at the address last
shown on the records of the Corporation  for such holder,  notifying such holder
of the conversion  which is to be effected,  specifying the Conversion  Date and
calling upon each such holder to surrender to the Corporation, in the manner and
at the place designated,  a certificate or certificates  representing the number
of shares of 6% Preferred held by such holder.  Subject to the provisions of the
following  subsection  (c), on or after the Conversion  Date,  each holder of 6%
Preferred  shall  surrender to the  Corporation  the certificate or certificates
representing  the  shares  of 6%  Preferred  owned  by  such  holder  as of  the
Conversion  Date, in the manner and at the place  designated  in the  Conversion
Notice,  and  thereupon  the  shares  issuable  upon  such  conversion  shall be
delivered as provided in Section 4(b) hereof.

     (c) If, on the Conversion  Date, the  registration  condition  specified in
clause (ii) of subsection  (a) shall not be  satisfied,  then no shares shall be
converted and the  Conversion  Notice shall be deemed to be  withdrawn.  In such
event,  any  certificates  for 6%  Preferred  which  have been  surrendered  for
conversion  shall be returned to the persons  surrendering  the same;  provided,
however, that if a holder has received shares of Common Stock upon conversion of
6% Preferred  after the  Conversion  Notice was given but before the  Conversion
Date,  such holder may elect  either to retain such Common Stock or rescind such
conversion by tendering such shares of Common Stock to the Corporation.

     (d) On the second anniversary of the issuance of the 6% Preferred, all then
outstanding shares of 6% Preferred shall be automatically  converted into Common
Stock  at  the  Conversion  Price  and  otherwise  pursuant  to  the  applicable
provisions set forth in Section 4 hereof.


                                      - 2 -



<PAGE>

     4. 6%  Preferred - Optional  Conversion.  The  holders of the 6%  Preferred
shall have optional conversion rights as follows:

     (a) Right to  Convert.  At any time  after the  earlier  of (i) the date on
which a Registration Statement has been declared effective, or (ii) the close of
business on the ninety first (91st) day following the date of issuance of the 6%
Preferred, shares of 6% Preferred shall become convertible, at the option of the
holder  thereof,  into such  number of fully  paid and  nonassessable  shares of
Common Stock as is determined by dividing (A) the Liquidation  Preference of the
6% Preferred  determined  pursuant to Section 2 hereof on the date the notice of
conversion is given,  by (B) the  Conversion  Price  determined  as  hereinafter
provided in effect on the applicable conversion date.

     (b) Mechanics of Conversion.  To convert shares of 6% Preferred into shares
of Common Stock, the holder shall give written notice to the Corporation  (which
notice  may be given by  facsimile  transmission)  that  such  holder  elects to
convert the shares and shall state therein date of the conversion, the number of
shares to be  converted  and the name or names in which such  holder  wishes the
certificate or  certificates  for shares of Common Stock to be issued.  Promptly
thereafter,   the  holder  shall   surrender  the  certificate  or  certificates
representing  the shares to be converted,  duly  endorsed,  at the office of the
Corporation  or of any transfer  agent for such  shares,  or at such other place
designated by the Corporation; provided that the holder shall not be required to
deliver the  certificates  representing  such shares if the holder is waiting to
receive all or part of such certificates  from the Corporation.  The Corporation
shall, immediately upon receipt of such notice, issue and deliver to or upon the
order of such holder,  against  delivery of the  certificates  representing  the
shares which have been converted,  a certificate or certificates  for the number
of  shares of Common  Stock to which  such  holder  shall be  entitled  and such
certificate or certificates shall not bear any restrictive legend;  provided (A)
the  Common  Stock   evidenced   thereby  are  sold  pursuant  to  an  effective
registration  statement  under the Act, (B) the holder  provides the Corporation
with an opinion of  counsel  reasonably  acceptable  to the  Corporation  to the
effect that a public sale of such shares may be made without  registration under
the Act, or (C) such holder provides the Corporation  with reasonable  assurance
that  such  shares  can be sold  free of any  limitations  imposed  by Rule 144,
promulgated  under the Act.  The  Corporation  shall  cause  such  issuance  and
delivery to be effected  within three (3) business  days and shall  transmit the
certificates  by messenger or  overnight  delivery  service to reach the address
designated  by such holder  within three (3) business  days after the receipt of
such  notice.  The  notice  of  conversion  may be given by a holder at any time
during the day up to 5:00 p.m.  Boston,  Massachusetts  time and such conversion
shall be deemed to have been made immediately  prior to the close of business on
the date such notice of conversion is given (a "conversion date"). The person or
persons  entitled  to receive  the  shares of Common  Stock  issuable  upon such
conversion  shall be treated for all purposes as the record holder or holders of
such shares of Common Stock at the close of business on such date.

     (c)  Conversion,  Redemption and Note Delivery  Required.  The  Corporation
acknowledges  and  understands  that a delay in the issuance of the Common Stock
upon conversion or pursuant to a redemption  according to the provisions hereof,
or a delay in delivering the Promissory Note set forth in Subsection (d) hereof,
could  result  in  economic  loss  to  the  holders  of  the  6%  Preferred.  As
compensation  to any holder when the Corporation has failed with respect to such
holder to comply  with the  Corporation's  obligations  hereunder,  and not as a
penalty, the Corporation shall pay to such holder liquidated damages of $500 per
day plus an amount equal to: (i) two percent (2%) of the total Purchase Price of
Shares for the first  thirty (30) day period  after the date on which the Common
Stock should have been issued by the Corporation (i.e., the end of the three (3)
business  day  period  described  in  Subsection  (b)),  shares of 6%  Preferred
redeemed by the  Corporation or Promissory  Note delivered to holder (i.e.,  the
end of the three (3)  business  day period  described  in  Subsection  (d)),  as
applicable;  plus  (ii) an  amount  equal to  three  percent  (3%) of the  total
Purchase Price of Shares for each subsequent thirty (30) day period  thereafter.
Amounts  payable  shall be  pro-rated  daily as to a periods of less than thirty
(30) days.  Such amounts shall be paid to the holder at the end of each month in
which such amounts have accrued.  Payment shall be made immediately by cashier's
check or wire transfer in immediately  available  funds to such account as shall
be  designated  in writing by the holder.  Each  holder  shall be entitled to an
injunction  or  injunctions  to prevent or cure  breaches of the  provisions  of
hereof and. to enforce specifically the terms and provisions hereof, this being,
in  addition  to any other  remedy to which a holder may be  entitled  by law or
equity.



                                      - 3 -

<PAGE>

     (d) Determination of Conversion Price:

     (i )The "Conversion  Price" for purposes of hereof shall be equal to eighty
percent  (80%) of the average of the  closing bid prices of the Common  Stock as
reported by NASDAQ during the five (5)  consecutive  trading days  preceding the
conversion  date (but not including such date);  provided,  however,  that in no
event may the  Conversion  Price be more than three  dollars  and  twenty  cents
($3.20)  (the  "Maximum  Conversion  Price") or less than an amount equal to the
closing bid price per share of the Common  Stock on the date of  issuance  minus
fifty cents ($0.50) (the "Minimum Conversion  Price").  If, but for this Section
4(d)(i),  the Conversion Price would have been below Minimum  Conversion  Price,
the Company shall pay the holder by delivering to holder a Promissory  Note, the
form which has been delivered to the Corporation  and is incorporated  herein by
reference,  bearing the principal amount equal to the difference between (A) the
number of shares of Common  Stock that would have been  issued at the amount the
Conversion Price would have been but for this Section 4(d)(i) multiplied by 100%
of the  closing  bid  price  of the  Common  Stock  on the  conversion  date  as
determined  in  accordance  with the  Subsection  (d) (the latter  amount  being
referred  to herein as the  "Conversion  Date  Price"),  minus (B) the number of
shares of Common Stock actually issued pursuant to the conversion  multiplied by
the Conversion Date Price.  Such Promissory Note shall be delivered to holder by
the third (3rd) day following the applicable conversion date.

     (ii) The  "closing bid price" of the Common Stock on a trading day shall be
the closing bid price of the Common  Stock on the NASDAQ Small Cap Market or any
other principal  securities  price quotation system or market on which prices of
the  Common  Stock are  reported.  The term  "trading  day" means a day on which
trading is reported on the principal  quotation system or market on which prices
of the Common Stock are reported.

     (iii) If, during the period of consecutive trading days provided for above,
the Corporation shall declare or pay any dividend on the Common Stock payable in
Common Stock or in rights to acquire Common Stock, or shall effect a stock split
or reverse stock split, or a combination,  consolidation or  reclassification of
the Common Stock,  the Conversion  Price,  Maximum  Conversion Price and Minimum
Conversion   Price  shall  be   proportionately   decreased  or  increased,   as
appropriate, to give effect to such event.

     (e)  Distributions.  If the  Corporation  shall at any time or from time to
time make or issue,  or fix a record  date for the  determination  of holders of
Common Stock entitled to receive,  a dividend or other  distribution  payable in
securities of the Corporation or any of its  subsidiaries  other than additional
shares of Common Stock,  then in each such event provision shall be made so that
the holders of 6% Preferred  shall  receive,  upon the conversion  thereof,  the
securities of the  Corporation  which they would have received had they been the
owners  on the date of such  event of the  number  of  shares  of  Common  Stock
issuable to them upon conversion.

     (f)  Certificates as to Adjustments.  Upon the occurrence of any adjustment
or  readjustment  of the  Conversion  Price,  the Maximum  Conversion  Price and
Minimum  Conversion  Price  pursuant to this Section 4, the  Corporation  at its
expense shall promptly  compute such  adjustment or  readjustment  in accordance
with the terms hereof and cause the  independent  public  accountants  regularly
employed to audit the  financial  statements of the  Corporation  to verify such
computation and prepare and furnish to each holder of 6% Preferred a certificate
setting forth such  adjustment or  readjustment  and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of 6%. Preferred, furnish or cause
to be furnished to such holder a like  certificate  prepared by the  Corporation
setting forth (i) such  adjustments  and  readjustments,  and (ii) the number of
other  securities  and the amount,  if any, of other  property which at the time
would be received upon the conversion of 6% Preferred with respect to each share
of Common Stock received upon such conversion.

     (g) Notice of Record Date. In the event of any taking by the Corporation of
a  record  of the  holders  of any  class  of  securities  for  the  purpose  of
determining  the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other  distribution,  any security or right convertible
into or  entitling  the holder  thereof to receive  additional  shares of Common
Stock, or any right to subscribe for,  purchase or otherwise  acquire any shares
of stock of any class or any other  securities  or  property,  or to receive any
other right, the Corporation  shall mail to each holder of 6% Preferred at least
ten (10) days prior to the date specified  therein, a notice specifying the date
on which  any such  record  is to be taken  for the  purpose  of such  dividend,
distribution,  security or right and the amount and character of such  dividend,
distribution, security or right.

                                      - 4 -
<PAGE>

     (h)  Issue  Taxes.  The  Corporation  shall pay any and all issue and other
taxes, excluding any income,  franchise or similar taxes, that may be payable in
respect of any issue or  delivery  of shares of Common  Stock on  conversion  of
shares of 6% Preferred pursuant hereto; provided,  however, that the Corporation
shall not be  obligated to pay any transfer  taxes  resulting  from any transfer
requested by any holder in connection with any such conversion.

     (i) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
all times reserve and keep available out of its  authorized but unissued  shares
of Common  Stock,  solely for the purpose of  effecting  the  conversion  of the
shares of the 6%  Preferred,  such number of its shares of Common Stock as shall
from time to time be  sufficient  to effect the  conversion  of all  outstanding
shares of the 6%  Preferred,  and if at any time the  number of  authorized  but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then  outstanding  shares of the 6% Preferred,  the Corporation will take
such  corporate  action as may be  necessary  to  increase  its  authorized  but
unissued  shares of Common Stock to such number of shares as shall be sufficient
for such purpose,  including,  without  limitation,  engaging in best efforts to
obtain any requisite shareholder approval.

     (j)  Fractional  Shares.  No  fractional  shares  shall be issued  upon the
conversion  of any share or shares of 6%  Preferred.  All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
6% Preferred by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share. If,
after  the  aforementioned  aggregation,  the  conversion  would  result  in the
issuance of a fraction of a share of Common Stock,  the  Corporation  shall,  in
lieu of issuing any fractional share, pay the holder otherwise  entitled to such
fraction a sum in cash equal to the fair  market  value of such  fraction on the
date of conversion (as determined in good faith by the Board of Directors of the
Corporation or an authorized Committee thereof).

     (k) Notices.  Any notice  required by the  provisions of this Section to be
given  to the  holders  of  shares  of 6%  Preferred  shall be  deemed  given if
deposited in the United  States mail,  postage  prepaid,  and  addressed to each
holder of record at its address appearing on the books of the Corporation.

     (1)  Reorganization  or  Merger.  In  case  of  any  reorganization  or any
reclassification of the capital stock of the Corporation or any consolidation or
merger of the Corporation with or into any other  corporation or corporations or
a sale of all or substantially all of the assets of the Corporation to any other
person  (other  than a sale or  transfer  to a wholly  owned  subsidiary  of the
Corporation),  and the  holders  of 6%  Preferred  do not  elect to  treat  such
transaction as a liquidation, dissolution or winding up as provided in Section 2
hereof,  then, as part of such  reorganization,  consolidation,  merger or sale,
provision shall be made so that each share of 6% Preferred  shall  thereafter be
convertible  into the number of shares of stock or other  securities or property
(including  cash) to which a holder of the  number  of  shares  of Common  Stock
deliverable  upon  conversion  of such  share of 6%  Preferred  would  have been
entitled  upon the record  date of (or date of, if no record date is fixed) such
event and, in any case,  appropriate  adjustment  (as determined by the Board of
Directors)  shall be made in the application of the provisions  herein set forth
with  respect to the rights and  interests  thereafter  of the holders of the 6%
Preferred,  to the end that the provisions set forth herein shall  thereafter be
applicable, as nearly as equivalent as is practicable, in relation to any shares
of stock or the securities or property  (including cash) thereafter  deliverable
upon the conversion of the shares of 6% Preferred.

     5.  Re-issuance  of  Certificates.  In the event of a  conversion  (or,  if
applicable,  redemption) of 6% Preferred in which less than all of the shares of
6% Preferred of a particular  certificate are converted or redeemed, as the case
may be, the  Corporation  shall  promptly  without  delay cause to be issued and
delivered to the holder of such  certificate,  a  certificate  representing  the
remaining shares of 6% Preferred which have not been so
converted or redeemed.





                                      - 5 -

<PAGE>

     6. Other Provisions. For all purposes of this Resolution, the term "date of
issuance" and the terms  "Closing" or "Closing Date" shall mean the day on which
shares of the 6% Preferred  are first issued by the  Corporation.  Any provision
herein which conflicts with or violates any applicable usury law shall be deemed
modified to the extent  necessary to avoid such conflict or violation.  The term
"NASDAQ" herein refers to the principal  market on which the Common Stock of the
Corporation is traded.  If the Common Stock is listed on a securities  exchange,
or if another market  becomes the principal  market on which the Common Stock is
traded or through which price quotations for the Common Stock are reported,  the
term  "NASDAQ"  shall be deemed  to refer to such  exchange  or other  principal
market.

     7.  Restrictions and Limitations.  The Corporation  shall not undertake the
following  actions  without  the  consent of the holders of a majority of the 6%
Preferred:  (i) modify its Articles of  Organization or Bylaws so as to amend or
change any of the rights,  preferences,  or privileges of the 6% Preferred, (ii)
authorize or issue any other preferred  equity security senior to or on a parity
with the 6%  Preferred  as to  dividends,  liquidation  preferences,  conversion
rights,  redemption  rights or other rights,  preferences  or  privileges  for a
period of thirty (30) days after  Closing,  as applicable or (iii),  purchase or
otherwise  acquire for value any Common  Stock or other  equity  security of the
Corporation  either  junior or senior  to or on a parity  with the 6%  Preferred
while  there  exists  any  arrearage  in the  payment  of  cumulative  dividends
hereunder other than redemptions of stock from terminating employees pursuant to
contractual rights in favor of the Corporation.

     8. Voting Rights.  Except as provided herein or as provided for by law, the
6% Preferred shall have no voting rights.

     9. Attorney's Fees. Any holder of 6% Preferred shall be entitled to recover
from the  Corporation the reasonable  attorneys'  fees and expenses  incurred by
such holder in connection  with  enforcement by such holder of any obligation of
the Corporation hereunder.

     10. No Adverse Actions. The Corporation shall not in any manner, whether by
amendment of the Articles of Organization  (including,  without limitation,  any
vote  establishing  a  class  or  series  of  stock),  merger,   reorganization,
recapitalization,  consolidation,  sales of assets,  sale of stock tender offer,
dissolution  or  otherwise,  take any action,  or permit any action to be taken,
solely or  primarily  for the  purpose of  increasing  the value of any class of
stock of the  Corporation if the effect of such action is to reduce the value or
security of the 6% Preferred.





                                      - 6 -
<PAGE>


                     EXHIBIT A to the Subscription Agreement

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN EFFECTIVE  REGISTRATION  STATEMENT  FOR THIS WARRANT OR COMMON
STOCK PURCHASABLE HEREUNDER, AS APPLICABLE, UNDER THE ACTS, OR (B) AN OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March ___, 1998

     1. Basic Terms.  This Warrant (as it may be amended from time to time,  the
"Warrant")  certifies that, for value received,  the registered holder specified
below or its  registered  assigns  ("Holder"),  is the owner of warrants of PHC,
Inc., a Massachusetts corporation (the "Corporation"),  and is entitled, subject
to the terms and conditions of this Warrant,  including  adjustments as provided
herein,  to purchase  ______ ( ) (number to be  pro-rated  for a total of 50,000
share) shares of the Common Stock (the "Common Stock") of the  Corporation  from
the Corporation at the price per share shown below (the "Exercise Price").

              Holder:



              Exercise   Price  per   share:   ______   Dollars   and   ______
              Cents ($     )per share

                               [This amount will be the Closing Bid Price of the
                                Corporation's Common Stock on the Issue Date]

     Except as specifically  provided otherwise,  all references in this Warrant
to the  Exercise  Price and the  number of  shares of Common  Stock  purchasable
hereunder  shall be to the  Exercise  Price  and  number  of  shares  after  any
adjustments are made thereto pursuant to this Warrant.

     2. Corporation's Representations/Covenants.  The Corporation represents and
covenants  that the shares of Common  Stock  issuable  upon the exercise of this
Warrant shall at delivery be fully paid and  non-assessable and free from taxes,
liens,  encumbrances and charges with respect to their purchase. The Corporation
shall take any  necessary  actions to assure that the par value per share of the
Common  Stock is at all times  equal to or less than the then  current  Exercise
Price  per  share  of  Common  Stock  issuable  pursuant  to this  Warrant.  The
Corporation  shall at all times reserve and hold available  sufficient shares of
Common  Stock to satisfy  all  conversion  and  purchase  rights of  outstanding
convertible securities, options and warrants of the Corporation,  including this
Warrant.





                                      - 1 -
<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts time) three (3) years after the issue date.
To  exercise  this  Warrant,  the Holder  shall  surrender  this  Warrant at the
principal  office of the  Corporation or that of the duly  authorized and acting
transfer  agent for its Common Stock,  together with the executed  exercise form
(substantially  in the form of that  attached  hereto) and together with payment
for the Common Stock purchased under this Warrant.  The principal  office of the
Corporation  is located at the address  specified on the signature  page of this
Warrant; provided, however, that the Corporation may change its principal office
upon notice to the  Holder.  At the option of the Holder  payment  shall be made
either in cash (by wire) or by certified or bank cashier's  check payable to the
order of the  Corporation  or the Holder  may elect to receive  shares of Common
Stock  calculated  pursuant to paragraph 4. The Corporation  shall,  immediately
upon  receipt  of such  notice,  issue and  deliver to or upon the order of such
Holder a certificate or certificates for the number of shares of Common Stock to
which such Holder shall be entitled and such  certificate or certificates  shall
not bear any restrictive legend; provided (A) the Common Stock evidenced thereby
are sold pursuant to an effective  registration statement under the Act, (B) the
holder provides the Corporation with an opinion of counsel reasonably acceptable
to the  Corporation  to the effect that a public sale of such shares may be made
without  registration under the Act, or (C) such holder provides the Corporation
with  reasonable  assurance that such shares can be sold free of any limitations
imposed by Rule 144, promulgated under the Act. The Corporation shall cause such
issuance  and delivery to be effected  within three (3) business  days and shall
transmit the  certificates by messenger or overnight  delivery  service to reach
the address  designated  by such holder within three (3) business days after the
receipt of such  notice.  This  Warrant  is not  exercisable  with  respect to a
fraction  of a share of Common  Stock.  In lieu of issuing a fraction of a share
remaining  after  exercise of this Warrant as to all full shares covered by this
Warrant the  Corporation  shall either at its option (a) pay for the  fractional
share cash equal to the same  fraction at the fair market  price for such share;
or (b) issue scrip for the fraction in the registered or bearer form which shall
entitle the Holder to receive a certificate  for a full share of Common Stock on
surrender of scrip  aggregating a full share. As compensation to the Holder when
the  Corporation  has  failed  with  respect to such  Holder to comply  with the
Corporation's obligations hereunder, and not as a penalty, the Corporation shall
pay to such holder liquidated damages of $500 per day until the certificates are
delivered as  instructed.  Such damages  shall be paid to the Holder by cashiers
check or wire transfer in immediately  available  funds to such account as shall
be  designated  in  writing by the Holder at the end of each month in which such
amounts have accrued.  Holder shall be entitled to an injunction or  injunctions
to  prevent  or  cure  breaches  of the  provisions  of  hereof  and to  enforce
specifically  the terms and  provisions  hereof,  this being in  addition to any
other remedy to which Holder may be entitled by law or equity.

     4. Cashless Exercise.

     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -
<PAGE>

     If at any time the Common Stock is not listed on any  domestic  exchange or
quoted in the NASDAQ System or the domestic  over-the-counter  market,  the fair
market value shall be the higher of (i) the book value thereof, as determined by
any firm of independent  public  accountants of recognized  standing selected by
the   Corporation   (which  may  be  the   Corporation's   regular   independent
accountants), as of the last day of any month ending within sixty days preceding
the date as of which the  determination  is to be made;  or (ii) the fair market
value thereof,  which shall be reasonably  determined by the Corporation and the
Holder  as of a date  which is within  fifteen  days of the date as of which the
determination is to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case,  the  Exercise  Price  shall be adjusted to that
price determined by multiplying the Exercise Price in effect  immediately  prior
to such event by a fraction  (A) the  numerator  of which is the total number of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.





                                      - 3 -
<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted  number an kind of securities or other
property  purchasable  under this  Warrant  resulting  from the event and settin
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until,
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -

<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this  Warrant.All  notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -
<PAGE>

     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the
Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  ________________________________
                                                 Authorized Officer


                                       Printed Name:  _______________________
                                       Title:  ______________________________

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ________________________________
       ________________________________
                 Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________         ____________________________________
                                            Signature








                                      - 8 -





<PAGE>

      Incorporated by Reference into the Resolutions Establishing Right and
              Preferences for Series B Convertible Preferred Stock.


                          PROMISSORY NOTE (the "Note")



Date:  __________________,  ________________________

Maker: PHC, Inc.

Maker's Mailing Address:     200 Lake Street -- Suite 102
                             Peabody, Massachusetts 01960

Payee:

Place for Payment:

Principal Amount: $_________________________________

Annual Interest Rate on Unpaid Principal From Date: Eight percent (8%).

Annual Past Due  Interest  Rate on Unpaid  Principal  from  Maturity to Payment:
Fifteen percent (15%).

Terms of Payment:  Principal  and  interest  shall be due and payable in six (6)
equal  consecutive  monthly payments of $  ________________  (based on a six (6)
month  amortization)  with the first  payment being due and payable on the first
day of _____________________.

The Maker  promises  to pay to the order of Payee at the place for  payment  and
according to the terms of payment the outstanding principal and accrued interest
at the rates stated above. All unpaid amounts owing on this Note shall be due by
the final scheduled payment date of ________________________.

Additional Provisions:

If Maker defaults in the payment of this Note, or in any instrument  securing or
collateral  to it, then Payee may declare the unpaid  principal  balance of this
Note and all  accrued  interest  immediately  due and  payable.  Maker  and each
surety,  endorser,  and  guarantor  or other party liable for the payment of any
sums of money  payable on this Note  severally  waive all demands  for  payment,
presentations  for  payment,  notices  of  dishonor,  notices  of  intention  to
accelerate maturity, notices of acceleration of maturity,  protests, and notices
of protest, to the extent permitted by law.

     If this Note or any instrument  securing or collateral to it is given to an
attorney for collection or enforcement.  or if suit is brought for collection or
enforcement or if it is collected or enforced  through probate,  bankruptcy,  or
other  judicial  proceedings  then Maker shall pay Payee all costs of collection
and  enforcement,  including  reasonable  attorneys  fees and  court  costs,  in
addition to other amounts due.


                           PHC. INC., PROMISSORY NOTE
Page 1



<PAGE>

     Interest that may be contracted for, taken,  reserved,  charged or received
under law; any  interest in excess of that  maximum  amount shall be credited on
the  principal  of the  debt  or,  if  that  has  been  paid,  refunded.  On any
acceleration  or  required or  permitted  prepayment,  any such excess  shall be
canceled automatically as of the acceleration or prepayment or, if already paid,
credited on the  principal of the debt or, if the principal of the debt has been
paid, refunded.  This provision overrides other provisions in this and all other
instruments concerning the debt.

     When the context requires, singular nouns and pronouns include the plural.

     This Note is to be governed and  construed in  accordance  with the laws of
the State of Texas.

     MAKER, FOR GOOD AND VALUABLE CONSIDERATION,  THE RECEIPT AND SUFFICIENCY OF
WHICH  ARE  HEREBY   ACKNOWLEDGED,   (I)  HEREBY  IRREVOCABLY   SUBMITS  TO  THE
JURISDICTION  OF THE UNITED STATES DISTRICT COURT AND OTHER COURTS OF THE UNITED
STATES  SITTING  IN TEXAS FOR THE  PURPOSES  OF ANY SUIT,  ACTION OR  PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (ii) HEREBY WAIVES,  AND AGREES
NOT TO ASSERT IN ANY SUCH SUIT,  ACTION OR PROCEEDING,  ANY CLAIM THAT IT IS NOT
PERSONALLY  SUBJECT TO THE JURISDICTION OF SUCH COURT,  THAT THE SUIT, ACTION OR
PROCEEDING  IS BROUGHT IN AN  INCONVENIENT  FORUM OR THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER.  MAKER CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT,  ACTION OR  PROCEEDING BY MAILING A COPY THEREOF TO MAKER AT ITS MAIN
BUSINESS  OFFICE  AND  AGREES  THAT  SUCH  SERVICE  SHALL  CONSTITUTE  GOOD  AND
SUFFICIENT  SERVICE OF PROCESS  AND NOTICE  THEREOF.  NOTHING IN THIS  PARAGRAPH
SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE  PROCESS IN ANY OTHER MANNER  PERMITTED
BY LAW.

     Executed as of date first above written.

                  PHC Inc., a Massachusetts corporation

                  By:  _______________________________________
                  Name of
                  Authorized Officer:  __________________________
                  Title:  ______________________________________








                           PHC. INC., PROMISSORY NOTE
Page 2


<PAGE>


                     EXHIBIT B to the Subscription Agreement

Section 2.2(a): PHC, Inc. Subsidiaries:

PHC of Utah, Inc.                       Pioneer Counseling of Virginia, Inc.
D/B/A Highland Ridge Hospital           (80% Owned)
4578 Highland Drive                     D/B/A Pioneer Counseling of Virginia
Salt Lake City, UT 94117                D/B/A Counseling Associates of Virginia
                                        400 East Burwell street
                                        Salem, VA 24153

PHC of Virginia, Inc.                   PHC of Kansas, Inc.
D/B/A Mount Regis Center                D/B/A Total Concept EAP
D/B/A Changes                           7451 Szwitzer, Suite 101
405 Kimball Avenue                      Shawnee Mission, KS 66203
Salem, VA 24153

Quality Care Centers of Mass, Inc.      PHC of California, Inc.
D/B/A Franvale Nursing & Rehab Center   D/B/A Marin Grove
20 Pond Street                          42 Grove Street
Braintree, MA 02194                     San Rafael, CA 94901

PHC of Nevada, Inc.                     Professional Health Associates
D/B/A Harmony Healthcare                94-19 59 Avenue
2340 Paseo del Prado, Bldg.D           Elmhum NY 11373
Las Vegas, NV 89102

Northpoint - Pioneer, Inc.              STL, Inc.
D/B/A Pioneer Counseling Center         200 Lake Street
31700 W. 13 Mile; Suite 201             Suite 102
Farmington Hills, MI 48334              Peabody, MA 0 1960

BSC-NY, Inc.                            Harmony Behavioral Health
D/B/A Behavioral Stress Center          2340 Paseo del Prado, Bldg.D
94-19 59 Avenue                         Las Vegas, NV 89102
Elmhurst, NY 11373

PHC of Michigan, Inc.                   PHC of Rhode island, Inc.
D/B/A Harbor Oaks Hospital              D/B/A Good Hope Center
35031 23 Mile Road                      P.O. Box 1491
New Baltimore, MI 48047                 Coventry, RI 02816-0029



<PAGE>


                               EXHIBIT B (cont'd.)
     Section 2.2(f):

     The Company failed to file two years' of audited  financial  statements for
Behavioral   Stress  Centers,   Inc.  and  Clinical   Diagnostics  and  Clinical
Associates,  as described  in the  December 18, 1996 letter from Choate,  Hall &
Stewart to Mr. Robert Bayless of the Securities and Exchange Commission.



<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  "Holder"),  is the owner of  warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase  Twenty Six Thousand Three Hundred  Fifteen  (26,315) shares of Class A
Common Stock (the "Common Stock") of the Corporation from the Corporation at the
price per share shown below (the "Exercise Price").

     Holder: ProFutures Special Equities Fund, L.P.


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2.  Corporations  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.


     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading shall be average of the
closing  prices on such day of the Common  Stock on all  domestic  exchanges  on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges  at he end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                       - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant,. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.



                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  /s/ Bruce A Shear
                                                Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)

For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ______________________             _____________________________________
                                               Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________          __________________________________
                                                Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase  Seven  Thousand  Eight Hundred Ninety (7,890) shares of Class A Common
Stock (the "Common Stock") of the Corporation  from the Corporation at the price
per share shown below (the "Exercise Price").

         Holder:                                Gary D. Halbert


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock s at all times equal to or less than the then current  Exercise  Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System ("NASDA", the average of the daily market prices of such stock on the ten
(10) trading days  immediately  preceeding the date as of which such value is to
be  determined.  The market  price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restriction  s on transfer  contained  herein,  in the names  designated  by the
Holder at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing  Law. This  Agreement  hall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:   /s/ Bruce A Shear
                                                 Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                     -6-



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee: ____________________________________________

Address:  ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ________________________       ________________________________
                                         Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________________
       __________________________________
                  Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase Five Thousand Two Hundred Sixty (5,260)  shares of Class A Common Stock
(the "Common  Stock") of the  Corporation  from the Corporation at the price per
share shown below (the "Exercise Price").

            Holder:      John F. Mauldin


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances  and charges with respect to their purchase.  he Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashiers  check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.

     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -

<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices  required or permitted t be given to the Holder shall
be in writing and shall be given by first class mail, postage repaid,  addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16.  Headings The headings in this Warrant are for purposes of  convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  /s/ Bruce A Shear
                                                Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:
Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  _________________________         _____________________________________
                                             Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  _________________________         ____________________________________
                                          Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.
                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase Ten Thousand Five Hundred Twenty Five (10,525) shares of Class A Common
Stock (the "Common Stock") of the Corporation  from the Corporation at the price
per share shown below (the "Exercise Price").

            Holder:                                 Augustine Fund, L.P.


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDA"),  the average of the daily market  prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.
                                      - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of Regulation D, promulgated under the Securities Act of
1933, as amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.



                                      - 5 -

<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.




                                       PHC, INC., a Massachusetts corporation


                                       By:   /s/ Bruce A Shear
                                                 Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ______________________                 ________________________________
                                                Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  _________________________              _________________________________
                                                 Signature








                                      - 8 -
<PAGE>
Exhibit 10.133

                            ASSET PURCHASE AGREEMENT


     This Asset Purchase Agreement is made and entered into as of the 2nd day of
February,  1998, by and between  Lexington  Healthcare  Group,  Inc., a Delaware
corporation  having  its  principal  place of  business  at 35 Park  Place,  New
Britain, Connecticut 06052 (together with its successors and assigns hereinafter
collectively  referred  to  as  the  "Buyer"),   and  Quality  Care  Centers  of
Massachusetts,  a  Massachusetts  corporation  having  its  principal  place  of
business at 200 Lake Street,  Suite 102, Peabody,  Massachusetts 01960 (together
with its  successors  and assigns  hereinafter  collectively  referred to as the
"Seller").

                              W I T N E S S E T H:

     WHEREAS,  the Seller owns and leases certain assets in connection with, and
operates the 128-bed  licensed  skilled nursing care facility known as, Franvale
Nursing and Rehabilitation  Center at 20 Pond Street,  Braintree,  Massachusetts
02184 (the "Facility"); and

     WHEREAS,  the Buyer  desires to  acquire  from the  Seller,  and the Seller
desires  to sell to the  Buyer,  certain  of the  assets of the  Seller  used in
connection with the operation of the Facility, all upoExhibit 4.28


                             SUBSCRIPTION AGREEMENT

                                    PHC, INC.


THE SECURITIES WHICH ARE THE SUBJECT OF THIS  SUBSCRIPTION  AGREEMENT (AS IT MAY
BE AMENDED FROM TIME TO TIME, THE  "AGREEMENT")  HAVE NOT BEEN REGISTERED  UNDER
THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES  ACT") OR UNDER THE
APPLICABLE SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE
ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THESE LAWS BY VIRTUE OF PHC,
INC.'S  INTENDED  COMPLIANCE WITH SECTIONS 3(b), 4(2) AND 4(6) OF THE SECURITIES
ACT, THE PROVISIONS OF REGULATION D UNDER SUCH ACT AND SIMILAR  EXEMPTIONS UNDER
STATE LAW.  THESE  SECURITIES  HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION ("SEC"),  ANY STATE SECURITIES  COMMISSION OR
ANY OTHER REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

     The undersigned  purchaser  (hereafter,  the "Purchaser")  hereby offers to
purchase  certain Series B Convertible  Preferred Stock (referred to herein as a
"Share" or  collectively as "Shares") of PHC, Inc. (the  "Company"),  a publicly
held  corporation  formed under the laws of the  Commonwealth of  Massachusetts.
This  offer to  purchase  may,  for any  reason  whatsoever,  be  revoked by the
Purchaser or rejected by the Company  prior to  acceptance  of this offer by the
Company.

     Section  1.1  Purchase  and Sale of Shares.  Upon the  following  terms and
conditions, the Company shall issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company,  the number of Shares indicated  herein,  which
Shares shall have the rights, designations and preferences set forth in Schedule
I hereto.

     Section  1.2  Purchase  Price.  The  purchase  price  for the  Shares  (the
"Purchase Price") shall be $1,000 per Share.

     Section 1.3 The Closing.

     (a) The closing of the  purchase  and sale of the Shares  (the  "Closing"),
shall take place at the law offices of Arent, Fox, Kintner, Plotkin & Kahn, 1050
Connecticut  Avenue,  N.W.,  Washington,   D.C.  20036,  at  10:00  a.m.,  local
Washington,  D.C. time, on the later of the following: (i) the date on which the
last to be  fulfilled or waived of the  conditions  set forth in Section 4.1 and
4.2  hereof  and  applicable  to the  Closing  shall be  fulfilled  or waived in
accordance herewith, or (ii) such other time and place and/or on such other date
as the Purchaser and the Company may agree. The date on which the Closing occurs
is referred to herein as the "Closing Date."

     (b) On the Closing  Date,  the Company shall deliver to the Purchaser (i) a
certificate  representing the Shares  registered in the name of the Purchaser or
deposit  such Shares into  accounts  designated  by the  Purchaser  and (ii) the
Warrant for the number of shares of the Company's Common Stock indicated herein,
in the form attached hereto as Exhibit A, incorporated herein by reference.  The
Purchaser  shall on the Closing Date  deliver to the Company the Purchase  Price
for all the Shares by cashier's check or wire transfer in immediately  available
funds to such  account as shall be  designated  in writing  by the  Company.  In
addition,  each party shall  deliver all  documents,  instruments  and  writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Closing.

     Section 1.4 Covenant to Register.

     (a) For purposes of this Section, the following definitions shall apply:

     The  terms  "register,"   "registered,"  and  "registration"   refer  to  a
registration under the Securities Act of 1933, as amended (the "Act"),  effected
by  preparing  and  filing a  registration  statement  or  similar  document  in
compliance  with the Act, and the  declaration or ordering of  effectiveness  of
such registration statement, document or amendment thereto.

     (ii) The term  "Registrable  Securities"  means the shares of the Company's
Class A Common Stock,  par value $.01 per share (the "Common  Stock"),  issuable
upon  conversion  of shares of the Shares and upon  exercise of the Warrant,  or
upon  conversion of any other stock issued in payment of dividends on the Shares
or otherwise issuable pursuant to this Agreement or the provisions of Schedule I
hereto,  and any  securities  of the  Company  or  securities  of any  successor
corporation  issued as, or  issuable  upon the  conversion  or  exercise  of any
warrant  right  or  other  security  that  is  issued  as a  dividend  or  other
distribution  with  respect to, or in exchange  for, or in  replacement  of, the
Shares.

     (iii) The term "holder of Registrable  Securities"  means the Purchaser and
any permitted assignee of registration rights pursuant to Section 1.4(h).

     (b) (i) The Company shall as soon as possible file a registration statement
on Form SB-2 or Form S-3  covering  at least 200% of the  number of  Registrable
Securities  which would then be issuable  upon  conversion  of the Shares at the
conversion  price then in effect,  and shall use its best  efforts to cause such
registration  statement to become  effective on or before ninety (90) days after
the Closing Date (the "Initial Registration"). In the event such registration is
not so declared  effective  or does not include all  Registrable  Securities,  a
holder of  Registrable  Securities  shall have the right to require by notice in
writing that the Company register all or any part of the Registrable  Securities
held by such holder (a "Demand  Registration")  and the Company shall  thereupon
effect such  registration in accordance  herewith (which may include adding such
shares to an existing shelf registration).  The parties agree that if the holder
of  Registrable  Securities  demands  registration  of  less  than  all  of  the
Registrable  Securities,  the Company,  at its option,  may nevertheless  file a
registration  statement  covering  all of the  Registrable  Securities.  If such
registration  statement is declared  effective  with respect to all  Registrable
Securities  and  the  Company  is  in  compliance  with  its  obligations  under
Subsection  (d) of this  Section  1.4, the demand  registration  rights  granted
pursuant to this Subsection (b)(i) shall cease. If such  registration  statement
is not declared  effective with respect to all Registrable  Securities or if the
Company is not in  compliance  with such  obligations,  the demand  registration
rights described herein shall remain in effect.

     (ii) The Company  shall not be  obligated  to effect a Demand  Registration
under Subsection (b)(i) above: (A) if all of the Registrable  Securities held by
the holder of  Registrable  Securities  which are  demanded to be covered by the
Demand  Registration  are, at the time of such demand,  included in an effective
registration  statement  and the Company is in compliance  with its  obligations
under  Subsection  (d) of  this  Section  1.4;  (B)  if  all of the  Registrable
Securities  may be sold under Rule 144(k) of the Act and the Company's  transfer
agent has accepted an instruction from the Company to such effect; or (C) at any
time after two (2) years from the Closing Date.

     (iii) Subject to  Subsection  (iv)(B)  hereof,  the Company may suspend the
effectiveness of any such registration  effected pursuant to this Subsection (b)
in the event and for such  period of time as, such a  suspension  is required by
the rules and regulations of the Securities and Exchange Commission ("SEC"). The
Company will use its best efforts to cause such  suspension  to terminate at the
earliest possible date.

     (iv) (A) If the Company is advised by the SEC that a registration statement
filed hereunder is subject to a "no-review" and such  registration  statement is
not  declared   effective   within  five  (5)  business  days   thereafter   (an
"Acceleration  Date")  or,  irrespective  of  the  SEC  review,  a  registration
statement  is not  declared  effective  by the ninety first (91st) day after the
Closing Date (the "Target Date"),  the Company shall pay Purchaser as liquidated
damages an amount equal to two percent (2%) of the total  Purchase  Price of the
Shares for each thirty (30) day period following the earlier of the Acceleration
Date or  Target  Date,  as  applicable,  until  such  time  as the  registration
statement is declared effective;  provided, however, that such damages shall not
be  payable if the  failure to meet the  Acceleration  Date or Target  Date,  as
applicable,  is due to action or inaction by Purchaser with respect to providing
information for the registration statement. The payment set forth above shall be
pro-rated  daily as to any period of less than  thirty (30) days.  Such  payment
shall be made to the Purchaser either (I) by cashier's check or wire transfer in
immediately available funds to such account as shall be designated in writing by
the  Purchaser  or (II) in  Shares,  the  number of which  shall be equal to the
amount due under this  Subsection  divided  by $1,000 per Share.  The  foregoing
amount shall be paid  irrespective of the amount of Registrable  Securities then
held by Purchaser.

     (B) If, following effectiveness of a registration, either the effectiveness
of the registration  statement is suspended or a current  prospectus meeting the
requirements  of  Section 10 of the Act is not  available  for  delivery  by the
Purchaser  (either  referred to herein as a  "suspension"),  the  Company  shall
thereupon pay to Purchaser as liquidated  damages an amount equal to two percent
(2%) of the Purchase  Price of the Shares for each thirty (30) day period of the
suspension.  The payment set forth above shall be pro-rated  daily as to periods
of less than thirty (30) days.  Such payment  shall be made to the  Purchaser by
cashiers check or wire transfer in immediately  available  funds to such account
as  shall  be  designated  in  writing  by the  Purchaser,  and  shall  be  paid
irrespective  of the amount of  Registrable  Securities  held by Purchaser on or
after the date following the suspension.

     (C)  Any  amount  payable  pursuant  to the  foregoing  provisions  of this
Subsection  (iv) shall be delivered  on or before the fifth (5th) day  following
the end of the  calendar  month in which  such  payment  obligation  arose.  The
"Purchase  Price"  of  Registrable  Securities  shall  be  (1) if  derived  from
conversion or substitution of Shares,  the Purchase Price of the Shares, and (2)
if received in satisfaction of a Company  obligation,  the dollar amount of such
obligation.

     (D) This  Subsection  is in addition to the  provisions  of Section  7.2(a)
hereof.

     (c) If the  Company  proposes  to register  (including  for this  purpose a
registration  effected by the Company for shareholders other than the Purchaser)
any of its stock or other  securities  under the Act in connection with a public
offering of such securities  (other than a registration on Form S-4, Form S-8 or
other limited purpose form) and all Registrable  Securities have not theretofore
been included in a registration  statement under  Subsection (b) of this Section
1.4 which remains effective,  the Company shall, at such time, promptly give all
holders of Registrable Securities written notice of such registration.  Upon the
written request of any holder of Registrable Securities given within twenty (20)
days after receipt of such notice by the holder of Registrable  Securities,  the
Company shall use its best efforts to cause to be  registered  under the Act all
Registrable Securities that such holder of Registrable Securities requests to be
registered.  However, the Company shall have no obligation under this Subsection
(c) if (i) the  Registrable  Securities may be sold without  registration  under
Rule 144(k) and the Company's  transfer agent has accepted an  instruction  from
the Company to such effect,  (ii) the Registration  Statement is filed more than
two (2) years after the Closing Date, or (iii) to the extent that,  with respect
to any  underwritten  offering  initiated by the Company later than one calendar
year following the Closing, the managing underwriter of such offering reasonably
notifies such  holder(s) in writing of its  determination  that the  Registrable
Securities or a portion thereof shall be excluded therefrom.

     (d) Whenever  required under this Section 1.4 to effect the registration of
any  Registrable   Securities   including,   without  limitation,   the  Initial
Registration, the Company shall, as expeditiously as reasonably possible:

     (i) Prepare and file with the SEC a registration  statement with respect to
such Registrable  Securities and use its best efforts to cause such registration
to become effective as provided in Section 1.4(b)(i), and keep such registration
statement effective for so long as any holder of Registrable  Securities desires
to dispose of the securities covered by such registration  statement;  provided,
however, that in no event shall the Company be required to keep the Registration
Statement  effective  for a period  greater  than two (2) years from the Closing
Date;

     (ii)  Respond to comments  made by the SEC with  respect to a  registration
statement  filed pursuant to this Agreement  within ten (10) business days after
the  date of the  comment  letter,  and  prepare  and  file  with  the SEC  such
amendments  and  supplements to such  registration  statement and the prospectus
used in  connection  with such  registration  statement  as may be  necessary to
comply with the  provisions  of the Act with respect to the  disposition  of all
securities covered by such registration  statement and notify the holders of the
filing and  effectiveness of such  Registration  Statement and any amendments or
supplements;

     (iii)  Furnish to each holder of  Registrable  Securities  such  numbers of
copies of a current prospectus,  including a preliminary prospectus,  conforming
with the  requirements  of the Act,  copies of the  registration  statement  any
amendment  or  supplement  to any  thereof  and any  documents  incorporated  by
reference  therein and such other documents,  all free of charge, as such holder
of  Registrable  Securities  may  reasonably  require in order to facilitate the
disposition  of  Registrable  Securities  owned by such  holder  of  Registrable
Securities;

     (iv) Use its best efforts to register and qualify the securities covered by
such  registration  statement under such other  securities or "Blue Sky" laws of
such jurisdictions as shall be reasonably requested by the holder of Registrable
Securities;

     (v)  Notify  each  holder  of  Registrable  Securities  immediately  of the
happening  of any  event as a result of which the  prospectus  included  in such
registration  statement,  as then in effect,  includes  an untrue  statement  of
material fact or omits to state a material fact required to be stated therein or
necessary  to make  the  statements  therein  not  misleading  in  light  of the
circumstances then existing,  and use its best efforts to promptly update and/or
correct such prospectus;

     (vi)  Furnish,  at the request of any holder of  Registrable  Securities in
connection with any underwritten  public offering,  (A) an opinion of counsel of
the Company, dated the effective date of the registration statement, in form and
substance  reasonably  satisfactory  to the holder and its counsel and covering,
without  limitation,  such matters as the due  authorization and issuance of the
securities being  registered and certain matters  pertaining to disclosure under
and  compliance  with  securities  laws by the  Company in  connection  with the
registration  thereof and/or (B) a "comfort"  letter or letters of the Company's
independent  public  accountants  provided at the Company's  expense in form and
substance reasonably satisfactory to the holder and its counsel;

     (vii) Use its best efforts to list the  Registrable  Securities  covered by
such registration  statement with any national market or securities  exchange on
which such securities are then listed;

     (viii)  Make   available  for  inspection  by  the  holder  of  Registrable
Securities,  upon request, all SEC Documents (as defined below) filed subsequent
to the Closing and require the  Company's  officers,  directors and employees to
supply  all  information  reasonably  requested  by any  holder  of  Registrable
Securities in connection with such registration statement: and

     (ix) Furnish to each holder of Registrable  Securities prompt notice of the
commencement of any stop-order  proceedings  under the Act, together with copies
of all  documents in  connection  therewith,  and use its best efforts to obtain
withdrawal of any such stop order as soon as possible.

     (e) Upon request of the Company, each holder of Registrable Securities will
furnish to the Company in connection  with any  registration  under this Section
such  information  regarding  itself,  the  Registrable   Securities  and  other
securities of the Company held by it, and the intended  method of disposition of
such  securities as shall be reasonably  required to effect the  registration of
the Registrable  Securities held by such holder of Registrable  Securities.  The
intended method of disposition  (Plan of  Distribution) of such securities as so
provided by Purchaser shall be included  without  alteration in the Registration
Statement  covering the Registrable  Securities and shall not be changed without
the prior written consent of the Purchaser.

     (f) (i) The Company shall  indemnify,  defend and hold harmless each holder
of  Registrable  Securities  which  are  included  in a  registration  statement
pursuant  to the  provisions  of  Subsections  (b) or (c) hereof and each of its
officers, directors,  employees, agents, partners or controlling persons (within
the meaning of the Act) (each,  an  "indemnified  party") from and against,  and
shall  reimburse  such  indemnified  party with  respect to, any and all claims,
suits,  demands,  causes  of  action,  losses,  damages,  liabilities,  costs or
expenses  ("Liabilities")  to which such  indemnified  party may become  subject
under the Act or otherwise, arising from or relating to (A) any untrue statement
or alleged untrue statement of any material fact contained in such  registration
statement,  any  prospectus  contained  therein or any  amendment or  supplement
thereto,  or (B) the  omission or alleged  omission to state  therein a material
fact required to be stated therein or necessary to make the statements  therein,
in light of the circumstances in which they were made, not misleading; provided,
however,  that the  Company  shall not be liable in any such case to the  extent
that any such  Liability  arises out of or is based upon an untrue  statement or
omission  so  made in  strict  conformity  with  information  furnished  by such
indemnified party in writing specifically for use in a registration statement.

     (ii)  In the  event  of  any  registration  under  the  Act of  Registrable
Securities  pursuant to Subsections (b) or (c), each holder of such  Registrable
Securities  hereby severally  agrees to indemnity,  defend and hold harmless the
Company,  and  its  officers,   directors,   employees,   agents,  partners,  or
controlling  persons  (within  the meaning of the Act)  (each,  an  "indemnified
party")  from and  against,  and shall  reimburse  such  indemnified  party with
respect to, any and all Liabilities to which such  indemnified  party may become
subject under the Act or  otherwise,  arising from or relating to (A) any untrue
statement or alleged  untrue  statement of any material  fact  contained in such
registration  statement,  any prospectus  contained  therein or any amendment or
supplement  thereto,  or (B) the omission or alleged omission to state therein a
material fact required to be stated  therein or necessary to make the statements
therein,  in light of the circumstances in which they were made, not misleading;
provided,  that such  holders  will be liable in any such case to the extent and
only to the extent,  that any such  Liability  arises out of or is based upon an
untrue  statement or alleged  untrue  statement or omission or alleged  omission
made in such  registration  statement,  prospectus  or amendment  or  supplement
thereto in reliance upon and in conformity with written information furnished by
such holder specifically for use in the preparation thereof.

     (iii)  Promptly  after  receipt by any  indemnified  party of notice of the
commencement of any action,  such indemnified party shall, if a claim in respect
thereof  is  to  be  made  against  another  party  (the  "indemnifying  party")
hereunder,  notify such party in writing thereof,  but the omission so to notify
such party shall not relieve such party from any Liability  which it may have to
the  indemnified  party other than under this  Section and shall only relieve it
from any Liability which it may have to the indemnified party under this section
if and to the extent an  indemnifying  party is  materially  prejudiced  by such
omission. In case any such action shall be brought against any indemnified party
and  such  indemnified   party  shall  notify  an  indemnifying   party  of  the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and  undertake  the defense  thereof
with counsel  reasonably  satisfactory  to such  indemnified  party,  and, after
notice from the indemnifying  party to the indemnified  party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to the  indemnified  party  under  this  section  for any legal  expenses
subsequently  incurred by the  indemnified  party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected; provided however, that if the defendants in any such action include
both parties and the  indemnified  party shall have  reasonably  concluded  that
there may be reasonable  defenses  available to them which are different from or
additional to those available to the  indemnifying  party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying  party, the indemnified  party shall have the right to select a
separate  counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of one such
separate counsel and other reasonable  expenses related to such participation to
be reimbursed by the indemnifying party as incurred.

     (g) (i) With  respect  to the  inclusion  of  Registrable  Securities  in a
registration  statement  pursuant to Subsections (b) or (c), all fees, costs and
expenses of and incidental to such  registration,  inclusion and public offering
shall be borne  by the  Company,  provided,  however,  that any  securityholders
participating  in such  registration  shall  bear  their  pro-rata  share of the
underwriting  discounts and commissions,  if any, incurred by them in connection
with such registration.

     (ii) The  fees,  costs  and  expenses  of  registration  to be borne by the
Company as provided in this Subsection shall include,  without  limitation,  all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and  accountants for the Company,  and all legal fees and  disbursements
and other  expenses of complying  with state  securities or Blue Sky laws of any
jurisdiction  or  jurisdictions  in which  securities  to be  offered  are to be
registered   and   qualified.   Subject   to   appropriate   agreements   as  to
confidentiality,  the Company shall make available to the holders of Registrable
Securities  and their  counsel its  documents  and  personnel  for due diligence
purposes. Except as otherwise provided herein, fees and disbursements of counsel
and  accountants  for  the  selling  security  holders  shall  be  borne  by the
respective selling security holders.

     (h) The  rights to cause the  Company  to  register  all or any  portion of
Registrable Securities pursuant to this Section 1.4 may be assigned by Purchaser
to a transferee or assignee.  Within a reasonable time after such transfer,  the
Purchaser shall notify the Company of the name and address of such transferee or
assignee,  and the securities with respect to which such registration rights are
being  assigned.  Such  assignment  shall  be  effective  only  if,  immediately
following  such  transfer,  the further  disposition  of such  securities by the
transferee or assignee is  restricted  under the Act. Any  transferee  asserting
registration  rights  hereunder  shall be bound by the applicable  provisions of
this Agreement.

     (i) The Company  shall not agree to allow the holders of any  securities of
the Company to include any of their  securities  in any  registration  statement
filed by the Company  pursuant to Subsection  (b) unless such inclusion will not
reduce the amount of the Registrable Securities included therein.

     Section  1.5  Company  Standoff,  Except  in  a  corporate  reorganization,
business combination,  stock or asset purchase,  merger or consolidation,  under
existing  employee  stock  incentive  or  purchase  plans  or  pursuant  to this
Agreement,  the Company shall not for its own account  effect any public sale or
distribution  of any  securities  similar to the  Registrable  Securities or any
securities  exercisable  for or convertible or changeable  into the  Registrable
Securities  during the thirty (30) days prior to, and during the sixty (60) days
immediately following, the effective date of any registration statement filed or
amended  pursuant to Section  1.4(b);  provided,  however,  that the Company may
effect such public sale or distribution  during the sixty (60) days  immediately
following  the  effective  date of such  registration  statement if such sale or
distribution  of  securities  is at a price equal to or greater than 125% of the
last trade price of the Company's Common Stock on the day of Closing.

     Section 2.1 Representations and Warranties of the Purchaser.  The Purchaser
makes the following representations and warranties to the Company.

     (a) Accredited Investor. The Purchaser is an "accredited investor", as such
term is defined in Rule 50 1 (a) of Regulation D, promulgated under the Act.

     (b)  Speculative  Investment.  The Purchaser is aware that an investment in
the Shares is highly speculative and subject to substantial risks. The Purchaser
is capable of bearing the high  degree of  economic  risk and the burden of this
venture,  including, but not limited to, the possibility of complete loss of the
Purchaser's  investment  in the Shares and  underlying  Common  Stock which make
liquidation of this investment impossible for the indefinite future.

     (c) Disposition.  The Purchaser understands that (i) except as provided for
in Section  1.4,  the Shares and  underlying  Common  Stock of the Company  (the
"Securities"),  have not been and are not being  registered under the Securities
Act or any applicable state  securities laws, and may not be transferred  unless
(A)  subsequently  registered  thereunder,  or (B) the Securities may be sold or
transferred  pursuant to an exemption  from  securities  registration  under the
Securities Act and any applicable  state securities laws or (C) sold pursuant to
Rule 144,  promulgated under the Securities Act (or any successor Rule), or (ii)
any sale of such  Securities  made in  reliance  on Rule 144 may be made only in
accordance  with  the  terms  of such  Rule  and  further,  if such  Rule is not
applicable,  any  resale of such  Securities  under  circumstances  in which the
seller  (or the  person  through  whom the sale is made)  may be deemed to be an
underwriter  (as  that  term is  defined  in the  Securities  Act)  may  require
compliance  with another  exemption under the Securities Act or the rules of the
SEC thereunder.  Notwithstanding any provision to the contrary contained herein,
a holder may pledge such  Securities as collateral  for a revolving  credit note
pursuant to a loan and security agreement with a lending institution.

     (d)  Privately  Offered.  The offer to  acquire  the  Shares  was  directly
communicated  to the Purchaser in such manner that the Purchaser was able to ask
questions of and receive  answers  concerning  the terms and  conditions of this
transaction.  At no time was the  Purchaser  presented  with or  solicited by or
through any leaflet, public promotional meeting,  television  advertisement,  or
any other form of general advertising.

     (e) Purchase for  Investment,  The Securities are being acquired solely for
the  Purchaser's own account,  for investment,  and are not being purchased with
view to the  resale,  distribution,  subdivision  or  fractionalization  thereof
without proper registration with applicable securities administrators.

     Section 2.2  Representations  and  Warranties  of the Company.  The Company
hereby makes the following representations and warranties to the Purchaser:

     (a)  Organizations  and  Qualifications.  The Company is a corporation duly
incorporated and existing in good standing under the laws of the Commonwealth of
Massachusetts and has the requisite corporate power to own its properties and to
carry on its  business as now being  conducted.  The  Company  does not have any
subsidiaries  except as listed in Exhibit B,  attached  hereto and  incorporated
herein by  reference.  The  Company  and each such  subsidiary,  if any, is duly
qualified as a foreign  corporation  to do business  and is in good  standing in
every  jurisdiction  in which the nature of the  business  conducted or property
owned by it makes  such  qualification  necessary  other than those in which the
failure  so to  qualify  would not have a  Material  Adverse  Effect.  "Material
Adverse Effect", for purposes of this Agreement, means any adverse effect on the
business operations, properties, prospects, or financial condition of the entity
with respect to which such term is used and which is material to such entity and
other entities controlled by such entity taken as a whole.

     (b) Authorizations Enforcement. (i) The Company has the requisite corporate
power and  authority to enter into and perform this  Agreement  and to issue the
Shares and Registrable  Securities in accordance with the terms hereof, (ii) the
execution and delivery of this Agreement by the Company and the  consummation by
it of the  transactions  contemplated  hereby have been duly  authorized  by all
necessary  corporate  action,  and no further  consent or  authorization  of the
Company  or its Board of  Directors  or  stockholders  is  required,  (iii) this
Agreement  has been  duly  executed  and  delivered  by the  Company,  (iv) this
Agreement  constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms (except as such  enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting  generally the enforcement
of,  creditor'  rights and remedies or by other equitable  principles of general
application)  and (v) prior to the Closing Date,  any necessary  Certificate  of
Amendment  to the  Company's  Charter  authorizing  Company  to issue all of the
Shares and  Registerable  Securities,  in accordance  with Schedule 1, will have
been filed with the  Massachusetts  Secretary of State and will be in full force
and effect enforceable  against the Company in accordance with the terms of such
amended Charter.

     (c)  Authorized  Capital  Rights or  Commitments  to Stock.  The authorized
capital stock of the Company  consists of 22,200,000  shares of Common Stock and
1,000,000  shares of Series B Preferred  Stock;  there are  4,704,956  shares of
Common  Stock  issued and 730,292  shares of Class B Common  Stock  outstanding;
there are no shares of such Preferred  Stock issued and  outstanding;  and, upon
issuance  of the  Shares in  accordance  with the terms  hereof,  there  will be
4,704,956  shares of Class B Common Stock and 950 shares of such Preferred Stock
issued and outstanding.

      All of the  outstanding  shares of the Company's  Common Stock have been
validly  issued and are fully paid and  nonassessable.  Except as set forth in
Exhibit B hereto or as  described  in the SEC  Documents,  no shares of Common
Stock are entitled to preemptive  rights or registration  rights and there are
no  outstanding  options,  warrants,  scrip,  rights to subscribe to, calls or
commitments of any character  whatsoever  relating to, or securities or rights
convertible  into,  any shares of capital stock of the Company,  or contracts,
commitments,  understandings,  or  arrangements by which the Company is or may
become  bound to issue  additional  shares of capital  stock of the Company or
options,  warrants,  scrip, rights to subscribe to, or commitments to purchase
or acquire,  any shares.  or securities or rights  convertible into shares, of
capital stock of the Company.  The Company has furnished or made  available to
the  Purchaser  true  and  correct   copies  of  the  Company's   Articles  of
Organization  as in  effect  on the  date  hereof  (the  "Charter"),  and  the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").

     (d) Issuance of Shares. The issuance of the Shares has been duly authorized
and, when paid for and issued in accordance with the terms hereof,  the shall be
validly  issued,  fully paid and  non-assessable  and entitled to the rights and
preferences  set forth in  Schedule I hereto.  The Common  Stock  issuable  upon
conversion of the Shares will be duly  authorized and reserved for issuance and,
upon conversion,  will be validly issued,  fully paid and non-assessable and the
holders shall be entitled to all rights and preferences  accorded to a holder of
Common Stock.

     (e) No Conflicts. The execution, delivery and performance of this Agreement
by the  Company  and  the  consummation  by  the  Company  of  the  transactions
contemplated  hereby  do not and  will  not (i)  result  in a  violation  of the
Company's  Charter or By-Laws or (ii) conflict with, or constitute a default (or
an event  which  with  notice or lapse of time or both  would  become a default)
under, or give to others any rights of termination,  amendment,  acceleration or
cancellation of, any agreement,  indenture or instrument to which the Company or
any of its  subsidiaries  is a party,  or result in a violation  of any federal,
state,  local or  foreign  law,  rule,  regulation,  order,  judgment  or decree
(including Federal and state securities laws and regulations)  applicable to the
Company or any of its  subsidiaries  or by which any  property  or assets of the
Company  or any of its  subsidiaries  is  bound  or  affected  (except  for such
conflicts, defaults, terminations, amendments, accelerations,  cancellations and
violations  as would  not,  individually  or in the  aggregate,  have a Material
Adverse  Effect);  provided  that,  for  purposes of such  representation  as to
Federal,  state, local or foreign law, rule or regulation,  no representation is
made herein with respect to any of the same  applicable  solely to the Purchaser
and not to the Company.  The  business of the Company is not being  conducted in
violation  of any law,  ordinance or  regulations  of any  governmental  entity,
except for  violations  which either  singly or in the aggregate do not and will
not have a Material  Adverse Effect.  The Company is not required under Federal,
state or local  law,  rule or  regulation  in the  United  States to obtain  any
consent, authorization or order of, or make any filing (other than any filing of
a vote establishing a class or series of stock with the Massachusetts  Secretary
of State) or registration with, any court or governmental agency in order for it
to execute,  deliver or perform any of its  obligations  under this Agreement or
issue and sell the Shares in  accordance  with the terms hereof  (other than any
SEC,  NASD or state  securities  filings which may be required to be made by the
Company subsequent to the Closing,  and any registration  statement which may be
filed pursuant hereto);  provided that, for purposes of the representation  made
in this  sentence,  the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchaser herein.

     (f) SEC Documents, Financial Statements. The Common Stock of the Company is
registered  pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange  Act") and, except as set forth in Exhibit B, the Company
has filed on a timely basis all reports,  schedules, forms, statements and other
documents  required  to be filed by it with the SEC  pursuant  to the  reporting
requirements of the Exchange Act,  including  material filed pursuant to Section
13(a)  or  15(d),  in  addition  to  one or  more  registration  statements  and
amendments  thereto  heretofore  filed by the Company with the SEC under the Act
(all of the foregoing including filings  incorporated by reference therein being
referred to herein as the "SEC Documents").  The Company directly or through its
agent  has  delivered  to the  Purchaser  true and  complete  copies  of the SEC
Documents  except for the exhibits and incorporated  documents.  The Company has
not provided to the Purchaser  any  information  which,  according to applicable
law, rule or regulation,  should have been disclosed publicly by the Company but
which has not been so  disclosed,  other than with  respect to the  transactions
contemplated by this Agreement.

     Except  as set forth in  Exhibit  B, as of their  respective  dates the SEC
Documents  complied in all material respects with the requirements of the Act or
the  Exchange  Act as the case may be and the rules and  regulations  of the SEC
promulgated  thereunder  and other  federal,  state and  local  laws,  rules and
regulations  applicable  to such SEC  Documents,  and none of the SEC  Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated  therein or necessary in order to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.  Except as set forth in Exhibit B, the  financial  statements of the
Company included in the SEC Documents comply as to form in all material respects
with applicable accounting  requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto.  Such
financial  statements have been prepared in accordance  with generally  accepted
accounting  principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise  indicated in such  financial  statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include  footnotes or may be condensed or summary  statements)  and
fairly present in all material respects the financial position of the Company as
of the dates  thereof  and the  results  of  operations  and cash  flows for the
periods  then ended  (subject,  in the case of unaudited  statements,  to normal
year-end audit adjustments).

     (g) No  Material  Adverse  Change.  Since the date  through  which the most
recent  quarterly report of the Company on Form 10-Q has been prepared and filed
with the SEC, a copy of which is  included  in the SEC  Documents,  no  Material
Adverse  Effect has occurred or exists with respect to the Company or any of its
subsidiaries.

     (h) No Undisclosed  Liabilities.  The Company and its subsidiaries  have no
material  liabilities or obligations  not disclosed in the SEC Documents,  other
than  those  incurred  in the  ordinary  course of the  Company's  or any of its
subsidiaries'  respective  businesses  since the date of the most recently filed
SEC Documents which,  individually or in the aggregate, do not or would not have
a Material Adverse Effect on the Company or any of its subsidiaries.

     (i) No Undisclosed  Events or  Circumstances.  No event or circumstance has
occurred or exists with  respect to the  Company or any of its  subsidiaries  or
their  respective  businesses,  properties,  prospects,  operations or financial
condition  which,  under  applicable  law, rule or regulation,  requires  public
disclosure  or  announcement  by the  Company but which has not been so publicly
announced or disclosed.

     (j)  No  General  Solicitation.   Neither  the  Company,  nor  any  of  its
affiliates,  or, to the best of its knowledge, any person acting on its or their
behalf, has engaged in any form of general  solicitation or general  advertising
(within the meaning of Regulation D under the Act) in connection  with the offer
or sale of the Shares.

     (k) No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has,  directly or indirectly,  made
any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Shares under the Act.

     Section 3.1  Securities  Compliance.  The Company  shall notify the SEC and
NASD, in accordance with their requirements, of the transactions contemplated by
this Agreement, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation,  for the legal
and valid issuance of the Shares,  and the Common Stock issuable upon conversion
thereof, to the Purchaser.

     Section 3.2 Registration  and Listing.  Until. at least two (2) years after
all Shares have been converted  into  Registrable  Securities,  the Company will
cause its Common  Stock to continue to be  registered  under  Sections  12(b) or
12(g) of the Exchange  Act,  will comply in all respects  with its reporting and
filing  obligations  under such Exchange Act, will comply with all  requirements
related to any registration  statement filed pursuant to this Agreement and will
not take any action or file any document (whether or not permitted by the Act or
the  Exchange  Act or  the  rules  thereunder)  to  terminate  or  suspend  such
registration  or to terminate or suspend its  reporting  and filing  obligations
under said Acts, except as permitted herein.  Until at least two (2) years after
all Shares  have been  converted  into Common  Stock the  Company  will take all
action  within its power to continue  the listing or trading of its Common Stock
on the  NASDAQ  Small  Cap  Market  and will  comply  in all  respects  with the
Company's  reporting,  filing and other obligations under the bylaws or rules of
the NASD and NASDAQ.  The  covenants  set forth in this Section 3.2 shall not be
deemed  to   prohibit  a  merger,   sale  of  all  assets  or  other   corporate
reorganization  if the entity surviving or succeeding to the Company is bound by
this  Agreement  with  respect to its  securities  issued in exchange  for or in
replacement of the Shares or Common Stock or the  consideration  received for or
in replacement of the Shares or Common Stock is cash.

     Section 3.3 Right of First Refusal and  Most-Favored-Nation  Clause.  If at
any time  during the period  beginning  on the fifth (5th) day prior to (but not
including) the Closing Date and ending sixty (60) days immediately following the
effective date of the Initial Registration, the Company proposes to issue Common
Stock or securities  convertible  into or exercisable  for Common Stock or other
convertible  securities,  pursuant to an offering exempt from registration under
the Act, the Company shall provide to Purchaser reasonable advance notice of all
the terms of such  proposed  issuance.  The  Purchaser  shall  have the right to
purchase or refuse to purchase all or any part of such securities proposed to be
issued in such  offering,  and shall have at least  seventy two (72) hours after
receipt of such notice to review the terms of the proposed issuance.

     If the  Company  issues  Common  Stock or  securities  convertible  into or
exercisable for Common Stock or other convertible securities, at a time when any
of the Shares  remain  outstanding,  at an  effective  price per share of Common
Stock which is lower than the conversion  price of the Shares at that time, then
the Company shall,  within five (5) business  days,  deliver to each holder upon
conversion  an additional  number of shares of Common Stock  necessary to reduce
the effective conversion price to such lower issue price. This Section shall not
be  applicable  to  issuances  of  Common  Stock  pursuant  to (a) any  business
combination,  acquisition transaction, stock or asset purchase undertaken by the
Company or (b) any  shareholder-approved  option plan covering not more than 10%
of the Company's outstanding stock.

     Section 4.1  Conditions  Precedent to the Obligation of the Company to Sell
the Shares.  The  obligation  hereunder  of the Company to issue and/or sell the
Shares to the  Purchaser  is  subject  to the  satisfaction,  at or  before  the
Closing,  of each of the  conditions  set forth below.  These  conditions may be
waived by the Company at any time in its sole discretion.

     (a)  Accuracy  of  the  Purchaser's  Representations  and  Warranting.  The
representations and warranties of the Purchaser shall be true and correct in all
material  respects as of the date when made and as of the Closing Date as though
made at that time (except for  representations and warranties that speak as of a
particular date).

     (b)  Performance by the Purchaser.  The Purchaser  shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Purchaser at or prior to the Closing.

     (c) No Injunction.  No statute, rule, regulation.  executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

     (d) Legal action.  No legal action,  suit or proceeding shall be pending or
threatened which seeks to restrain or prohibit the transactions  contemplated by
this Agreement.

     (e)  Execution.  The  Purchaser  shall have executed  this  Agreement,  and
delivered such Agreement to the Company.

     (f) Purchase  Price.  The Purchaser shall have delivered the Purchase Price
in accordance with Section 1.3(b) above.

     Section 4.2  Conditions  Precedent to the  Obligation  of the  Purchaser to
Purchase the Shares.  The  obligation  hereunder of the Purchaser to acquire and
pay for the Shares is subject to the satisfaction,  at or before the Closing, of
each of the  conditions set forth below.  These  conditions may be waived by the
Purchaser at any time in its sole discretion.

     (a)  Accuracy  of  the  Company's   Representations  and  Warranties.   The
representations  and  warranties of the Company shall be true and correct in all
material  respects as of the date when made and as of the Closing Date as though
made at that time (except for  representations and warranties that speak as of a
particular date).

     (b)  Performance  by the  Company.  The Company  shall have  performed  all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.

     (c)  NASDAO.  From the date  hereof to the  Closing  Date,  trading  in the
Company's  Common  Stock shall not have been  suspended by the SEC or the NASDAQ
Small Cap Market  (except  for any  suspension  of  trading of limited  duration
agreed to between the Company and the NASDAQ  Small Cap Market  solely to permit
dissemination  of material  information  regarding the Company),  and trading in
securities  generally  as reported by NASDAQ  shall not have been  suspended  or
limited or minimum prices shall not have been established on
securities whose trades are reported by NASDAQ.

     (d) No Injunction.  No statute, rule, regulation,  executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

     (e) Opinion of Counsel Etc. The Purchaser  shall have received before or at
the Closing an opinion of counsel to the Company (covering,  without limitation,
such of the matters set forth in Section 2.2(a) through (e)), as are in form and
substance  reasonably  satisfactory  to the Purchaser and its counsel,  and such
other  certificates  and  documents  as  the  Purchaser  or  its  counsel  shall
reasonably require incident to the Closing.

     (f)  Execution.  The  Company  shall  have  executed  this  Agreement,  and
delivered such Agreement to the Purchaser.

     Section 5.1 Legend on Stock. Each certificate  representing the Shares and,
if necessary,  Common Stock issued upon conversion thereof,  shall be stamped or
otherwise imprinted with a legend substantially in the following form:

THESE  SECURITIES  [AND THE SHARES OF COMMON STOCK  ISSUABLE UPON THE CONVERSION
HEREOF] HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE  SECURITIES  LAWS.  THEY MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS
THERE IS AN EFFECTIVE  REGISTRATION  STATEMENT UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR, IN THE OPINION OF COUNSEL,  REGISTRATION UNDER SUCH ACT
OR APPLICABLE  STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH SUCH SALE
OR OFFER, AND SUCH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY.

     The Company agrees to reissue  certificates  representing the Shares or, if
applicable,  the Common Stock issued upon conversion thereof, without the legend
set forth above at such time as (a) the holder  thereof is  permitted to dispose
of such Shares (or securities  issued upon conversion  thereof) pursuant to Rule
144(k) under the Act, (b) the  securities  are sold to a purchaser or purchasers
who (in the opinion of counsel to such holders, in form and substance reasonably
satisfactory  to the  Company  and its  counsel)  are  able to  dispose  of such
securities publicly without registration under the Act, or (iii) such securities
are registered under the Act

     Section 6.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the mutual  written  consent of the Company,
and the Purchaser.

     Section 6.2 Other  Termination.  This Agreement may be terminated by action
of the  Board of  Directors  or other  governing  body of the  Purchaser  or the
Company at any time if the Closing shall not have been  consummated by the fifth
(5th) business day following the date of this Agreement, provided that the party
seeking to terminate the Agreement is not in breach of the Agreement.

     Section 6.3  Automatic  Termination.  This  Agreement  shall  automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the seventh  (7th)  business day following the date of this
Agreement,  provided, however, that any such termination shall not terminate the
liability of any party which is then in breach of the Agreement.

     Section 7.1 Fees and Expenses. Except as otherwise set forth in Section 1.4
hereof with respect to the registration of Registrable  Securities,  the Company
shall pay the fees, commissions and expenses of its advisers,  brokers, finders,
counsel,  accountants  and  other  experts,  if  any,  and  all  other  expenses
associated therewith, and shall on the Closing Date reimburse ProFutures Special
Equities  Fund,  L.P.  up to $5,000  for fees and  expenses  of its  counsel  in
connection with the preparation, negotiation and coordination of this Agreement.
The Company  shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares and Common Stock pursuant hereto.

     Section 7.2 Specific Enforcement, Consent to Jurisdiction.

     (a) The Company and the Purchaser  acknowledge  and agree that  irreparable
damage  would occur in the event that any of the  provisions  of this  Agreement
were not performed in accordance  with their  specific  terms or were  otherwise
breached.  It is  accordingly  agreed that the  parties  shall be entitled to an
injunction or  injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce  specifically  the terms and  provisions  hereof,  this
being in addition to any other remedy to which either of them may be entitled by
law or equity.

     (b) The Company and the Purchaser  each (i) hereby  irrevocably  submits to
the  jurisdiction  of the United States  District  Court and other courts of the
United States sitting in the State of Texas for the purposes of any suit, action
or  proceeding  arising  out of or relating  to this  Agreement  and (ii) hereby
waives,  and agrees not to assert in any such suit,  action or  proceeding,  any
claim that it is not personally  subject to the jurisdiction of such court, that
the suit,  action or proceeding is brought in an inconvenient  forum or that the
venue of the  suit,  action or  proceeding  is  improper.  The  Company  and the
Purchaser  each  consents to process  being  served in any such suit,  action or
proceeding  by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and  sufficient  service of process  and  notice  thereof.  Nothing in this
paragraph  shall affect or limit any right to serve  process in any other manner
permitted by law.

     Section 7.3 Entire Agreement: Amendment. This Agreement contains the entire
understanding  of the parties  with respect to the matters  covered  hereby and,
except as specifically  set forth herein,  neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by a
written  instrument  signed by the party  against whom  enforcement  of any such
amendment or waiver is sought.

     Section  7.4  Notices.  Any  notice  or  other  communication  required  or
permitted to be given  hereunder  shall be in writing and shall be effective (a)
upon hand  delivery or delivery by telex (with  correct  answer back  received),
telecopy or facsimile at the address or number designated below (if delivered on
a  business  day  during  normal  business  hours  where  such  notice  is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal  business  hours where such notice is to be
received) or (b) on the second (2nd)  business day following the date of mailing
by express courier service,  fully prepaid,  addressed to such address,  or upon
actual receipt of such mailing, whichever shall first occur.

     The addresses for such communications shall be:

to the Company:   Bruce A. Shear, President and Chief Executive Officer
                  PHC, Inc.
                  200 Lake Street -- Suite 102
                  Peabody, Massachusetts 01960

to the Purchaser: At the address set forth at the foot of this Agreement or
                  as specified in writing by Purchaser.

Any party  hereto may from time to time change its address for notices by giving
at least ten (10)  days'  written  notice of such  changed  address to the other
party hereto.

     Section 7.5 Waivers.  No waiver by either party of any default with respect
to any provision,  condition or requirement of this Agreement shall be deemed to
be a  continuing  waiver  in the  future  or a waiver  of any  other  provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right  hereunder  in any manner  impair the exercise of any such
right accruing to it thereafter.

     Section 7.6 Headings.  The headings herein are for convenience only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof.

     Section  7.7  Governing  Law.  This  Agreement  shall  be  governed  by and
construed and enforced in accordance with the internal laws of the present state
of  incorporation  of the Company  without regard to such state's  principles of
conflict of laws.

     Section 7.8 Survival. The representations and warranties of the Company and
the Purchaser  contained in herein and the agreements and covenants set forth in
Sections 1.1 through 1.5, 3.1 through 3.3 and 7.1 through 7.16 shall survive the
Closing for a period of two (2) years.

     Section 7.9 Publicity.  The Company  agrees that it will not disclose,  and
will not include in any public  announcement,  the name of the Purchaser without
its consent,  unless and until such  disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.

     Section 7.10 NASDAO.  The term "NASDAQ" or "NASDAQ Small Cap Market" herein
refers to the  principal  market on which the  Common  Stock of the  Company  is
traded.  If the Common Stock is listed on a securities  exchange.  or if another
market  becomes  the  principal  market on which the  Common  Stock is traded or
through  which price  quotations  for the Common  Stock are  reported,  the term
"NASDAQ" or "NASDAQ  Small Cap Market" shall be deemed to refer to such exchange
or other principal market.

     Section 7.11  Acceptance.  Execution and delivery of this  Agreement  shall
constitute  an offer to purchase  the Shares,  which  offer,  unless  previously
revoked by the  Purchaser,  may be accepted or rejected by the  Company,  in its
sole  discretion  for any cause or for no cause  and  without  liability  to the
Purchaser. The Company shall indicate acceptance of this Agreement by signing as
indicated on the signature page hereof.

     Section 7.12 Binding  Agreement.  Upon  acceptance of this Agreement by the
Company,  the Purchaser  agrees that he may not cancel,  terminate or revoke any
agreement of the Purchaser made hereunder, and that this Agreement shall survive
the death or  disability  of the  Purchaser  and shall be  binding  upon  heirs,
successors,  assigns,  executors,  administrators,  guardians,  conservators  or
personal representatives of the Purchaser.

     Section 7.13  Incorporation by Reference.  All information set forth on the
signature page is incorporated as integral terms of this Agreement.

     Section  7.14  Counterparts.  This  Agreement  may be  signed  in  multiple
counterparts,  which  counterparts  shall  constitute  one and the same original
instrument.

     Section 7.15  Severability.  If any portion of this Agreement shall be held
illegal,  unenforceable,  void or  voidable  by any court each of the  remaining
terms  hereof shall  nevertheless  remain in full force and effect as a separate
contract.

     Section 7.16  Successors and Assigns.  This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their  respective  successors
and permitted assigns.




   [This space has been left blank intentionally. The signature page follows.]

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $500,000 (500 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         26,315 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      ProFutures Special Equities Fund, L.P.

Address of Purchaser:   % ProFutures Fund Management, Inc.
                        1030 Highway 620 South - Suite 200
                        Austin, TX  78734

Social Security or IRS Employer Identification Number(s):

      74-2786952

Signature of Purchaser:                              Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

______________________________________________
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  ProFutures Special Equities Fund, L.P.
                 By ProFutures Fund Management, Inc., a General Partner


By:  ______________________________________
          (Signature)

Name:      /s/ Gary D. Halbert
Title:         President

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $150,000 (150 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         7,890 shares

The exact name(s)(Including  correct,legible spelling) and the information under
which title to the Shares will be taken is as follows (Please print or type):

      Gary D. Halbert

Address of Purchaser:   1030 Highway 620 South - Suite 200
                        Austin, TX  78734

Social Security or IRS Employer Identification Number(s):

      ###-##-####

Signature of Purchaser:                                 Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

/s/ Gary D. Halbert
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  _______________________________________

By:  ______________________________________
          (Signature)

Name:     ____________________________________________
Title:    ____________________________________________

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $100,000 (100 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         5,260 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      John F. Mauldin

Address of Purchaser:   1000 Ballpark in Arlington - Suite 216
                        Arlington, TX  76011

Social Security or IRS Employer Identification Number(s):

      ###-##-####

Signature of Purchaser:                                 Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

/s/ John F. Mauldin
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  ________________________________


By:  ______________________________________
          (Signature)

Name:     _________________________________
Title:    _________________________________

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name:  /s/ Bruce A. Shear
Title:     President

IN WITNESS  THEREOF,  the Purchaser has executed this  Agreement on the date set
forth below.

For the purchase price of $1,000 per Share,  the Purchaser  tenders herewith the
full purchase price of:

         $200,000 (200 shares)

Number of Shares of Common Stock to be issuable under the Warrant:

         10,525 shares

The exact name(s)  (Including  correct,  legible  spelling) and the  information
under  which title to the Shares  will be taken is as follows  (Please  print or
type):

      Augustine Fund, L.P.

Address of Purchaser:   141 West Jackson Boulevard - Suite 2182
                        Chicago, IL  60604

Social Security or IRS Employer Identification Number(s):

      36-418-6782

Signature of Purchaser:                                  Dated March 13, 1998

IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:

______________________________________________
(Signature)
_______________________________________________
(Signature of Joint Owner, if any)

IF PURCHASER IS AN ENTITY:

Name of Entity:  Augustine Fund, L.P.
            By Augustine Capital Management, Inc., the General Partner

By:  ______________________________________
          (Signature)

Name:      /s/ Thomas Duszynski
Title:         Chief Operating Officer

Accepted by:

PHC, INC., a Massachusetts corporation

By:  ___________________________________
     (Signature)
Name: /s/ Bruce A. Shear
Title:    President

<PAGE>
                                   SCHEDULE I

                                    PHC, INC.

                 RESOLUTIONS ESTABLISHING RIGHTS AND PREFERENCES
                    FOR SERIES B CONVERTIBLE PREFERRED STOCK

     RESOLVED,  that  there  shall  be a series  of  shares  of the  Corporation
designated "Series B Convertible  Preferred Stock"; that the number of shares of
such series shall be 1,000, that the Corporation issue such shares, and that the
rights and  preferences of such series (the "6%  Preferred") and the limitations
or restrictions thereon, shall be as set forth herein.

     The following  terms and conditions  shall be adopted and  incorporated  by
reference into the foregoing resolutions as if fully set forth therein:

     1. Dividends.

     (a) The holders of the 6% Preferred shall be entitled to receive out of any
assets legally available  therefor  cumulative  dividends at the rate of $60 per
share per annum,  accrued  daily and payable  quarterly  in arrears on March 31,
June 30,  September 30 and December 31 of each year, in preference  and priority
to any payment of any  dividend on the Common Stock or any other class or series
of stock of the Corporation. Such dividends shall accrue on any given share from
the day of  original  issuance  of such share and shall  accrue  from day to day
whether or not earned or declared.  If at any time dividends on the  outstanding
6%  Preferred  at the rate set forth  above shall not have been paid or declared
and set apart for payment with respect to all preceding  periods,  the amount of
the  deficiency  shall be fully paid or declared and set apart for payment,  but
without  interest,  before  any  distribution,  whether  by way of  dividend  or
otherwise,  shall be  declared  or paid upon or set apart for the  shares of any
other class or series of stock of the Corporation.

     (b) Any dividend  payable on a dividend  payment  date may be paid,  at the
option of the Corporation,  either (i) in cash or (ii) in shares of 6% Preferred
valued at $1,000 per share, if the Common Stock issuable upon conversion of such
shares has been  registered  for resale  under the  Securities  Act of 1933,  as
amended  (the  "Act"),  and  the  registration  statement  including  a  current
prospectus  with  respect  thereto  remains in effect at the date of delivery of
such  shares,  and if the  Corporation  shall have given  written  notice of its
intention  to pay such  dividend in stock to all holders of the 6%  Preferred at
least ten (10) days before the record date for such dividend.

     2. Liquidation Preference, Redemption.

     (a) In the  event of any  liquidation,  dissolution  or  winding  up of the
Corporation,  either  voluntary or involuntary,  the holders of the 6% Preferred
shall be entitled to receive, prior and in preference to any distribution of any
assets of the Corporation to the holders of any other class or series of shares,
the amount of $1,000  per share  plus any  accrued  but  unpaid  dividends  (the
"Liquidation Preference").

     (b) A  consolidation  or merger of the  Corporation  with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation  (other than a sale or transfer to a wholly-owned  subsidiary
of the Corporation), shall, at the option of the holders of the 6% Preferred, be
deemed a  liquidation,  dissolution  or winding  up within  the  meaning of this
Section 2 if the  shares  of stock of the  Corporation  outstanding  immediately
prior to such transaction represent immediately after such transaction less than
a majority of the voting power of the surviving  corporation (or of the acquirer
of the Corporation's assets in the case of a sale of assets). Such option may be
exercised  by the vote or written  consent  of  holders of a majority  of the 6%
Preferred at any time within thirty (30) days after written  notice (which shall
be given  promptly) of the essential terms of such  transaction  shall have been
given to the holders of the 6% Preferred  in the manner  provided by law for the
giving of notice of meetings of shareholders.




                                      - 1 -
<PAGE>

     (c) The Corporation may, at its option, cause all outstanding shares of the
6% Preferred  to be redeemed  after the date on which a  registration  statement
under  the Act  ("Registration  Statement")  has been  declared  effective  (the
"effective date"); provided the Corporation has given notice of its intention to
redeem to the  holders of the 6%  Preferred  at least five (5) days prior to the
redemption date. In addition, if any conversion of 6% Preferred, when aggregated
with all prior  conversions,  will cause the Company to issue a number of shares
of Common Stock which exceeds twenty percent (20%) of the shares of Common Stock
then issued and  outstanding,  the Company shall redeem such number of shares of
6% Preferred  as is  necessary to limit such  issuance of Common Stock to twenty
percent (20%) of the shares of Common Stock then issued and outstanding,  unless
the Company has previously obtained  stockholder  approval to issue in excess of
twenty percent (20%) of the shares of Common Stock then issued and  outstanding.
If a  redemption  will occur under  either of the  preceding  sentences,  on the
redemption  date,  the  Corporation  shall pay such holders by cashiers check or
wire transfer in immediately  available  funds the amount of $1,300 per share of
6% Preferred plus all accrued but unpaid  dividends.  Promptly  thereafter,  the
holders shall  surrender the  certificate or  certificates  representing  the 6%
Preferred,  duly endorsed,  at the office of the  Corporation or of any transfer
agent for such shares, or at such other place designated by the Corporation.

     3. 6% Preferred - Forced Conversion.

     (a) The Corporation may, at its option, cause all outstanding shares of the
6%  Preferred to be converted  into Common Stock at any time  beginning  one (1)
year after the date of issuance,  on at least twenty (20) days' advance  notice,
at a  conversion  price  determined  as set  forth  in  Section  4  hereof  (the
"Conversion  Price") as of the date  specified  in such notice (the  "Conversion
Date") and otherwise on the terms set forth in Section 4 hereof,  provided, that
the Corporation may not exercise such right of conversion unless (i) the Closing
Price  (last  trade  price) of the Common  Stock as  reported  by NASDAQ for the
twenty (20) consecutive  trading days prior to the date the Conversion Notice is
mailed has not on any day been less than one hundred forty percent (140%) of the
last trade price of the Company's Common Stock on the day of Closing (subject to
adjustment for stock dividends, stock splits and reverse stock splits), and (ii)
the shares  issuable  upon  conversion of the 6% Preferred  are  registered  for
resale by an effective  Registration  Statement which became  effective not more
than  one  hundred  twenty  (120)  days  after  the date of  issuance  of the 6%
Preferred,  and a current  prospectus  meeting the requirements of Section 10 of
the Act is available for delivery at the Conversion Date.

     (b) At least twenty (20) days prior to the Conversion Date,  written notice
(the "Conversion  Notice") shall be mailed,  first class postage prepaid, by the
Corporation  to each holder of record of the 6%  Preferred,  at the address last
shown on the records of the Corporation  for such holder,  notifying such holder
of the conversion  which is to be effected,  specifying the Conversion  Date and
calling upon each such holder to surrender to the Corporation, in the manner and
at the place designated,  a certificate or certificates  representing the number
of shares of 6% Preferred held by such holder.  Subject to the provisions of the
following  subsection  (c), on or after the Conversion  Date,  each holder of 6%
Preferred  shall  surrender to the  Corporation  the certificate or certificates
representing  the  shares  of 6%  Preferred  owned  by  such  holder  as of  the
Conversion  Date, in the manner and at the place  designated  in the  Conversion
Notice,  and  thereupon  the  shares  issuable  upon  such  conversion  shall be
delivered as provided in Section 4(b) hereof.

     (c) If, on the Conversion  Date, the  registration  condition  specified in
clause (ii) of subsection  (a) shall not be  satisfied,  then no shares shall be
converted and the  Conversion  Notice shall be deemed to be  withdrawn.  In such
event,  any  certificates  for 6%  Preferred  which  have been  surrendered  for
conversion  shall be returned to the persons  surrendering  the same;  provided,
however, that if a holder has received shares of Common Stock upon conversion of
6% Preferred  after the  Conversion  Notice was given but before the  Conversion
Date,  such holder may elect  either to retain such Common Stock or rescind such
conversion by tendering such shares of Common Stock to the Corporation.

     (d) On the second anniversary of the issuance of the 6% Preferred, all then
outstanding shares of 6% Preferred shall be automatically  converted into Common
Stock  at  the  Conversion  Price  and  otherwise  pursuant  to  the  applicable
provisions set forth in Section 4 hereof.


                                      - 2 -



<PAGE>

     4. 6%  Preferred - Optional  Conversion.  The  holders of the 6%  Preferred
shall have optional conversion rights as follows:

     (a) Right to  Convert.  At any time  after the  earlier  of (i) the date on
which a Registration Statement has been declared effective, or (ii) the close of
business on the ninety first (91st) day following the date of issuance of the 6%
Preferred, shares of 6% Preferred shall become convertible, at the option of the
holder  thereof,  into such  number of fully  paid and  nonassessable  shares of
Common Stock as is determined by dividing (A) the Liquidation  Preference of the
6% Preferred  determined  pursuant to Section 2 hereof on the date the notice of
conversion is given,  by (B) the  Conversion  Price  determined  as  hereinafter
provided in effect on the applicable conversion date.

     (b) Mechanics of Conversion.  To convert shares of 6% Preferred into shares
of Common Stock, the holder shall give written notice to the Corporation  (which
notice  may be given by  facsimile  transmission)  that  such  holder  elects to
convert the shares and shall state therein date of the conversion, the number of
shares to be  converted  and the name or names in which such  holder  wishes the
certificate or  certificates  for shares of Common Stock to be issued.  Promptly
thereafter,   the  holder  shall   surrender  the  certificate  or  certificates
representing  the shares to be converted,  duly  endorsed,  at the office of the
Corporation  or of any transfer  agent for such  shares,  or at such other place
designated by the Corporation; provided that the holder shall not be required to
deliver the  certificates  representing  such shares if the holder is waiting to
receive all or part of such certificates  from the Corporation.  The Corporation
shall, immediately upon receipt of such notice, issue and deliver to or upon the
order of such holder,  against  delivery of the  certificates  representing  the
shares which have been converted,  a certificate or certificates  for the number
of  shares of Common  Stock to which  such  holder  shall be  entitled  and such
certificate or certificates shall not bear any restrictive legend;  provided (A)
the  Common  Stock   evidenced   thereby  are  sold  pursuant  to  an  effective
registration  statement  under the Act, (B) the holder  provides the Corporation
with an opinion of  counsel  reasonably  acceptable  to the  Corporation  to the
effect that a public sale of such shares may be made without  registration under
the Act, or (C) such holder provides the Corporation  with reasonable  assurance
that  such  shares  can be sold  free of any  limitations  imposed  by Rule 144,
promulgated  under the Act.  The  Corporation  shall  cause  such  issuance  and
delivery to be effected  within three (3) business  days and shall  transmit the
certificates  by messenger or  overnight  delivery  service to reach the address
designated  by such holder  within three (3) business  days after the receipt of
such  notice.  The  notice  of  conversion  may be given by a holder at any time
during the day up to 5:00 p.m.  Boston,  Massachusetts  time and such conversion
shall be deemed to have been made immediately  prior to the close of business on
the date such notice of conversion is given (a "conversion date"). The person or
persons  entitled  to receive  the  shares of Common  Stock  issuable  upon such
conversion  shall be treated for all purposes as the record holder or holders of
such shares of Common Stock at the close of business on such date.

     (c)  Conversion,  Redemption and Note Delivery  Required.  The  Corporation
acknowledges  and  understands  that a delay in the issuance of the Common Stock
upon conversion or pursuant to a redemption  according to the provisions hereof,
or a delay in delivering the Promissory Note set forth in Subsection (d) hereof,
could  result  in  economic  loss  to  the  holders  of  the  6%  Preferred.  As
compensation  to any holder when the Corporation has failed with respect to such
holder to comply  with the  Corporation's  obligations  hereunder,  and not as a
penalty, the Corporation shall pay to such holder liquidated damages of $500 per
day plus an amount equal to: (i) two percent (2%) of the total Purchase Price of
Shares for the first  thirty (30) day period  after the date on which the Common
Stock should have been issued by the Corporation (i.e., the end of the three (3)
business  day  period  described  in  Subsection  (b)),  shares of 6%  Preferred
redeemed by the  Corporation or Promissory  Note delivered to holder (i.e.,  the
end of the three (3)  business  day period  described  in  Subsection  (d)),  as
applicable;  plus  (ii) an  amount  equal to  three  percent  (3%) of the  total
Purchase Price of Shares for each subsequent thirty (30) day period  thereafter.
Amounts  payable  shall be  pro-rated  daily as to a periods of less than thirty
(30) days.  Such amounts shall be paid to the holder at the end of each month in
which such amounts have accrued.  Payment shall be made immediately by cashier's
check or wire transfer in immediately  available  funds to such account as shall
be  designated  in writing by the holder.  Each  holder  shall be entitled to an
injunction  or  injunctions  to prevent or cure  breaches of the  provisions  of
hereof and. to enforce specifically the terms and provisions hereof, this being,
in  addition  to any other  remedy to which a holder may be  entitled  by law or
equity.



                                      - 3 -

<PAGE>

     (d) Determination of Conversion Price:

     (i )The "Conversion  Price" for purposes of hereof shall be equal to eighty
percent  (80%) of the average of the  closing bid prices of the Common  Stock as
reported by NASDAQ during the five (5)  consecutive  trading days  preceding the
conversion  date (but not including such date);  provided,  however,  that in no
event may the  Conversion  Price be more than three  dollars  and  twenty  cents
($3.20)  (the  "Maximum  Conversion  Price") or less than an amount equal to the
closing bid price per share of the Common  Stock on the date of  issuance  minus
fifty cents ($0.50) (the "Minimum Conversion  Price").  If, but for this Section
4(d)(i),  the Conversion Price would have been below Minimum  Conversion  Price,
the Company shall pay the holder by delivering to holder a Promissory  Note, the
form which has been delivered to the Corporation  and is incorporated  herein by
reference,  bearing the principal amount equal to the difference between (A) the
number of shares of Common  Stock that would have been  issued at the amount the
Conversion Price would have been but for this Section 4(d)(i) multiplied by 100%
of the  closing  bid  price  of the  Common  Stock  on the  conversion  date  as
determined  in  accordance  with the  Subsection  (d) (the latter  amount  being
referred  to herein as the  "Conversion  Date  Price"),  minus (B) the number of
shares of Common Stock actually issued pursuant to the conversion  multiplied by
the Conversion Date Price.  Such Promissory Note shall be delivered to holder by
the third (3rd) day following the applicable conversion date.

     (ii) The  "closing bid price" of the Common Stock on a trading day shall be
the closing bid price of the Common  Stock on the NASDAQ Small Cap Market or any
other principal  securities  price quotation system or market on which prices of
the  Common  Stock are  reported.  The term  "trading  day" means a day on which
trading is reported on the principal  quotation system or market on which prices
of the Common Stock are reported.

     (iii) If, during the period of consecutive trading days provided for above,
the Corporation shall declare or pay any dividend on the Common Stock payable in
Common Stock or in rights to acquire Common Stock, or shall effect a stock split
or reverse stock split, or a combination,  consolidation or  reclassification of
the Common Stock,  the Conversion  Price,  Maximum  Conversion Price and Minimum
Conversion   Price  shall  be   proportionately   decreased  or  increased,   as
appropriate, to give effect to such event.

     (e)  Distributions.  If the  Corporation  shall at any time or from time to
time make or issue,  or fix a record  date for the  determination  of holders of
Common Stock entitled to receive,  a dividend or other  distribution  payable in
securities of the Corporation or any of its  subsidiaries  other than additional
shares of Common Stock,  then in each such event provision shall be made so that
the holders of 6% Preferred  shall  receive,  upon the conversion  thereof,  the
securities of the  Corporation  which they would have received had they been the
owners  on the date of such  event of the  number  of  shares  of  Common  Stock
issuable to them upon conversion.

     (f)  Certificates as to Adjustments.  Upon the occurrence of any adjustment
or  readjustment  of the  Conversion  Price,  the Maximum  Conversion  Price and
Minimum  Conversion  Price  pursuant to this Section 4, the  Corporation  at its
expense shall promptly  compute such  adjustment or  readjustment  in accordance
with the terms hereof and cause the  independent  public  accountants  regularly
employed to audit the  financial  statements of the  Corporation  to verify such
computation and prepare and furnish to each holder of 6% Preferred a certificate
setting forth such  adjustment or  readjustment  and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of 6%. Preferred, furnish or cause
to be furnished to such holder a like  certificate  prepared by the  Corporation
setting forth (i) such  adjustments  and  readjustments,  and (ii) the number of
other  securities  and the amount,  if any, of other  property which at the time
would be received upon the conversion of 6% Preferred with respect to each share
of Common Stock received upon such conversion.

     (g) Notice of Record Date. In the event of any taking by the Corporation of
a  record  of the  holders  of any  class  of  securities  for  the  purpose  of
determining  the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other  distribution,  any security or right convertible
into or  entitling  the holder  thereof to receive  additional  shares of Common
Stock, or any right to subscribe for,  purchase or otherwise  acquire any shares
of stock of any class or any other  securities  or  property,  or to receive any
other right, the Corporation  shall mail to each holder of 6% Preferred at least
ten (10) days prior to the date specified  therein, a notice specifying the date
on which  any such  record  is to be taken  for the  purpose  of such  dividend,
distribution,  security or right and the amount and character of such  dividend,
distribution, security or right.

                                      - 4 -
<PAGE>

     (h)  Issue  Taxes.  The  Corporation  shall pay any and all issue and other
taxes, excluding any income,  franchise or similar taxes, that may be payable in
respect of any issue or  delivery  of shares of Common  Stock on  conversion  of
shares of 6% Preferred pursuant hereto; provided,  however, that the Corporation
shall not be  obligated to pay any transfer  taxes  resulting  from any transfer
requested by any holder in connection with any such conversion.

     (i) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
all times reserve and keep available out of its  authorized but unissued  shares
of Common  Stock,  solely for the purpose of  effecting  the  conversion  of the
shares of the 6%  Preferred,  such number of its shares of Common Stock as shall
from time to time be  sufficient  to effect the  conversion  of all  outstanding
shares of the 6%  Preferred,  and if at any time the  number of  authorized  but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then  outstanding  shares of the 6% Preferred,  the Corporation will take
such  corporate  action as may be  necessary  to  increase  its  authorized  but
unissued  shares of Common Stock to such number of shares as shall be sufficient
for such purpose,  including,  without  limitation,  engaging in best efforts to
obtain any requisite shareholder approval.

     (j)  Fractional  Shares.  No  fractional  shares  shall be issued  upon the
conversion  of any share or shares of 6%  Preferred.  All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
6% Preferred by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share. If,
after  the  aforementioned  aggregation,  the  conversion  would  result  in the
issuance of a fraction of a share of Common Stock,  the  Corporation  shall,  in
lieu of issuing any fractional share, pay the holder otherwise  entitled to such
fraction a sum in cash equal to the fair  market  value of such  fraction on the
date of conversion (as determined in good faith by the Board of Directors of the
Corporation or an authorized Committee thereof).

     (k) Notices.  Any notice  required by the  provisions of this Section to be
given  to the  holders  of  shares  of 6%  Preferred  shall be  deemed  given if
deposited in the United  States mail,  postage  prepaid,  and  addressed to each
holder of record at its address appearing on the books of the Corporation.

     (1)  Reorganization  or  Merger.  In  case  of  any  reorganization  or any
reclassification of the capital stock of the Corporation or any consolidation or
merger of the Corporation with or into any other  corporation or corporations or
a sale of all or substantially all of the assets of the Corporation to any other
person  (other  than a sale or  transfer  to a wholly  owned  subsidiary  of the
Corporation),  and the  holders  of 6%  Preferred  do not  elect to  treat  such
transaction as a liquidation, dissolution or winding up as provided in Section 2
hereof,  then, as part of such  reorganization,  consolidation,  merger or sale,
provision shall be made so that each share of 6% Preferred  shall  thereafter be
convertible  into the number of shares of stock or other  securities or property
(including  cash) to which a holder of the  number  of  shares  of Common  Stock
deliverable  upon  conversion  of such  share of 6%  Preferred  would  have been
entitled  upon the record  date of (or date of, if no record date is fixed) such
event and, in any case,  appropriate  adjustment  (as determined by the Board of
Directors)  shall be made in the application of the provisions  herein set forth
with  respect to the rights and  interests  thereafter  of the holders of the 6%
Preferred,  to the end that the provisions set forth herein shall  thereafter be
applicable, as nearly as equivalent as is practicable, in relation to any shares
of stock or the securities or property  (including cash) thereafter  deliverable
upon the conversion of the shares of 6% Preferred.

     5.  Re-issuance  of  Certificates.  In the event of a  conversion  (or,  if
applicable,  redemption) of 6% Preferred in which less than all of the shares of
6% Preferred of a particular  certificate are converted or redeemed, as the case
may be, the  Corporation  shall  promptly  without  delay cause to be issued and
delivered to the holder of such  certificate,  a  certificate  representing  the
remaining shares of 6% Preferred which have not been so
converted or redeemed.





                                      - 5 -

<PAGE>

     6. Other Provisions. For all purposes of this Resolution, the term "date of
issuance" and the terms  "Closing" or "Closing Date" shall mean the day on which
shares of the 6% Preferred  are first issued by the  Corporation.  Any provision
herein which conflicts with or violates any applicable usury law shall be deemed
modified to the extent  necessary to avoid such conflict or violation.  The term
"NASDAQ" herein refers to the principal  market on which the Common Stock of the
Corporation is traded.  If the Common Stock is listed on a securities  exchange,
or if another market  becomes the principal  market on which the Common Stock is
traded or through which price quotations for the Common Stock are reported,  the
term  "NASDAQ"  shall be deemed  to refer to such  exchange  or other  principal
market.

     7.  Restrictions and Limitations.  The Corporation  shall not undertake the
following  actions  without  the  consent of the holders of a majority of the 6%
Preferred:  (i) modify its Articles of  Organization or Bylaws so as to amend or
change any of the rights,  preferences,  or privileges of the 6% Preferred, (ii)
authorize or issue any other preferred  equity security senior to or on a parity
with the 6%  Preferred  as to  dividends,  liquidation  preferences,  conversion
rights,  redemption  rights or other rights,  preferences  or  privileges  for a
period of thirty (30) days after  Closing,  as applicable or (iii),  purchase or
otherwise  acquire for value any Common  Stock or other  equity  security of the
Corporation  either  junior or senior  to or on a parity  with the 6%  Preferred
while  there  exists  any  arrearage  in the  payment  of  cumulative  dividends
hereunder other than redemptions of stock from terminating employees pursuant to
contractual rights in favor of the Corporation.

     8. Voting Rights.  Except as provided herein or as provided for by law, the
6% Preferred shall have no voting rights.

     9. Attorney's Fees. Any holder of 6% Preferred shall be entitled to recover
from the  Corporation the reasonable  attorneys'  fees and expenses  incurred by
such holder in connection  with  enforcement by such holder of any obligation of
the Corporation hereunder.

     10. No Adverse Actions. The Corporation shall not in any manner, whether by
amendment of the Articles of Organization  (including,  without limitation,  any
vote  establishing  a  class  or  series  of  stock),  merger,   reorganization,
recapitalization,  consolidation,  sales of assets,  sale of stock tender offer,
dissolution  or  otherwise,  take any action,  or permit any action to be taken,
solely or  primarily  for the  purpose of  increasing  the value of any class of
stock of the  Corporation if the effect of such action is to reduce the value or
security of the 6% Preferred.





                                      - 6 -
<PAGE>


                     EXHIBIT A to the Subscription Agreement

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN EFFECTIVE  REGISTRATION  STATEMENT  FOR THIS WARRANT OR COMMON
STOCK PURCHASABLE HEREUNDER, AS APPLICABLE, UNDER THE ACTS, OR (B) AN OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March ___, 1998

     1. Basic Terms.  This Warrant (as it may be amended from time to time,  the
"Warrant")  certifies that, for value received,  the registered holder specified
below or its  registered  assigns  ("Holder"),  is the owner of warrants of PHC,
Inc., a Massachusetts corporation (the "Corporation"),  and is entitled, subject
to the terms and conditions of this Warrant,  including  adjustments as provided
herein,  to purchase  ______ ( ) (number to be  pro-rated  for a total of 50,000
share) shares of the Common Stock (the "Common Stock") of the  Corporation  from
the Corporation at the price per share shown below (the "Exercise Price").

              Holder:



              Exercise   Price  per   share:   ______   Dollars   and   ______
              Cents ($     )per share

                               [This amount will be the Closing Bid Price of the
                                Corporation's Common Stock on the Issue Date]

     Except as specifically  provided otherwise,  all references in this Warrant
to the  Exercise  Price and the  number of  shares of Common  Stock  purchasable
hereunder  shall be to the  Exercise  Price  and  number  of  shares  after  any
adjustments are made thereto pursuant to this Warrant.

     2. Corporation's Representations/Covenants.  The Corporation represents and
covenants  that the shares of Common  Stock  issuable  upon the exercise of this
Warrant shall at delivery be fully paid and  non-assessable and free from taxes,
liens,  encumbrances and charges with respect to their purchase. The Corporation
shall take any  necessary  actions to assure that the par value per share of the
Common  Stock is at all times  equal to or less than the then  current  Exercise
Price  per  share  of  Common  Stock  issuable  pursuant  to this  Warrant.  The
Corporation  shall at all times reserve and hold available  sufficient shares of
Common  Stock to satisfy  all  conversion  and  purchase  rights of  outstanding
convertible securities, options and warrants of the Corporation,  including this
Warrant.





                                      - 1 -
<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts time) three (3) years after the issue date.
To  exercise  this  Warrant,  the Holder  shall  surrender  this  Warrant at the
principal  office of the  Corporation or that of the duly  authorized and acting
transfer  agent for its Common Stock,  together with the executed  exercise form
(substantially  in the form of that  attached  hereto) and together with payment
for the Common Stock purchased under this Warrant.  The principal  office of the
Corporation  is located at the address  specified on the signature  page of this
Warrant; provided, however, that the Corporation may change its principal office
upon notice to the  Holder.  At the option of the Holder  payment  shall be made
either in cash (by wire) or by certified or bank cashier's  check payable to the
order of the  Corporation  or the Holder  may elect to receive  shares of Common
Stock  calculated  pursuant to paragraph 4. The Corporation  shall,  immediately
upon  receipt  of such  notice,  issue and  deliver to or upon the order of such
Holder a certificate or certificates for the number of shares of Common Stock to
which such Holder shall be entitled and such  certificate or certificates  shall
not bear any restrictive legend; provided (A) the Common Stock evidenced thereby
are sold pursuant to an effective  registration statement under the Act, (B) the
holder provides the Corporation with an opinion of counsel reasonably acceptable
to the  Corporation  to the effect that a public sale of such shares may be made
without  registration under the Act, or (C) such holder provides the Corporation
with  reasonable  assurance that such shares can be sold free of any limitations
imposed by Rule 144, promulgated under the Act. The Corporation shall cause such
issuance  and delivery to be effected  within three (3) business  days and shall
transmit the  certificates by messenger or overnight  delivery  service to reach
the address  designated  by such holder within three (3) business days after the
receipt of such  notice.  This  Warrant  is not  exercisable  with  respect to a
fraction  of a share of Common  Stock.  In lieu of issuing a fraction of a share
remaining  after  exercise of this Warrant as to all full shares covered by this
Warrant the  Corporation  shall either at its option (a) pay for the  fractional
share cash equal to the same  fraction at the fair market  price for such share;
or (b) issue scrip for the fraction in the registered or bearer form which shall
entitle the Holder to receive a certificate  for a full share of Common Stock on
surrender of scrip  aggregating a full share. As compensation to the Holder when
the  Corporation  has  failed  with  respect to such  Holder to comply  with the
Corporation's obligations hereunder, and not as a penalty, the Corporation shall
pay to such holder liquidated damages of $500 per day until the certificates are
delivered as  instructed.  Such damages  shall be paid to the Holder by cashiers
check or wire transfer in immediately  available  funds to such account as shall
be  designated  in  writing by the Holder at the end of each month in which such
amounts have accrued.  Holder shall be entitled to an injunction or  injunctions
to  prevent  or  cure  breaches  of the  provisions  of  hereof  and to  enforce
specifically  the terms and  provisions  hereof,  this being in  addition to any
other remedy to which Holder may be entitled by law or equity.

     4. Cashless Exercise.

     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -
<PAGE>

     If at any time the Common Stock is not listed on any  domestic  exchange or
quoted in the NASDAQ System or the domestic  over-the-counter  market,  the fair
market value shall be the higher of (i) the book value thereof, as determined by
any firm of independent  public  accountants of recognized  standing selected by
the   Corporation   (which  may  be  the   Corporation's   regular   independent
accountants), as of the last day of any month ending within sixty days preceding
the date as of which the  determination  is to be made;  or (ii) the fair market
value thereof,  which shall be reasonably  determined by the Corporation and the
Holder  as of a date  which is within  fifteen  days of the date as of which the
determination is to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case,  the  Exercise  Price  shall be adjusted to that
price determined by multiplying the Exercise Price in effect  immediately  prior
to such event by a fraction  (A) the  numerator  of which is the total number of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.





                                      - 3 -
<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted  number an kind of securities or other
property  purchasable  under this  Warrant  resulting  from the event and settin
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until,
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -

<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this  Warrant.All  notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -
<PAGE>

     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the
Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  ________________________________
                                                 Authorized Officer


                                       Printed Name:  _______________________
                                       Title:  ______________________________

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ________________________________
       ________________________________
                 Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________         ____________________________________
                                            Signature








                                      - 8 -





<PAGE>

      Incorporated by Reference into the Resolutions Establishing Right and
              Preferences for Series B Convertible Preferred Stock.


                          PROMISSORY NOTE (the "Note")



Date:  __________________,  ________________________

Maker: PHC, Inc.

Maker's Mailing Address:     200 Lake Street -- Suite 102
                             Peabody, Massachusetts 01960

Payee:

Place for Payment:

Principal Amount: $_________________________________

Annual Interest Rate on Unpaid Principal From Date: Eight percent (8%).

Annual Past Due  Interest  Rate on Unpaid  Principal  from  Maturity to Payment:
Fifteen percent (15%).

Terms of Payment:  Principal  and  interest  shall be due and payable in six (6)
equal  consecutive  monthly payments of $  ________________  (based on a six (6)
month  amortization)  with the first  payment being due and payable on the first
day of _____________________.

The Maker  promises  to pay to the order of Payee at the place for  payment  and
according to the terms of payment the outstanding principal and accrued interest
at the rates stated above. All unpaid amounts owing on this Note shall be due by
the final scheduled payment date of ________________________.

Additional Provisions:

If Maker defaults in the payment of this Note, or in any instrument  securing or
collateral  to it, then Payee may declare the unpaid  principal  balance of this
Note and all  accrued  interest  immediately  due and  payable.  Maker  and each
surety,  endorser,  and  guarantor  or other party liable for the payment of any
sums of money  payable on this Note  severally  waive all demands  for  payment,
presentations  for  payment,  notices  of  dishonor,  notices  of  intention  to
accelerate maturity, notices of acceleration of maturity,  protests, and notices
of protest, to the extent permitted by law.

     If this Note or any instrument  securing or collateral to it is given to an
attorney for collection or enforcement.  or if suit is brought for collection or
enforcement or if it is collected or enforced  through probate,  bankruptcy,  or
other  judicial  proceedings  then Maker shall pay Payee all costs of collection
and  enforcement,  including  reasonable  attorneys  fees and  court  costs,  in
addition to other amounts due.


                           PHC. INC., PROMISSORY NOTE
Page 1



<PAGE>

     Interest that may be contracted for, taken,  reserved,  charged or received
under law; any  interest in excess of that  maximum  amount shall be credited on
the  principal  of the  debt  or,  if  that  has  been  paid,  refunded.  On any
acceleration  or  required or  permitted  prepayment,  any such excess  shall be
canceled automatically as of the acceleration or prepayment or, if already paid,
credited on the  principal of the debt or, if the principal of the debt has been
paid, refunded.  This provision overrides other provisions in this and all other
instruments concerning the debt.

     When the context requires, singular nouns and pronouns include the plural.

     This Note is to be governed and  construed in  accordance  with the laws of
the State of Texas.

     MAKER, FOR GOOD AND VALUABLE CONSIDERATION,  THE RECEIPT AND SUFFICIENCY OF
WHICH  ARE  HEREBY   ACKNOWLEDGED,   (I)  HEREBY  IRREVOCABLY   SUBMITS  TO  THE
JURISDICTION  OF THE UNITED STATES DISTRICT COURT AND OTHER COURTS OF THE UNITED
STATES  SITTING  IN TEXAS FOR THE  PURPOSES  OF ANY SUIT,  ACTION OR  PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND (ii) HEREBY WAIVES,  AND AGREES
NOT TO ASSERT IN ANY SUCH SUIT,  ACTION OR PROCEEDING,  ANY CLAIM THAT IT IS NOT
PERSONALLY  SUBJECT TO THE JURISDICTION OF SUCH COURT,  THAT THE SUIT, ACTION OR
PROCEEDING  IS BROUGHT IN AN  INCONVENIENT  FORUM OR THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER.  MAKER CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT,  ACTION OR  PROCEEDING BY MAILING A COPY THEREOF TO MAKER AT ITS MAIN
BUSINESS  OFFICE  AND  AGREES  THAT  SUCH  SERVICE  SHALL  CONSTITUTE  GOOD  AND
SUFFICIENT  SERVICE OF PROCESS  AND NOTICE  THEREOF.  NOTHING IN THIS  PARAGRAPH
SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE  PROCESS IN ANY OTHER MANNER  PERMITTED
BY LAW.

     Executed as of date first above written.

                  PHC Inc., a Massachusetts corporation

                  By:  _______________________________________
                  Name of
                  Authorized Officer:  __________________________
                  Title:  ______________________________________








                           PHC. INC., PROMISSORY NOTE
Page 2


<PAGE>


                     EXHIBIT B to the Subscription Agreement

Section 2.2(a): PHC, Inc. Subsidiaries:

PHC of Utah, Inc.                       Pioneer Counseling of Virginia, Inc.
D/B/A Highland Ridge Hospital           (80% Owned)
4578 Highland Drive                     D/B/A Pioneer Counseling of Virginia
Salt Lake City, UT 94117                D/B/A Counseling Associates of Virginia
                                        400 East Burwell street
                                        Salem, VA 24153

PHC of Virginia, Inc.                   PHC of Kansas, Inc.
D/B/A Mount Regis Center                D/B/A Total Concept EAP
D/B/A Changes                           7451 Szwitzer, Suite 101
405 Kimball Avenue                      Shawnee Mission, KS 66203
Salem, VA 24153

Quality Care Centers of Mass, Inc.      PHC of California, Inc.
D/B/A Franvale Nursing & Rehab Center   D/B/A Marin Grove
20 Pond Street                          42 Grove Street
Braintree, MA 02194                     San Rafael, CA 94901

PHC of Nevada, Inc.                     Professional Health Associates
D/B/A Harmony Healthcare                94-19 59 Avenue
2340 Paseo del Prado, Bldg.D           Elmhum NY 11373
Las Vegas, NV 89102

Northpoint - Pioneer, Inc.              STL, Inc.
D/B/A Pioneer Counseling Center         200 Lake Street
31700 W. 13 Mile; Suite 201             Suite 102
Farmington Hills, MI 48334              Peabody, MA 0 1960

BSC-NY, Inc.                            Harmony Behavioral Health
D/B/A Behavioral Stress Center          2340 Paseo del Prado, Bldg.D
94-19 59 Avenue                         Las Vegas, NV 89102
Elmhurst, NY 11373

PHC of Michigan, Inc.                   PHC of Rhode island, Inc.
D/B/A Harbor Oaks Hospital              D/B/A Good Hope Center
35031 23 Mile Road                      P.O. Box 1491
New Baltimore, MI 48047                 Coventry, RI 02816-0029



<PAGE>


                               EXHIBIT B (cont'd.)
     Section 2.2(f):

     The Company failed to file two years' of audited  financial  statements for
Behavioral   Stress  Centers,   Inc.  and  Clinical   Diagnostics  and  Clinical
Associates,  as described  in the  December 18, 1996 letter from Choate,  Hall &
Stewart to Mr. Robert Bayless of the Securities and Exchange Commission.



<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  "Holder"),  is the owner of  warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase  Twenty Six Thousand Three Hundred  Fifteen  (26,315) shares of Class A
Common Stock (the "Common Stock") of the Corporation from the Corporation at the
price per share shown below (the "Exercise Price").

     Holder: ProFutures Special Equities Fund, L.P.


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2.  Corporations  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.


     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading shall be average of the
closing  prices on such day of the Common  Stock on all  domestic  exchanges  on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges  at he end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                       - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant,. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.



                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  /s/ Bruce A Shear
                                                Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)

For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ______________________             _____________________________________
                                               Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________          __________________________________
                                                Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase  Seven  Thousand  Eight Hundred Ninety (7,890) shares of Class A Common
Stock (the "Common Stock") of the Corporation  from the Corporation at the price
per share shown below (the "Exercise Price").

         Holder:                                Gary D. Halbert


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock s at all times equal to or less than the then current  Exercise  Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System ("NASDA", the average of the daily market prices of such stock on the ten
(10) trading days  immediately  preceeding the date as of which such value is to
be  determined.  The market  price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restriction  s on transfer  contained  herein,  in the names  designated  by the
Holder at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing  Law. This  Agreement  hall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:   /s/ Bruce A Shear
                                                 Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                     -6-



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee: ____________________________________________

Address:  ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ________________________       ________________________________
                                         Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  __________________________________
       __________________________________
                  Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.

                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase Five Thousand Two Hundred Sixty (5,260)  shares of Class A Common Stock
(the "Common  Stock") of the  Corporation  from the Corporation at the price per
share shown below (the "Exercise Price").

            Holder:      John F. Mauldin


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances  and charges with respect to their purchase.  he Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashiers  check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.

     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDAQ"),  the average of the daily market prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.

                                      - 2 -

<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices  required or permitted t be given to the Holder shall
be in writing and shall be given by first class mail, postage repaid,  addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16.  Headings The headings in this Warrant are for purposes of  convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of  Regulation  D,  promulgated  under the  Securities  Act of 1933, as
amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.


                                      - 5 -


<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.





                                       PHC, INC., a Massachusetts corporation


                                       By:  /s/ Bruce A Shear
                                                Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:
Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  _________________________         _____________________________________
                                             Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  _________________________         ____________________________________
                                          Signature








                                      - 8 -





<PAGE>

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OR ANY OTHER  SECURITIES
LAWS  (THE  "ACTS").  NEITHER  THIS  WARRANT  NOR THE  SHARES  OF  COMMON  STOCK
PURCHASABLE HEREUNDER MAY BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED IN THE
ABSENCE  OF (A) AN  REGISTRATION  STATEMENT  FOR THIS  WARRANT  OR COMMON  STOCK
PURCHASABLE  HEREUNDER,  AS  APPLICABLE,  UNDER THE ACTS,  OR (B) AN  OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO THE CORPORATION  THAT  REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.
                                    PHC, INC.
                                     WARRANT


Issue Date: March 16, 1998

     1. Basic Term.  This Warrant (as it may be amended  from time to time,  the
"Warrant") certifies that, for value received, the holder specified below or its
assigns  ("Holder"),  is the owner of warrants  of PHC,  Inc.,  a  Massachusetts
corporation  (the  "Corporation"),  and is  entitled,  subject  to the terms and
conditions  of this  Warrant,  including  adjustments  as  provided  herein,  to
purchase Ten Thousand Five Hundred Twenty Five (10,525) shares of Class A Common
Stock (the "Common Stock") of the Corporation  from the Corporation at the price
per share shown below (the "Exercise Price").

            Holder:                                 Augustine Fund, L.P.


     Exercise Price per share: Two Dollars and  Five-Sixteenths  Cents ($2 5/16)
per share


Except as specifically provided otherwise, all references in this Warrant to the
Exercise  Price and the number of shares of Common Stock  purchasable  hereunder
shall be to the Exercise  Price and number of shares after any  adjustments  are
made thereto pursuant to this Warrant.

     2. Corporation's  Representations/Covenants.  The corporation and covenants
that the shares of Common Stock issuable upon the exercise of this Warrant shall
at  delivery  be  fully  paid  and  nonasseble  and  free  from  taxes,   liens,
encumbrances and charges with respect to their purchase.  The Corporation  shall
take any necessary  actions to assure that the par value per share of the Common
Stock is at all times equal to or less than the then current  Exercise Price per
share of Common Stock issuable  pursuant to this Warrant.  The Corporation shall
at all times  reserve and hold  available  sufficient  shares of Common Stock to
satisfy  all   conversion  and  purchase   rights  of  outstanding   convertible
securities, options and warrants of the Corporation, including this Warrant



                                      - 1 -


<PAGE>

     3. Method of Exercise:  Fractional  Shares.  This Warrant is exercisable at
the  option  of the  Holder in whole at any time or in part from time to time by
surrendering this Warrant,  on any business day during the period (the "Exercise
Period")  beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Boston,  Massachusetts  time) three (3) years after the Late date.
To exercise this Warrant,  the Holder shall surrender this Warrant at the office
of the  Corporation or that of the duly authorized and acting transfer agent for
its Common Stock, together with the executed exercise form (substantially in the
form of that  attached  hereto) and  together  with payment for the Common Stock
purchased under this Warrant the principal  office of the Corporation is located
at the  address  specified  on the  signature  page of this  Warrant;  provided,
however, that the Corporation may change its principal office upon notice to the
Holder.  At the option of the Holder  payment  shall be made  either in cash (by
wire) or by  certified  or bank  cashier's  check  payable  to the  order of the
Corporation  or the Holder may elect to move shares of Common  Stock  calculated
pursuant to paragraph 4. The Corporation shall, immediately upon receipt of such
notice,  issue and deliver to or upon the order of such Holder a certificate  or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled and such certificate or certificates  shall not bear any restrictive
legend;  provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective  registration  statement  under the Act,  (B) the holder  provides the
Corporation with an opinion of counsel reasonably  acceptable to the Corporation
to the effect that a public sale of such shares may be made on under the Act, or
(C) such holder  provides the Corporation  with  reasonable  assurance that such
shares  can be sold free of any  limitations  imposed  by Rule 144,  promulgated
under the Act.  The  Corporation  shall cause such  issuance  and delivery to be
effected  within three (3) business days and shall transmit the  certificates by
messenger or overnight  delivery service to reach the address designated by such
holder  within  three (3) business  days after the receipt of such notice.  This
Warrant is not  exercisable  with  respect  to a  fraction  of a share of Common
Stock. In lieu of issuing a fraction of a share remaining after exercise of this
Warrant as to all full shares  covered by this Warrant,  the  Corporation  shall
either at its  option  (a) pay for the  fractional  share cash equal to the same
fraction  at the fair market  price for such  share;  or (b) issue scrip for the
fraction in the  registered  or bearer  form which  shall  entitle the Holder to
receive a  certificate  for a full share of Common  Stock on  surrender of scrip
aggregating a full share. As compensation to the Holder when the Corporation has
failed with respect to such Holder to comply with the Corporation's  obligations
hereunder,  and not as a  penalty,  the  Corporation  shall  pay to such  holder
liquidated  damages  of $500 per day until the  certificates  are  delivered  as
instructed.  Such damages shall be paid to the Holder by cashier's check or wire
transfer in immediately  available  funds to such account as shall be designated
in writing by the  Holder at the end of each  month in which such  amounts  have
accrued.  Holder shall be entitled to an injunction or injunctions to prevent or
cure  breaches  of the  provisions  of hereof  and to enforce  specifically  the
transfer and  provisions  hereof,  this being in addition to any other remedy to
which Holder may be entitled by law or equity.


     (a) The Holder may, upon any full or partial exercise of this Warrant,  pay
the Exercise  Price  applicable to such exercise by delivering  this Warrant and
receiving from the Corporation in return therefor the number of shares of Common
Stock as to which the Warrant is being  exercised which have a fair market value
on the date of  exercise  equal  to the fair  market  value  of the  Warrant  as
established in paragraph 4(b).

     (b) The fair market value of this Warrant  shall mean the fair market value
of the Common Stock  purchasable  under this Warrant minus the Exercise Price of
this Warrant.

     (c) The fair market  value of the Common  Stock is, if the Common  Stock is
traded on a national  securities exchange or in the  over-the-counter  market as
reported by the National  Association of Securities Dealers Automated  Quotation
System  ("NASDA"),  the average of the daily market  prices of such stock on the
ten (10) trading days  immediately  preceding the date as of which such value is
to be determined. The market price for each such trading day shall be average of
the closing prices on such day of the Common Stock on all domestic  exchanges on
which the Common  Stock is then  listed,  or if there have not been sales on any
such  exchange on such day,  the  average of the  highest  bid and lowest  asked
prices on all such  exchanges at the end of such day, or, if the Common Stock is
not so listed,  the average of the representative bid and asked prices quoted in
the NASDAQ National Market System as of 3:30 p.m., EST time, on such day, or, if
the Common Stock is not quoted in the NASDAQ System, the average of the high and
low bid and asked prices on such day in the domestic  over-the-counter market as
reported  by  the  National  Quotation  Bureau,  Incorporated,  or  any  similar
successor organization.
                                      - 2 -


<PAGE>

If at any time the Common Stock is not listed on any domestic exchange or quoted
in the NASDAQ System or the domestic  over-the-counter  market,  the fair market
value shall be the higher of (i) the book value  thereof,  as  determined by any
firm of independent  public  accountants of recognized  standing selected by the
Corporation (which may be the Corporation's regular independent accountants), as
of the last day of any month ending  within sixty days  preceding the date as of
which the  determination  is to be made; or (ii) the fair market value  thereof,
which shall be reasonably  determined by the  Corporation and the Holder as of a
date which is within fifteen days of the date as of which the  determination  is
to be made.

     5.  Protection  Against  Dilution.  The  number of  shares of Common  Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:

     (a) takes a record of the holders of its outstanding shares of Common Stock
for the  purposes of entitling  them to receive a dividend  payable in, or other
distribution of, Common Stock,

     (b) subdivides its outstanding  shares of Common Stock into a larger number
of shares of Common Stock; or

     (c) combines its  outstanding  shares of Common Stock into a smaller number
of shares of Common Stock;

then,  and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event  by a  fraction  (A)  the  numerator  of  which  is the  total  number  of
outstanding  shares of Common Stock  immediately prior to such event and (B) the
denominator of which is the total number of  outstanding  shares of Common Stock
immediately  after such event.  Upon each adjustment in the Exercise Price under
this  Warrant  such  number of shares of Common  Stock  purchasable  under  this
Warrant shall be adjusted by multiplying the number of shares of Common Stock by
a fraction,  the numerator of which is the Exercise Price  immediately  prior to
such  adjustment  and the  denominator  of which is the Exercise Price in effect
upon such adjustment.

     6. Adjustment for Reorganization, Consolidation, Merger, Etc.

     (a)  During  the  Exercise  Period,   the  Corporation   shall,   prior  to
consummation  of a  consolidation  with or merger into another  corporation,  or
conveyance of all or substantially all of its assets to any other corporation or
corporations,  whether  affiliated or unaffiliated  (any such corporation  being
included within the meaning of the term "successor  corporation"),  or agreement
to so consolidate,  merge or convey assets, require the successor corporation to
assume, by written  instrument  delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock,  securities  or property as the
Holder  shall  be  entitled  to  purchase  or  receive  in  accordance  with the
provisions of paragraph 6(b) hereof.

     (b) In the case of any capital  reorganization or  reclassification  of the
Common Stock of the  Corporation  (or any other  corporation  the stock or other
securities of which are at the time  receivable on the exercise of this Warrant)
during  the  Exercise  Period  or in  case,  during  the  Exercise  Period,  the
Corporation (or any such other corporation) shall consolidate with or merge into
another  corporation  or convey all or  substantially  all its assets to another
corporation,  the Holder,  upon exercise,  at any time after the consummation of
such reorganization,  consolidation,  merger or conveyance, shall be entitled to
receive,  in  lieu  of the  Common  Stock  of the  Corporation  (or  such  other
corporation), the proportionate share of all stock, securities or other property
issued,  paid or delivered for or on all of the Common Stock of the  Corporation
(or such other  corporation)  as is allocable to the shares of Common Stock then
called  for  by  this  Warrant  as if  the  Holder  had  exercised  the  Warrant
immediately  prior  thereto,  all subject to further  adjustment  as provided in
paragraph 4 of this Warrant.






                                      - 3 -


<PAGE>

     7.  Notice  of  Adjustment.  On the  happening  of an  event  requiring  an
adjustment of the Exercise Price or the shares  purchasable  under this Warrant,
the Corporation  shall immediately give written notice to the Holder stating the
adjusted  Exercise Price and the adjusted number and kind of securities or other
property  purchasable  under this Warrant  resulting  from the event and setting
forth in reasonable  detail the method of  calculation  and the facts upon which
the calculation is based.

     8.  Dissolution,   Liquidation.   In  case  the  voluntary  or  involuntary
dissolution,  liquidation  or  winding  up of the  Corporation  (other  than  in
connection with a  reorganization,  consolidation,  merger, or other transaction
covered by paragraph 5 above) is at any time  proposed,  the  Corporation  shall
give at least thirty days prior written notice to the Holder.  Such notice shall
contain:  (a) the date on which the transaction is to take place; (b) the record
date (which  shall be at least  thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction;  (c) a brief description of the transaction,  (d) a
brief  description of the distributions to be made to holders of Common Stock as
a result  of the  transaction;  and (d) an  estimate  of the  fair  value of the
distributions.  On the date of the  transaction,  if it  actually  occurs,  this
Warrant and all rights under this Warrant shall terminate.

     9.  Rights of  Holder.  The  Corporation  shall  deliver  to the Holder all
notices and other information  provided to its holders of shares of Common Stock
or other  securities  which  may be  issuable  hereunder  concurrently  with the
delivery of such  information to the holders.  This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions,  any
other rights as a shareholder  of the  Corporation.  No dividends are payable or
will accrue on this Warrant or the Shares  purchasable under this Warrant until.
and except to the extent that, this Warrant is exercised.  Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,  the person or
entity  entitled  to  receive  the  shares of Common  Stock  issuable  upon such
exercise  shall be treated for all purposes as the record  holder of such shares
as of the close of business  on the date of the  surrender  of this  Warrant for
exercise as provided  above.  Upon the exercise of this Warrant the Holder shall
have all of the rights of a shareholder in the Corporation.

     10. Exchange for Other Denominations.  This Warrant is exchangeable, on its
surrender by the Holder to the Corporation,  for a new Warrant of like tenor and
date  representing  in the  aggregate  the right to purchase  the balance of the
number of shares  Purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.

     11. Substitution.  Upon receipt by the Corporation of evidence satisfactory
(in the exercise of  reasonable  discretion)  to it of the  ownership of and the
loss,  theft or  destruction  or mutilation of the Warrant,  and (in the case or
loss,  theft or  destruction)  of  indemnity  satisfactory  (in the  exercise of
reasonable discretion) to it, and (in the case of mutilation) upon the surrender
and  cancellation  thereof,  the  Corporation  will issue and  deliver,  in lieu
thereof, a new Warrant of like tenor.





                                      - 4 -



<PAGE>

     12. Restrictions on Transfer. Neither this Warrant nor the shares of Common
Stock  issuable on  exercise  of this  Warrant  have been  registered  under the
Securities Act or any other  securities laws (the "Acts").  Neither this Warrant
nor the shares of Common Stock purchasable  hereunder may be sold,  transferred,
pledged  or  hypothecated  in  the  absence  of (a)  an  effective  registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts,  or (b) an  opinion of counsel  reasonably  satisfactory  to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an  "accredited  investor",  as  described  in Section  17  hereof,  and such
transfer or assignment is made expressly  subject to the terms and conditions of
this Warrant. If the Holder seeks an opinion as to transfer without registration
from Holder's counsel, the Corporation shall provide such factual information to
Holder's  counsel as  Holder's  counsel  reasonably  request  for the purpose of
rendering  such  opinion.  Each  certificate  evidencing  shares of Common Stock
purchased  hereunder will bear a legend  describing the restrictions on transfer
contained  in this  paragraph  unless,  in the  opinion  of  counsel  reasonably
acceptable  to the  Corporation,  the shares need no longer to be subject to the
transfer restrictions.

     13. Transfer. Except as otherwise provided in this Warrant, this Warrant is
transferable  only on the books of the Corporation by the Holder in person or by
attorney, on surrender of this Warrant. properly endorsed.

     14.  Recognition of Holder.  Prior to due presentment  for  registration of
transfer of this Warrant,  the Corporation  shall treat the Holder as the person
exclusively  entitled to receive  notices and otherwise to exercise rights under
this Warrant.  All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the  Holder at the  address  of the Holder  appearing  in the  records of the
Corporation.

     15.  Payment  of  Taxes.  The  Corporation  shall  pay all  taxes and other
governmental charges,  other than applicable income taxes and transfer taxes, if
any,  which shall be payable by Holder,  that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.

     16. Headings.  The headings in this Warrant are for purposes of convenience
in reference only,  shall not be deemed to constitute a part of this Warrant and
shall not affect the meaning or  construction  of any of the  provisions of this
Warrant.

     17. Accredited  Investor Status.  The Holder represents and warrants to the
Corporation  that Holder is an "accredited  investor" as that term is defined in
Rule 501 of Regulation D, promulgated under the Securities Act of
1933, as amended.

     18.  Governing Law. This  Agreement  shall be governed by and construed and
enforced  in  accordance  with  the  internal  laws  of  the  present  state  of
incorporation  of the  Company  without  regard to such  state's  principles  of
conflict of laws.



                                      - 5 -

<PAGE>



     19. Miscellaneous.  This Warrant may not be changed, waived,  discharged or
terminated  except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.




                                       PHC, INC., a Massachusetts corporation


                                       By:   /s/ Bruce A Shear
                                                 Authorized Officer


                                       Printed Name:  Bruce A. Shear
                                       Title:         President

                                       200 Lake Street -- Suite 102
                                       Peabody, Massachusetts 01960








                                      - 6 -



<PAGE>

                                    PHC, Inc.

                                Form of Transfer


             (To be executed by the Holder to transfer the Warrant)


For value received the  undersigned  registered  holder of the attached  Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:

Name of
Assignee:  ____________________________________________

Address:   ____________________________________________

         ____________________________________________


Assignee's Taxpayer ID No.:  _____________________________

Number of shares
subject to transferred Warrant:  ____________________________


The  undersigned   registered  holder  further   irrevocably   appoints  as  its
attorney-in-fact  (with full power of  substitution) to transfer this Warrant as
aforesaid on the books of the Corporation.



Date:  ______________________                 ________________________________
                                                Signature








                                      - 7 -



<PAGE>

                                    PHC, Inc.
                                  Exercise Form

                    (To be executed by the Holder to purchase
                      Common Stock pursuant to the Warrant)


The undersigned holder of the attached Warrant hereby: (1) irrevocably elects to
exercise  purchase  rights  represented  by such  Warrant  for, and to purchase,
______  shares  of  Common  Stock of PHC,  Inc.,  a  Massachusetts  corporation,
pursuant to the Warrant  Certificate and encloses  payment of $  _______________
therefor  (in cash,  by wire,  or by  certified or bank  cashier's  check);  (2)
requests  that a  certificate  for  the  shares  be  issued  in the  name of the
undersigned;  and  (3)  if  such  number  of  shares  is not  all of the  shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.






Date:  _________________________              _________________________________
                                                 Signature








                                      - 8 -


<PAGE>

Exhibit 10.66

                            [PHC, INC. LETTERHEAD]


                                August 11, 1999

Heller Healthcare Finance, Inc.
Two Wisconsin Circle, 4th Floor
Chevy Chase, Maryland 20815
Attention: Michael Gardullo, Vice President

      Re:  Loan and Security Agreement by and among HELLER HEALTHCARE  FINANCE,
           INC. f/k/a HCFP FUNDING, INC. ("Leader") and PHC OF MICHIGAN,  INC.,
           PHC OF UTAH,  INC.,  PHC OF  VIRGINIA,  INC.,  PHC OF RHODE  ISLAND,
           INC.,  and  PIONEER  COUNSELING  OF  VIRGINIA,  INC.  (collectively,
           'Borrower") dated as of February 18, 1998

Dear Mr. Gardullo:

     Reference  is  made to that  certain  Loan  and  Security  Agreement  dated
February  18,  1998 (as it has been or may be  amended  or  restated,  the "Loan
Agreement"),  by and between Borrower and Lender. All capitalized terms used but
not defined in this Letter  Agreement  shall have the respective  meanings given
them in the Loan Agreement.

     Lender and  Borrower  hereby  agree to the  following  terms  regarding  an
additional  loan in the maximum  amount of Three Hundred  Twelve  Thousand Seven
Hundred  Seventy-Eight and No/100 Dollars  ($312,778.00) to be made by Lender to
Borrower  on the  date of this  Letter  Agreement,  in the  form of an  overline
facility established by this Letter Agreement (the "Overline Loan"):

     1. Except as expressly  modified by the terms of this Letter  Agreement the
Overline Loan will be treated for all purposes as a Revolving  Credit Loan under
the Loan  Agreement,  and all  principal,  interest,  fees and  other  costs and
expenses  relating to The Overline Loan (the  "Overline  Obligations")  shall be
treated as additional  Obligations  under the Loan  Agreement and the other Loan
Documents.

     2. The Overline  Loan shall  continue to bear  interest at the Base Rate as
specified in Loan Agreement.

     3.  Borrower  shall make a payment  of Fifty  Thousand  and No/100  Dollars
($50.000.00)  on or before August 31, 1999. All remaining  Overline  Obligations
shall be repaid in full no later than September 27, 1999 (the "Overline Maturity
Date").



  h:\WP\Legal\Clients\PHCINC\Overline.wpd


<PAGE>
Heller Healthcare Finance, Inc.
August 11, 1999
Page 2

      4.   Borrower may request that the Overline  Maturity Date be extended by
fifteen  (15)  calendar  days.  If the  extension  is granted,  which  decision
shall be made in the  exercise of  Lender's  sole  discretion.  and which shall
be subject to the  condition  set forth in  paragraph 7 below.  Borrower  shall
pay a fee of Five Hundred and No/100 Dollars  ($500.00) and an additional  Five
Hundred  ($500.00) for each (15) day  extension.  In no event will the Overline
Maturity Date be extended beyond December 31, 1999

      5.        The failure to repay the Overline  Obligations  at the Overline
Maturity Date, as it may be extended,  shall  constitute an immediate  Event of
Default  under the Loan  Agreement.  Lender shall be entitled to apply  amounts
transferred to the  Concentration  Account  pursuant to Section 2.3 of the Loan
Agreement in satisfaction of the Overline Obligations of Borrower.

      6.   The Overline  Obligations  of Borrower  under this Letter  Agreement
shall  be   additionally   secured  by  the   execution   and  delivery  of  an
Unconditional  Guaranty of Payment  and  Performance  by Bruce A. Shear,  which
Guaranty guarantees the payment of the Overline Obligations.

      7.   Borrower  agrees that Lender  shall  perform an audit of  Borrower's
books and records no later than  October 15,  1999,  and that no  extension  of
the  Overline  Maturity  Date shall be made  beyond that date unless such audit
has been performed and the results are  satisfactory  to Lender in the exercise
of its  reasonable  lending  judgment.  Borrower  acknowledges  and agrees that
Lender retains all existing  rights to audit and examine  Borrower's  books and
records as set forth in the Loan Agreement.

      8.   Concurrently with the execution of this Letter  Agreement,  Borrower
shall pay to Lender an Overline Fee of Forty-Five  Thousand and No/100  Dollars
($45,000.00), which shall be deducted from the funding of the Overline Loan.

      9.   The Maximum Loan Amount under the Loan Agreement  shall be inclusive
of the Overline Loan.

      10.  Except as specifically  modified by this Letter Agreement,  the Loan
Agreement,  and all  other  Loan  Documents,  shall  remain  in full  force and
effect, and are hereby ratified and confirmed.

      11.  The execution,  delivery and  effectiveness of this Letter Agreement
shall not, except as expressly  provided in this Letter  Agreement,  operate as
a waiver of any right,  power or remedy of Lender,  nor  constitute a waiver of
any provision of the Loan Agreement,  or any other  documents,  instruments and
agreements executed or delivered in connection with the Loan Agreement.


h:\WP\Legal\Clients\PHCINC\Overline.wpd


<PAGE>

Heller Healthcare Finance, Inc.
August 11, 1999
Page 3

      12.  This  Letter  Agreement  shall  be  governed  by  and  construed  in
accordance with the laws of the State of Maryland.

      13.  This Letter  Agreement  may be executed in  counterparts,   and both
counterparts  taken  together  shall be deemed to  constitute  one and the same
instrument.
       If these  conditions  are  acceptable  to  Lender,  please so signify by
  signing below where indicated.


                               Very truly yours,
                               PHC,  INC.  INC.
                               a Massachusetts corporation
                               (on behalf of all entities comprising
                               "Borrower")


                               By:  /s/  Bruce A. Shear
                               Name:    Bruce A. Shear
                               Title:      President


  THE  FOREGOING  IS  ACKNOWLEDGED  AND AGREED TO AS OF THE DAY OF AUGUST  ___,
  1999.


  HELLER HEALTHCARE FINANCE, INC.
  f/k/a HCFP FUNDING, INC.
  a Delaware corporation


  By:  __________________________________
  Name:
  Title:










h:\WP\Legal\Clients\PHCINC\Overline.wpd


<PAGE>

                  THIS GUARANTY CONTAINS PROVISIONS FOR WAIVER
                                  OF JURY TRIAL

                UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE


      THIS  UNCONDITIONAL  GUARANTY OF PAYMENT AND PERFORMANCE (the "Guaranty")
is dated as of August 11,  1999 and is made by Bruce A.  Shear,  an  individual
"Guarantor"),   in  favor  of  HELLER  HEALTHCARE  FINANCE,   INC.  f/k/a  HCFP
FUNDING,  INC., a Delaware corporation ("Lender").

                                    RECITALS

      WHEREAS,  pursuant to a certain Loan and Security  Agreement  dated as of
February  18,  1998  (as the  agreement  may  from  time  to  time be  amended,
modified  or  supplemented,   the  "Loan  Agreement"),  by  and  among  PHC  OF
MICHIGAN,  INC., PHC OF UTAH,  INC., PHC OF VIRGINIA INC., PHC OF RHODE ISLAND,
INC., and PIONEER COUNSELING OF VIRGINIA, INC.  (collectively,  "Borrower") and
Lender,   the  parties  entered  into  certain   revolving   credit   financing
arrangements; and

      WHEREAS,  Lender has agreed to make  available  to  Borrower  an Overline
Loan,  in the  maximum  aggregate  principal  amount  of Three  Hundred  Twelve
thousand  Seven Hundred  Seventy-Eight  and No/100 Dollars  ($312,778.00)  (the
"Overline  Loan")  which  shall be  treated  for all  purposes  as a  Revolving
Credit Loan under the Loan  Agreement,  and all principal,  interest,  fees and
other  costs  and   expenses   relating  to  the   Overline   Loan   ("Overline
Obligations")  shall  be  treated  as  additional  Obligations  under  the Loan
Agreement and the other Loan Documents; and

      WHEREAS,  Lender is willing to make the  Overline  Loan but only upon the
condition,  among others,  that Guarantor  shall have executed and delivered to
Lender this Guaranty.

      NOW,  THEREFOR,  in  consideration  of the  premises  and  of the  mutual
covenants   contained  in  this  Guaranty  and  for  other  good  and  valuable
consideration,  the receipt of which is hereby acknowledged,  the parties agree
as follows:

      1.   All  capitalized  terms used but not defined in this Guaranty  shall
have the respective meanings given them in the Loan Agreement.

      2.   To induce  Lender to execute and deliver  the  Overline  Loan and to
make the Overline Loan upon the terms and  conditions  set forth  therein,  and
in  consideration  thereof,  Guarantor hereby  unconditionally  and irrevocably
guarantees  to  Lender,  and  to its  successors,  endorsees,  transferees  and
assigns,  Borrower's  prompt  and  complete  payment  when due,  whether at the
stated  maturity,  by  acceleration or otherwise,  of the Overline  Obligations
and Borrower's  prompt and complete  performance of all of its other covenants,
obligations  and  agreements  prompt  and  complete  performance  of all of its
other covenant related to the Overline Loan.






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<PAGE>
      3.        Guarantor  hereby  waives  notice  of the  acceptance  of  this
Guaranty  and of the  extending of credit as above  specified  and the state of
indebtedness  of Borrower at any time, and expressly  agrees to any extensions,
renewals,  accelerations  or  modifications  of such credit or any of the terms
of such credit, and waives diligence,  presentment,  demand of payment, protest
or notice,  whether of  non-payment,  dishonor,  protest or  otherwise,  of any
document or documents and notice of any  extension,  renewal,  modification  or
default  and  assent  to  the  release,   substitution   or  variation  of  any
collateral  that may at any time be held as  security  for any credit  extended
to  Borrower,  all without  relieving  Guarantor  of any  liability  under this
Guaranty.  The  obligations  of  Guarantor  under  this  Guaranty  shall  be an
unconditional  obligation  to make  prompt  payment and  performance  to Lender
irrespective of the  genuineness,  validity,  regularity or  enforceability  of
any  indebtedness  or  evidence  of  indebtedness  of  Borrower to Lender or of
other  circumstances  that might otherwise  under the laws of any  jurisdiction
constitute a legal or  equitable  discharge of a surety or a guarantor or a bar
(in the nature of a moratorium  or otherwise)  to the  enforcement  of Lender's
rights  either  (i)  against  Borrower  on  all  or any  part  of its  Overline
Obligations or (ii) under this Guaranty.

      4.  Notwithstanding  any  payment or  payments  made by  Guarantor  under
this  Guaranty or any setoff or  application  of funds of  Guarantor by Lender,
Guarantor  shall  not be  entitled  to be  subrogated  to any of the  rights of
Lender  against  Borrower or any  collateral  security or guarantee or right of
offset  held  by  Lender  for  the  payment  or  performance  of  the  Overline
Obligations,  nor shall  Guarantor  seek any  reimbursement  from  Borrower  in
respect of payments made by Guarantor  under this  Guaranty,  until all amounts
then owing and any other  performance  then due to Lender by Borrower for or on
account  of the  Overline  Obligations  are paid and  satisfied  in full.  Upon
such payment and  satisfaction  in full,  Guarantor  shall be subrogated to all
rights of Lender against  Borrower or any  collateral  security or guarantee or
right  of  offset  held  by  Lender  for the  payment  and  performance  of the
Overline Obligations.

      5.   Any  indebtedness  of Borrower now or  hereafter  owed to or held by
Guarantor is hereby  subordinated  to the  indebtedness  of Borrower to Lender;
and such  indebtedness  of Borrower to Guarantor if Lender so requests shall be
collected,  enforced  and  received by  Guarantor  as trustee for Lender and be
paid over to Lender on account of the  indebtedness  of  Borrower to Lender but
without  reducing or affecting in any manner the  liability of Guarantor  under
the other provisions of this Guaranty.

      6.   This is  intended  to be and  shall  be  construed  as a  continuing
guarantee  and shall  remain in full  force and  effect and shall be binding in
accordance  with and to the extent of its terms upon Guarantor and  Guarantor's
heirs  and  assigns,  and  shall  inure  to the  benefit  of  Lender,  and  its
successors, endorsers, transferees and assigns







                                       2


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<PAGE>

     7.   If all or any  part  of the  overline  Obligations  of  Borrower  to
Lender are not paid when due,  and if  collections  of Accounts  under the Loan
Agreement  are not  sufficient  to pay the portion of the Overline  Obligations
that  are  due,  Guarantor  hereby  guarantees  that  it will  pay the  same to
Lender,  upon demand,  without set-off or counterclaim and without reduction by
reason of any taxes, levies,  imposts,  charges and withholdings,  restrictions
or conditions  of any nature that are now or may  hereafter be imposed,  levied
or assessed by any country,  political subdivision or taxing authority,  all of
which will be for the  account of and paid by  Guarantor,  and Lender  need not
first  proceed  to  preserve,  utilize  or  exhaust  any other  right or remedy
against  Borrower or any other  guarantor or any security  that Lender may have
to obtain  payment.  The payment shall be made in immediately  available  funds
to Lender's office at 2 Wisconsin Circle,  Fourth Floor, Chevy Chase,  Maryland
20815,  Attention:  Steven M. Curwin,  Deputy General Counsel, or at such other
place as Lender may designate in writing.

      8.   No failure to exercise  and no delay in  exercising,  on the part of
Lender,  any right,  power or privilege  under this Guaranty shall operate as a
waiver of the  right,  power or  privilege,  nor shall  any  single or  partial
exercise  of any  right,  power or  privilege  preclude  any  other or  further
exercise of the right,  power or privilege,  or the exercise of any other power
or right.  The rights and remedies  provided in this  Guaranty  are  cumulative
and not exclusive of any rights or remedies provided by law.

      9.   Notice  or  demand  to  the  parties  to  this  Guaranty   shall  be
sufficiently  given if in  writing  and  personally  delivered,  or  mailed  by
registered  or certified  first class mail,  postage  prepaid,  return  receipt
requested,  or  sent  by  commercial  courier  against  receipt,  to the  party
intended  and at the address or  addresses  specified  in the  preamble to this
Guaranty.  Any party may  designate  a change of  address  by notice in writing
to the other  parties,  the notice to be effective  ten (10) days after mailing
or delivery as provided in this Section 9.

        10.Guarantor hereby represents, warrants, and covenants to Lender:

           (a)  Guarantor  has the full  right,  power and  authority  to enter
              into this Guaranty.

           (b) The  execution,  delivery and  performance of this Guaranty will
   not violate any  provision of law or any order of any court or  governmental
   agency or conflict  with, or result in a breach of, or  constitute  (with or
   without notice or lapse of time or both) a default  under,  or result in the
   creation of any security  interest,  lien,  charge or  encumbrance  upon any
   property or assets of  Guarantor,  pursuant to any  agreement,  indenture or
   other instrument to which it is a party or by which it may be bound.

           (c)  Except  as  disclosed  to  Lender  in  writing   prior  to  the
   execution of this Guaranty, no action, suit,  investigation or proceeding is
   pending or known to be threatened  against or affecting  Guarantor  that, if
   adversely  determined,  would  have  a  material  adverse  effect  upon  its
   financial condition.



                                       3


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<PAGE>

           (d)  Guarantor  is  not  in  default  under  any  provision  of  any
indenture  relating to borrowed money,  any agreement to which it is a party or
by which it is bound, any other  indenture,  or any order,  regulation,  ruling
or  requirement  of a court or public body or  authority  by which it is bound,
which default would have a material  adverse  effect on the financial  position
of Guarantor.

           (e)  No  license,  consent  or  approval  of,  or filing  with,  any
governmental  body or other  regulatory  authority  is required  for the making
and  performance  of, or any  instrument or transaction  contemplated  by, this
Guaranty.   Guarantor  holds  all  certificates  and   authorizations   of  all
governmental  agencies and  authorities  required by law to enable it to engage
in the business  currently  transacted  by it,  except those  certificates  and
authorizations  as  to  which  the  failure  to  so  hold  would  not,  in  the
aggregate, have a material adverse effect on Guarantor.

      11.  No  provision  of  this  Guaranty   shall  be  waived,   amended  or
supplemented except by a written instrument executed by Lender-

      12.  The  obligations of Guarantor  under this Guaranty shall continue in
full force and effect and shall remain in  operation  until all of the Overline
Obligations  shall have been paid in full or  otherwise  fully  satisfied,  and
continue to be effective or be  reinstated,  as the case may be, if at any time
payment or other  satisfaction of any of the Overline  Obligations is rescinded
or must otherwise be restored or returned upon the bankruptcy,  insolvency,  or
reorganization of Borrower,  or otherwise,  as though such payment had not been
made  or  other   satisfaction   occurred.   No  invalidity,   irregularity  or
unenforceability  by reason of applicable  bankruptcy laws or any other similar
law, or any law or order of any government or government  agency  purporting to
reduce,  amend or otherwise  affect,  the Overline  Obligations,  shall impair,
affect,  be a defense to or claim against the  obligations  of Guarantor  under
this Guaranty.

      13.  In addition to its guarantee of  Borrower's  payment of the Overline
Obligations  and  Borrower's  performance  of all  covenants,  obligations  and
agreements   contained   in  the  Loan   Documents   related  to  the  Overline
Obligations,  Guarantor  shall pay all  actual  costs and  expenses  (including
reasonable  attorney's  fees) paid or incurred by Lender in connection with the
enforcement of this Guaranty.

      14.  Guarantor  hereby  agrees to execute any and all further  documents,
agreements,  and instruments,  and take all further actions,  that Lender shall
reasonably  request to effectuate  or further  preserve,  evidence,  perfect or
protect  the  rights  purported  to be  created  in favor of Lender  under this
Guaranty.

      15.  Guarantor hereby assumes  responsibility for keeping itself informed
of the  financial  condition  of  Borrower,  and any and all  endorsers  and/or
other  guarantors of any  instrument or document  evidencing all or any part of
the  Overline  Obligations,  and of all other  circumstances  bearing  upon the
risk of  nonpayment  of the Overline  Obligations,  or any part of the Overline
Obligations,  that diligent  inquiry would reveal,  and Guarantor hereby agrees
that to advise  Guarantor of information  known to Lender regarding such Lender
shall have no duty  condition  or any such  circumstances.  If  Lender,  in its
sole  discretion,  undertakes  at any time or from time to time to provide  any
such  information  to  Guarantor,  Lender shall be under no  obligation  (i) to
undertake any investigation  not a part of its regular business  routine,  (ii)
to  disclose  any  information   that,   pursuant  to  accepted  or  reasonable
commercial  finance  practices,  Lender  wishes to  maintain  confidential,  or
(iii) to make any  other  or  future  disclosures  of such  information  or any
other information to Guarantor.




                                       4


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<PAGE>

     16.  This  Guaranty  may be executed in one or more  counterpart  copies,
each of which shall be an original and all of which together  shall  constitute
one  and  the  same  instrument,  and it is not  necessary  that  all  parties'
signatures appear on each counterpart.

      17.  If  any  term,  covenant  or  condition  of  this  Guaranty,  or the
application of such term,  covenant or condition to any party or  circumstance,
shall be  found by a court of  competent  jurisdiction  to be,  to any  extent,
invalid or  unenforceable,  the remainder of this Guaranty and the  application
of such terms,  covenant,  or condition to parties or circumstances  other than
those as to which it is held  invalid or  unenforceable,  shall not be affected
thereby,  and each term,  covenant or condition  shall be valid and enforced to
the fullest  extent  permitted by law.  Upon  determination  that any such term
is  invalid,  illegal or  unenforceable,  the  parties to this  Guaranty  shall
amend this  Guaranty  so as to effect  the  original  intent of the  parties as
closely as possible in an acceptable manner.

      18.  THIS  GUARANTY  SHALL BE GOVERNED BY, AND  CONSTRUED  IN  ACCORDANCE
WITH,  THE LAWS OF THE  STATE OF  MARYLAND,  WITHOUT  REGARD  TO ANY  OTHERWISE
APPLICABLE  PRINCIPLES  OF  CONFLICTS  OF LAWS.  IF ANY ACTION  ARISING  OUT OF
THIS  GUARANTY  IS  COMMENCED  BY LENDER  IN THE  STATE  COURTS OF THE STATE OF
MARYLAND  OR  IN  THE  U.S.  DISTRICT  COURT  FOR  THE  DISTRICT  OF  MARYLAND,
GUARANTOR  HEREBY  CONSENTS TO THE  JURISDICTION  OF ANY SUCH COURT IN ANY SUCH
ACTION  AND TO THE LAYING OF VENUE IN TIRE STATE OF  MARYLAND.  ANY  PROCESS IN
ANY SUCH ACTION  SHALL BE DULY  SERVED IF MAILED BY  REGISTERED  MAIL,  POSTAGE
PREPAID,  TO  GUARANTOR  AT ITS  ADDRESS  SET  FORTH  IN THE  PREAMBLE  TO THIS
GUARANTY.

      19.  GUARANTOR  HEREBY (A)  COVENANTS  AND AGREES NOT TO ELECT A TRIAL BY
JURY OF ANY  ISSUE  TRIABLE  OF RIGHT BY A JURY,  AND (B)  WAIVES  ANY RIGHT TO
TRIAL BY JURY FULLY TO THE EXTENT  THAT ANY SUCH RIGHT  SHALL NOW OR  HEREAFTER
EXIST.  THIS WAIVER OF RIGHT TO TRIAL BY JURY IS  SEPARATELY  GIVEN,  KNOWINGLY
AND  VOLUNTARILY,  BY  GUARANTOR,  AND THIS  WAIVER IS  INTENDED  TO  ENCOMPASS
INDIVIDUALLY  EACH  INSTANCE  AND EACH  ISSUE AS TO WHICH  THE  RIGHT TO A JURY
TRIAL WOULD  OTHERWISE  ACCRUE.  LENDER IS HEREBY  AUTHORIZED  AND REQUESTED TO
SUBMIT THIS GUARANTY TO ANY COURT HAVING  JURISDICTION  OVER THE SUBJECT MATTER
AND THE PARTIES HERETO,  SO AS TO SERVE AS CONCLUSIVE,  EVIDENCE OF GUARANTOR'S
WAIVER OF THE RIGHT TO JURY TRIAL.  FURTHER,  GUARANTOR  HEREBY  CERTIFIES THAT
NO  REPRESENTATIVE  OR  AGENT  OF  LENDER  (INCLUDING   LENDER'S  COUNSEL)  HAS
REPRESENTED,  EXPRESSLY OR  OTHERWISE,  TO GUARANTOR  THAT LENDER WILL NOT SEEK
TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.



                                       5

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<PAGE>


      20.  GUARANTOR  AUTHORIZES ANY ATTORNEY  ADMITTED TO PRACTICE  BEFORE ANY
COURT OF RECORD IN THE  UNITED  STATES OR THE CLERK OF SUCH  COURT TO APPEAR ON
BEHALF OF  GUARANTOR  IN ANY COURT IN ONE OR MORE  PROCEEDINGS,  OR BEFORE  ANY
CLERK  THEREOF  OF  PROTHONOTARY  OR  OTHER  COURT  OFFICIAL,  AND  TO  CONFESS
JUDGMENT  AGAINST  GUARANTOR  IN FAVOR OF LENDER IN THE FULL AMOUNT DUE ON THIS
GUARANTY (INCLUDING  PRINCIPAL,  ACCRUED INTEREST AND ANY AND ALL CHARGES, FEES
AND COSTS) PLUS  ATTORNEYS'  FEES EQUAL TO FIFTEEN  PERCENT (15%) OF THE AMOUNT
DUE,  PLUS COURT COSTS,  ALL WITHOUT  PRIOR NOTICE OR  OPPORTUNITY  OF BORROWER
FOR PRIOR HEARING.  GUARANTOR  AGREES AND CONSENTS THAT VENUE AND  JURISDICTION
SHALL BE PROPER IN THE  CIRCUIT  COURT OF ANY  COUNTY OF THE STATE OF  MARYLAND
OR OF BALTIMORE  CITY,  MARYLAND,  OR IN THE UNITED STATES  DISTRICT  COURT FOR
THE  DISTRICT  OF  MARYLAND.  GUARANTOR  WAIVES  THE  BENEFIT  OF ANY AND EVERY
STATUTE,  ORDINANCE,  OR RULE OF COURT WHICH MAY BE LAWFULLY WAIVED  CONFERRING
UPON  GUARANTOR ANY RIGHT OR PLEDGE OF  EXEMPTION,  HOMESTEAD  RIGHTS,  STAY OF
EXECUTION, OR SUPPLEMENTARY  PROCEEDINGS,  OR OTHER RELIEF FROM THE ENFORCEMENT
OR IMMEDIATE  ENFORCEMENT  OF A JUDGMENT OR RELATED  PROCEEDINGS ON A JUDGMENT.
THE  AUTHORITY  AND POWER TO APPEAR FOR AND ENTER  JUDGMENT  AGAINST  GUARANTOR
SHALL NOT BE EXHAUSTED BY ONE OR MORE  EXERCISES  THEREOF,  OR BY ANY IMPERFECT
EXERCISE  THEREOF,  AND  SHALL  NOT BE  EXTINGUISHED  BY ANY  JUDGMENT  ENTERED
PURSUANT  THERETO;  SUCH  AUTHORITY  AND POWER MAY BE  EXERCISED ON ONE OR MORE
OCCASIONS FROM TIME TO TIME, IN THE SAME OR DIFFERENT  JURISDICTIONS,  AS OFTEN
AS LENDER SHALL DEEM NECESSARY, CONVENIENT, OR PROPER.








                                       6
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<PAGE>

          IN  WITNESS  WHEREOF,  Guarantor  has  caused  this  Guaranty  to be
executed as of the date first written above.

WITNESS:                       GUARANTOR:



______________________________      /s/  Bruce A. Shear





                         ACKNOWLEDGMENT AND STIPULATION

  The  undersigned  hereby  acknowledges  and  stipulates  that  (i) she is the
  spouse  of  Guarantor,  (ii)  Lender  is  looking  to the  property  owned by
  Guarantor and the property owned jointly by Guarantor and the  undersigned to
  support the Guaranty,  and (iii) all property  jointly owned with  Guarantor,
  whether as tenants-in-common,  tenants in the entirety or joint tenants or as
  community  property,  and whether now owned or  hereafter  acquired  (whether
  subject to the sole management of Guarantor or the  undersigned),  is subject
  to,  and  may be  used  for,  the  payment  and  performance  of  Guarantor's
  obligations under the above Guaranty.  Notwithstanding the foregoing,  Lender
  shall have no recourse  against the separate  property of the undersigned for
  satisfaction of any such obligations.

       This  Acknowledgment  and  Stipulation  is entered into as of August 11,
  1999 for the benefit of Lender.



  WITNESS:

___________________________________ _________________________________________
  Name:




                                       7
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<PAGE>
Exhibit 10.67

                     AMENDMENT NO. 3 TO SECURED BRIDGE NOTE


           THIS  AMENDMENT NO. 3 TO SECURED  BRIDGE NOTE (the  "Amendment")  is
hereby  entered into as of the 10th day of May, 1999 by and among PHC,  INC., a
Massachusetts corporation  ("Borrower"),  and HCFP FUNDING II, INC., a Delaware
corporation ("Lender").

       A.  Borrower and Lender  entered into that certain  Secured  Bridge Note
  (the  "Note")  dated March 10,  1998 in the  principal  sum of Three  Hundred
  Fifty and 00/100 Dollars  ($350,000.00),  which had an original Maturity Date
  of July 10, 1998.

       B.  Pursuant to Amendment No. 1 to Secured  Bridge Note dated as of July
  10,  1998,  Lender  agreed  to extend  the  Maturity  Date of the Note  until
  November 10, 1998.

       C.  Pursuant  to  Amendment  No. 2 to  Secured  Bridge  Note dated as of
  November 10,  1998,  Lender  agreed to extend the  Maturity  Date of the Note
  until May 10, 1999.

       D.  Borrower  has  requested  that  the  Maturity  Date  of the  Note be
  extended for an additional  two (2) months,  which  extension of the Maturity
  Date is essential to Borrower in continuing to finance its operations.

       E.  Lender  has agreed to extend  the  Maturity  Date upon the terms and
  conditions of this Amendment.

       NOW, THEREFORE, the parties agree as follows:

       1.  Capitalized  terms used and not otherwise  defined in this Amendment
  shall have the meanings given them in the Note.

      2.   Borrower and Lender  hereby  affirm and agree that the Maturity Date
  of the Note is hereby extended to July 10, 1999.

      3.   This  Amendment  may be executed in several  counterparts,  and each
copy so executed shall be deemed an original.

      4.   Except  as   expressly   stated  in  this   Amendment,   the  terms,
conditions,  and  provisions of the Note, as amended by this  Amendment,  shall
remain  in full  force  and  effect  and shall  not be  modified  or  otherwise
affected by the execution of this Amendment.





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<PAGE>

      IN WITNESS  WHEREOF,  the parties have executed or caused this  Amendment
to be executed by their  respective  officers  thereunto duly  authorized as of
the day and year first above written.



                             LENDER:

                             HCFP FUNDING II, INC.
                             a Delaware corporation


                             By:      /s/  Jeffrey P. Hoffman
                             Title:   Vice President



                             BORROWER:

                             PHC, INC
                             a Massachusetts corporation


                             By:      /s/  Bruce A. Shear
                             Title:   President


      5.   Upon execution of this Letter  Agreement,  a fee of Ten Thousand and
00/100  Dollars  ($10,000)  will be charged to the Revolving  Loan Balance (the
"Extension  Fee"). In addition,  during the extension  period,  the lender will
determine  the terms of a proposed  Revolving  Credit Line.  If  approved,  the
$10,000  Extension Fee will be applied against the Due Diligence,  legal costs,
and any fees charged for this new Loan.


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                                        2
<PAGE>
Exhibit 99.1

                        CAUTIONARY STATEMENT FOR PURPOSES
                      OF THE SAFE HARBOR" PROVISIONS OF THE
                      RIVATE LITIGATION REFORM ACT OF 1995

     PHC,  Inc.  (the  "Company")  desires  to take  advantage  of the new "safe
harbor" provisions of the Private  Securities  Litigation Reform Act of 1995 and
is including this Exhibit 99.1 in its Form 10-KSB in order to do so.

     The Company wishes to caution readers that the following important factors,
among others, in some cases have affected,  and in the future could affect,  the
Company's  actual  results and could  cause the  Company's  actual  consolidated
results for the Company's  current quarter and beyond, to differ materially from
those expressed in any forward-looking  statements made by, or on behalf of, the
Company.

     During  its last  fiscal  year and in  certain  other  fiscal  years of its
operation,  the Company has generated  losses and there can be no assurance that
future losses will not occur.

     The Company has experienced a significant  increase in accounts  receivable
in recent years and there can be no assurance that this trend will not continue,
and that if it does,  that it will not have a  material  adverse  effect  on the
Company's cash flow and financial performance.

     The Company historically  experiences and expects to continue to experience
a  decline  in  revenue  in its  fiscal  quarters  ending  December  31 due to a
seasonality  decline in revenue from the Company's  substance  abuse  facilities
during such period.

     Payment for the company's  substance abuse treatment is provided by private
insurance  carriers and managed care  organizations;  payment for  long-term and
subacute  care  is  provided  by  private  insurance   carriers,   managed  care
organizations  and the Medicare and Medicaid  programs;  payment for psychiatric
services is provided by private insurance  carriers,  managed care organizations
and the Medicare and Medicaid  programs.  In general,  revenues derived from the
Medicare and Medicaid  programs in  connection  with the  long-term and subacute
care services  provided by the Company have been less  profitable to the Company
than revenues  derived from private  insurers and managed care  organizations in
connection  with the  substance  abuse  treatment  provided  by the  Company and
changes in the sources of the Company's revenues could  significantly  alter the
Company's profitability.

     Additionally,  the Company  experiences greater delays in the collection of
amounts  reimbursable  by  the  Medicare  and  Medicaid  programs  than  in  the
collection  of  amounts  reimbursable  by  private  insurers  and  managed  care
organizations. Accordingly, a change in the Company's service mix from substance
abuse to long-term care could have a materially adverse effect on the Company as
would an increase in the percentage of the Company's patients who are insured by
Medicare or Medicaid.

     Cost  containment  pressures  from  private  insurers in the  Medicare  and
Medicaid  programs  may begin to restrict the amount that the Company can charge
for its services.

     There can be no  assurance  that the  Company's  existing  facilities  will
continue to meet, or that proposed  facilities will meet, the  requirements  for
reimbursement by third party or government payors.

     The Company has  substantial  receivables  from Medicare and Medicaid which
constitute  a  concentration  of credit risk should these  agencies  defer or be
unable to make reimbursement payments as due.

     The Company  often  experiences  significant  delays in the  collection  of
amounts  reimbursable by third-party  payors.  Although the Company  believes it
maintains  an  adequate  allowance  for  doubtful  accounts,  if the  amount  of
receivables which eventually becomes uncollectible  exceeds such allowance,  the
Company could be materially adversely affected.

     If a growing number of managed care  organizations and insurance  companies
adopt policies which limit the length of stay for substance abuse treatment, the
Company's business would be materially adversely affected.

     There can be no assurance that occupancy rates at the Company's  facilities
will continue at present levels.  Similarly,  there can be no assurance that the
patient census will not decrease in the future.

     There  can  be  no  assurance  that  the  Company  will  be  successful  in
identifying  appropriate  acquisition  opportunities,  or if it  does,  that the
Company will be  successful in acquiring  such  facilities or that such acquired
facilities  will be  profitable.  The  failure of the company to  implement  its
acquisition  strategy  could have a materially  adverse  effect an the Company's
financial performance. Moreover, the inherent risks of expansion could also have
a material adverse effect on the Company's business.

     Additionally,  the  company's  acquisition  program will be directed by the
President  and Chief  Executive  officer of the Company and the Company does not
intend to seek stockholder approval for any such acquisitions unless required by
applicable law or  regulations.  Accordingly,  investors  will be  substantially
dependent upon the business judgment of management in making such  acquisitions.
Furthermore, the company's acquisition strategy is highly dependent on access to
capital, of which there can be no assurance.

     The Company and the healthcare industry in general are subject to extensive
federal,  state and local  regulation  with respect to licensure  and conduct of
operations.  There can be no  assurance  that the Company will be able to obtain
new  licenses  to affect its  acquisition  strategy  or  maintain  its  existing
licenses and reimbursement program participation approvals.

     It is not  possible to  accurately  predict the content or impact of future
legislation and regulations affecting the healthcare industry. In addition, both
the  Medicare and Medicaid  programs  are subject to  statutory  and  regulatory
changes and there can be no assurances that payments under those programs to the
Company will, in the future,  remain at a level  comparable to the present level
or be sufficient to cover the cost allocable to such patients.

     Bruce A. Shear the  President  and Chief  Executive  officer of the Company
together with his affiliates is able to control all matters  requiring  approval
of the stockholders, including the election of a majority of the directors, as a
result of his ownership of the Company's stock.

     There can be no assurance  that the Company will be successful in hiring or
retaining the personnel it requires for  continued  growth,  or that the Company
will be able to  continue  to attract  and retain  highly  qualified  personnel,
particularly  skilled healthcare  personnel.  The healthcare  business is highly
competitive and subject to excess capacity.

     The Company has entered into relationships with large employers, healthcare
institutions,  labor  unions  and other key  clients to  provide  treatment  for
chemical  dependency and substance  abuse as well as other services and the loss
of any of these key clients  would  require  the Company to expend  considerable
effort to replace  patient  referrals and would result in revenue  losses to the
Company and attendant loss in income.

     Existing environmental contamination at certain of the Company's facilities
and potential future  environmental  contamination at facilities acquired by the
company could have a materially adverse effect on the Company's operations.

     On October  31,  1994,  the  Company  was served with a summons for a Civil
Action in the Superior Court  Department of the Trial Court of the  Commonwealth
of Massachusetts by NovaCare, Inc. ("NovaCare"), an entity which contracted with
the Company in 1992 to provide rehabilitation therapy and related administrative
services to the Company's long-term care facility (the "Action").  The complaint
alleged  that the Company  owed  NovaCare  contractual  damages in the amount of
approximately $587,000, plus interest,  attorney fees, costs of collection,  and
double or triple damages pursuant to a Massachusetts  statute prohibiting unfair
and deceptive trade  practices.  The Company filed a counterclaim  alleging that
NovaCare  breached  the  contract in  question  and that the Company may be owed
damages in excess of the amount sought by NovaCare.

     On February  13,  1996,  the company  settled the Action by agreeing to pay
NovaCare  an amount  less than its claim.  The  Company  is not paying  NovaCare
accrued interest,  attorney's fees, costs of collection,  or multiple damages. A
portion of the  settlement  amount has  already  been paid.  The  balance of the
settlement amount is payable over twelve (12) months with interest on the unpaid
balance at 9.5%. In the event that the Company defaults on its obligation to pay
the  settlement  amount,  it has agreed to entry of  judgment  against it in the
amount of $457, 637.46 (the "Judgment"). The Judgment represents the full unpaid
balance of NovaCare's claim against the Company, including interest,  attorney's
fees, and costs of collection. Any amounts paid by the Company to NovaCare after
February  9, 1996 shall be  deducted  from the  Judgment.  Until the  settlement
amount is paid, NovaCare will continue to hold a mortgage on a day care property
owned by the Company in Saugus, Massachusetts.  As of Fiscal Year Ended June 30,
1997, this obligation has been paid in full.

     Interruption  by fire,  earthquakes  or other  catastrophic  events,  power
failures,  work  stoppages,  regulatory  actions  or other  causes to any of the
Company's operations could have a materially adverse impact on the Company.

     The company has and in the future may enter into  transactions  in which it
acquires  businesses or obtains financing for a consideration  that includes the
issuance of stock,  warrants,  options or convertible  debt at a price less than
the value at which the Company's stock may then be trading in the public markets
or which are  convertible  into or exercisable  for Common Stock at a conversion
rate or exercise  price less than such value.  Such  transactions  may result in
significant dilution to the existing holders of the Company's stock.

     The Company has authorized  1,000,000  shares of Preferred Stock, the terms
of which  may be  fixed  and  which  may be  issued  by the  Company's  Board of
Directors,  without  stockholder  approval.  The issuance of the Preferred Stock
could have the effect of making it more  difficult  for a third party to acquire
the Company and may result in the  issuance of stock that  dilutes the  existing
stockholders and has  liquidation,  redemption,  dividend and other  preferences
superior to the Company's outstanding Class A Common Stock.


NOTE:

     THIS DOES NOT DISCUSS PREFERRED STOCK,  REDEMPTION OF WARRANTS, THE EFFECTS
OF DE-LISTING FROM NASDAQ,  PENNY STOCK RULES OR THIN FLOAT. THOSE SUBJECTS ARE,
HOWEVER, INCLUDED IN THE RISK-FACTOR SECTION OF THE 06/97 S-3.

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