-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hm42IwWjPkKQVTrlyls0FaFzIrnNqdZKqbM3X4kb80ENpqujGpUH3Lu7oPPP59Yt sDoraf6LTn0V+azV55/L+A== 0001047469-99-017260.txt : 19990503 0001047469-99-017260.hdr.sgml : 19990503 ACCESSION NUMBER: 0001047469-99-017260 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHYMATRIX CORP CENTRAL INDEX KEY: 0001002022 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 650617076 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27568 FILM NUMBER: 99606083 BUSINESS ADDRESS: STREET 1: 777 S FLAGLER DR STREET 2: SUITE 1000E CITY: WEST PALM BEACH STATE: FL ZIP: 33401 BUSINESS PHONE: 5616553500 MAIL ADDRESS: STREET 1: 777 SOUTH FLAGLER DRIVE STREET 2: SUITE 1000E CITY: WEST PALM BEACH STATE: FL ZIP: 33401 FORMER COMPANY: FORMER CONFORMED NAME: CONTINUUM CARE CORP DATE OF NAME CHANGE: 19951010 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------- FORM 10-K ---------- (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended January 31, 1999 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from ___ to ____. Commission file number 0-27568 PHYMATRIX CORP. (Exact name of registrant as specified in its charter) Delaware 65-0617076 (State of incorporation) (I.R.S. Employer Identification No.) 10 Dorrance Street, Suite 400, Providence, Rhode Island 02903 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (401) 831-6755 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $ 0.01 PER SHARE Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] On April 9, 1999, the aggregate market value of the Common Stock of the registrant held by non-affiliates of the registrant was $39,979,551. On April 9, 1999, the number of outstanding shares of the registrant's Common Stock, par value $0.01 per share, was 32,697,844. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL PhyMatrix Corp. (together with its subsidiaries, the "Company" or "PhyMatrix") is repositioning itself as a company that provides diverse services supporting the needs of the pharmaceutical and managed care industries. The Company is focusing its operations on two integrated business lines: pharmaceutical services, including investigative site management, clinical and outcomes research and disease management, as well as multi and single-specialty provider network management. Historically, the Company has been an integrated medical management company that provides medical management services to the medical community, certain ancillary medical services to patients and medical real estate development and consulting services to related and unrelated third parties. In August 1998, the Company announced that it planned to change this business model. The Company is in the process of terminating its management of individual and group physician practices and divesting itself of related assets, and selling and divesting itself of its ancillary medical service businesses, such as diagnostic imaging, radiation therapy, lithotripsy services, home healthcare and infusion therapy. The Company also has significantly downsized its medical facility development and consulting services. The Company currently estimates that by the end of its current fiscal year it will have exited a majority of its physician practice management ("PPM") and ancillary medical service businesses. The Company's strategic goal is to become a leader in the development of innovative healthcare solutions capable of meeting the current and emerging research, marketing and operations demands of the pharmaceutical and managed care industries services. The Company believes that significant synergy exists among its pharmaceutical services and provider network management divisions. The Company intends to leverage its key competencies - clinical trial site management, outcomes research and network management services - to provide solutions that benefit both pharmaceutical and managed care companies. Through the Company's ability to access clinical practitioners and patients, the Company will attempt to accelerate the rate of Food and Drug Administration ("FDA") approval of pharmaceutical products for its clients and enhance market acceptance of such products. The Company provides its clinical and outcomes research services through a wholly-owned subsidiary, Clinical Studies, Ltd. ("CSL"), a multi-therapeutic site management organization ("SMO") based in Providence, Rhode Island. CSL, which was acquired by the Company in October 1997, provides clinical investigative site management services to 38 research facilities in 16 states. The Company owns and centrally manages Phase I through IV research facilities to conduct clinical trials for the pharmaceutical and biotechnology industries and contract research organizations ("CROs") and provides a broad range of pre- and post-FDA approval services designed to expedite new product approval and market acceptance. The Company has participated in over 600 clinical trials for approximately 100 clients and enrolled over 20,000 patients. The Company conducts clinical research in over 10 therapeutic areas, with focused expertise in central nervous system, asthma and allergy, respiratory, oncology, endocrinology and women's health. The Company also designs and conducts customized economic and epidemiological research. The Company provides an environment for proactively collecting medical and economic data, thereby linking clinical with "real life" marketing considerations and quality cost-effective patient outcomes. The Company believes that a critical element of its ability to expedite the clinical process is its relationship with existing networks of approximately 9,000 physicians who have more than 8 million member patients. The Company provides network management services to independent physician associations ("IPAs"), specialty care physician networks and hospitals. The Company provides services to IPAs through management service organizations ("MSOs") in which the Company has ownership interests. The Company provides services to hospitals and specialty care networks primarily through management agreements. The Company offers these organized groups of physicians comprehensive network management services to enable them to fulfill their obligations to managed care organizations. These services include network development, medical management and managed care contracting. The Company also provides management expertise and services to managed care organizations. These services allow managed care organizations to provide efficient, cost-effective healthcare delivery while maintaining access to high-quality providers. 2 Upon the completion of the sale of a majority of its non-core assets, the Company intends to change its name to Innovative Clinical Solutions, Ltd. CLINICAL RESEARCH INDUSTRY OVERVIEW The clinical research industry is driven by the need of the pharmaceutical, biotechnology and medical device companies to thoroughly test new drugs and medical devices prior to commercialization in accordance with strict government regulations imposed by the FDA in the United States and various international authorities. Competitive and cost-containment pressures are forcing the pharmaceutical and biotechnology industries to become more efficient in developing new drugs. To improve returns on research and development investments, pharmaceutical and biotechnology companies ("Sponsors") are expanding their product pipelines and attempting to shorten the product development process. In response to similar pressures in the healthcare industry, many hospitals, physicians and other healthcare providers have added clinical research capabilities as an additional revenue source. Clinical research allows healthcare providers to extend their core competencies and leverage their direct access to patients. Sponsors have attempted to create process efficiencies, control fixed costs and expand capacity by outsourcing certain drug development and clinical research activities to CROs and SMOs. The amount of clinical research that is outsourced varies by Sponsor. In general, the Company believes that Sponsors will continue to increase the amount of outsourcing for a variety of reasons, including the ability to obtain temporary access to a particular therapeutic focus and expertise to develop products for many diseases. The global pharmaceutical and biotechnology industries spent approximately $35.0 billion in 1997 on research and development. Approximately $7.0 billion in total was outsourced, including approximately $3.0 billion outsourced to CROs and approximately $4.0 billion outsourced to investigative sites. CLINICAL INVESTIGATIVE SITE MANAGEMENT SERVICES The Company provides clinical investigative site management services to 38 research facilities in 16 states. The Company both owns and centrally manages Phase I through IV research facilities to provide a broad range of pre- and post-FDA approval services designed to expedite new product approval and market acceptance. The Company conducts clinical research in a wide variety of therapeutic areas, including central nervous system, asthma and allergy, respiratory, oncology, endocrinology and women's health. Services include project initiation (contracting, budgeting and regulatory), project management, patient recruitment and data collection. The Company believes that the size, therapeutic breadth and depth, experience and national scope of its SMO business together with its strong relationships with physicians and managed care companies offer it a competitive advantage as the SMO industry evolves. The Company is able to provide pharmaceutical companies and CROs with access to patients and cost-effective organization of data collection. Clinical trials represent one of the most expensive and time-consuming parts of the overall drug development process. The trial's success depends on the successful recruitment of experienced physicians (and other medical professionals) to serve as investigators for the clinical trials. The Company has direct access to approximately 80 investigators through its 38 sites. The speed with which trials can be completed is significantly affected by the rate at which patients who satisfy the requirements of the trial's protocol can be identified and enrolled. The Company believes it has an advantage in its ability to enroll qualified patients due to its relationship with networks of approximately 9,000 primary care and specialty-care physicians with over 8 million member patients. The information generated during clinical trials is critical for gaining marketing approval from the FDA or other regulatory agencies. Clinical trials must be monitored for strict adherence to good clinical practices ("GCP"). The Company's training programs, standard operating procedures and quality assurance and control programs aid the clinical investigators and their staff in following GCP and the established protocols of the studies. The Company 3 has adopted standard operating procedures which are intended to satisfy regulatory requirements and serve as a tool for controlling and enhancing the quality of the Company's nationwide clinical services. When prospective patients are enrolled in a clinical trial, they are required to review information about the drug and its possible side effects and sign an informed consent form to record their knowledge and acceptance of potential side effects. Patients also undergo a medical examination to determine whether they meet the requirements of the study protocol. Patients then receive the drug under investigation and are examined by the investigator as specified by the study protocol. Investigators are responsible for administering drugs to patients, as well as examining patients and conducting necessary tests. The Company's clinical research coordinators are responsible for completing Case Report Forms and tracking the patients' visits throughout the period of the study. The data is reviewed by clinical research associates from either the Sponsor or CRO and sent to the Sponsor for analysis. The Company's contracts provide a fixed price for each component or service delivered. The ultimate contract value depends on such variables as the number of research sites selected, patients enrolled and other services required by the Sponsor. The Company's contracts range in duration from several months to several years. Revenue is earned as patient visits are conducted and such services are provided. Costs associated with contract revenue are recognized as incurred. Cash flows vary with each contract, although generally a portion of the contract fee is paid at the time the trial begins, with the balance paid as pre-determined contract milestones are satisfied. Generally, Sponsors may terminate a contract with the Company with or without cause. In the event of termination, the Company is entitled to payment for all work performed through the date of notice of termination and for costs associated with termination of the study. Clinical trials may be terminated for several reasons, including unexpected results or adverse patient reactions to the drug, inadequate patient enrollment, manufacturing problems resulting in shortage of the drug and decisions by the Sponsor to de-emphasize or terminate either a particular trial or drug. A Sponsor's decision to terminate a sizable trial in which the Company participates could have a material adverse effect on the Company's business and results of operations. OUTCOMES RESEARCH The Company designs and conducts customized economic and epidemiological research for the pharmaceutical, biotechnology, medical device and managed care industries. The Company also has expertise in developing patient registries and designing disease management programs. The Company provides an environment for proactively collecting medical and economic data, thereby linking clinical research with "real life" marketing considerations and quality cost-effective patient outcomes. These services enable regulators, healthcare providers, pharmaceutical and biotechnology companies and others to assess information concerning new medical therapies, including pricing and cost-effectiveness of new medical therapies. PROVIDER NETWORK MANAGEMENT INDUSTRY OVERVIEW The Health Care Financing Administration ("HCFA") estimates that national healthcare spending in 1996 exceeded $1 trillion, or 9% of the gross domestic product ("GDP"). HCFA projects that annual healthcare spending will increase at a compound annual growth rate of over 8% to $1.5 trillion, or 16% of the GDP by year 2000. Increasing concern over the cost of healthcare in the United States has led to numerous initiatives to contain the growth of healthcare expenditures, particularly in the government entitlement programs of Medicare and Medicaid. These concerns and initiatives have contributed to the growth of managed care. From 1991 to 1996, HMO enrollment in the United States increased from 37 million to 60 million. As markets evolve from traditional fee-for-service medicine to managed care, HMOs and healthcare providers confront market pressures to provide high quality healthcare in a cost-effective manner. Managed care typically involves a third party (frequently the payor) governing the provision of healthcare with the objective of ensuring delivery in a high quality and cost effective manner. One method for achieving this objective is the implementation of capitated payment systems in which traditional fee-for-service methods of compensating healthcare providers are replaced with systems that create incentives for the provider to manage the healthcare needs of a defined population for a set fee. 4 PROVIDER NETWORK MANAGEMENT SERVICES The Company provides network management expertise and services to single and multi-specialty healthcare providers and managed care organizations. These services allow managed care organizations to provide efficient, cost-effective healthcare delivery while maintaining access to high-quality providers. The Company also offers comprehensive network managed care services to organized groups of physicians, enabling them to fulfill their obligations to managed care organizations. The Company actively pursues contractual arrangements with managed care organizations. The Company develops specialty care networks within which the affiliated physicians are responsible for providing all or a portion of specific healthcare services to a particular patient population. The Company provides managed care contracting services to national and local physician specialty care networks containing over 3,000 physician members. Through its specialty care networks, the Company facilitates the delivery of healthcare services to approximately 8 million member patients. The Company provides services, including initiating and completing contract negotiations, claim adjudication processing, financial, quality assurance and utilization management reporting, credentialing, network management (such as provider relations and recruitment), financial management (which involves risk pool management) and providing payment arrangements for providers and shared member services with health plans. The Company plans to continue to increase its managed care capabilities into additional specialty care physician networks and expand existing relationships with established managed care organizations. Currently, the Company does not share in any downside capitation risk. The Company's network specialties include allergy, chiropractic, dermatology, gastroenterology, hospitalist, podiatry, pulmonary and urology. The Company manages IPAs through MSOs in which the Company has ownership interests. The Company operates six MSOs in three states, providing network management services to more than 5,000 physicians, primarily in the Northeast. An IPA is generally composed of a group of independent physicians who form an association for the purpose of contracting as a single entity. Participation in IPAs and specialty care networks allow individual practitioners to access patients in their respective areas through contracts with HMOs without having to join a group practice. The IPA structure not only increases the contracting power of the constituent practices, but also provides a foundation for the development of an integrated physician network. IPAs provide or contract for medical management services to assist physician networks in obtaining and servicing managed care contracts. As a result, previously unaffiliated physicians can assume and more effectively manage capitated risk. The Company believes that organized providers of healthcare, like IPAs, will play a significant role in delivering cost effective, quality medical care. The MSO is a joint venture between a physician organization (usually an IPA, although sometimes a hospital) and a management organization, such as the Company. The Company generally affiliates with an MSO by acquiring an equity interest in it. The MSO enters into a long-term management services agreement with an IPA or other physician organization pursuant to which the MSO provides management services to the IPA or organization. The MSO then enters into a services agreement with the Company pursuant to which the Company provides some or all of the management services that the MSO is required to provide to its affiliated physicians. The fee paid to the Company is generally either a fixed amount per enrollee or a specified percentage of capitated revenues. In addition, the Company may be entitled to participate in risk pools. Currently, the Company does not share in any downside risk. The fees are set to be competitive within the geographic area in which the IPA is located. The Company has formed an MSO with Beth Israel Medical Center and physician organizations that represent approximately 1,000 primary care and specialty physicians of Beth Israel and St. Luke's-Roosevelt Hospital Center, the hospitals that comprise Greater Metropolitan Health Systems, Inc. This MSO provides the physicians and hospitals with medical management and contract negotiation support for risk agreements with managed care payors. The Company and Beth Israel Medical Center also have entered into a management agreement to expand both organizations' involvement in pharmaceutical industry-sponsored research. The Company and Beth Israel will work with many leading pharmaceutical companies on Phase I through Phase IV clinical trials. 5 The Company is focused on integrating its network physicians with its clinical site management services because it believes that doing so will provide the IPA physicians with enhanced clinical information, the opportunity to generate more revenue and an enhanced reputation by participating in trials. BUSINESSES HELD FOR SALE During August 1998, the Board of Directors approved, consistent with its goal of repositioning the Company, a plan to divest and exit the Company's PPM business and certain of its ancillary services businesses, including diagnostic imaging, lithotripsy and radiation therapy. After further evaluation, the Company also decided to divest its home health business and exit its infusion therapy businesses. Net loss for the year ended January 31, 1999 includes an extraordinary item of $96.8 million which is primarily a non-cash charge resulting from divestitures or disposals that had occurred subsequent to August 1998, as well as the write-down of the assets of businesses identified to be divested or disposed subsequent to January 31, 1999. From August 1998 through April 15, 1999, the Company has divested eight physician practices, terminated its relationships with four employed physicians and sold two radiation therapy centers and an equity investment in a lithotripsy business. As of April 15, 1999, the Company's assets held for sale has remaining affiliations through management and/or employment agreements with approximately 150 physicians in eight states, 14 diagnostic imaging centers in four states, seven radiation therapy centers in three states and six mobile lithotripters. The Company is continuing to provide information to and negotiate with various purchasers of its remaining businesses. Based upon current fair market value estimates, the Company expects to realize net proceeds of approximately $100.8 million from the sale of these remaining businesses identified to be divested or disposed and has recorded this amount as an asset held for sale on the balance sheet at January 31, 1999. REAL ESTATE SERVICES SEGMENT The Company historically has provided real estate services to related and unrelated third parties primarily for the establishment of various healthcare related facilities, including health parks, medical malls and medical office buildings. The Company's real estate services have included project finance assistance, project management, construction management, construction design engineering, consulting, asset conversions, due diligence services, physician recruitment, leasing and marketing. Under its development agreements, the Company is generally obligated to secure funding for and guaranty the maximum cost of a project. In order to minimize the risks from these obligations, the Company enters into construction agreements with general contractors to construct the project for a "guaranteed maximum cost." Furthermore, each construction agreement provides for indemnification of the Company by the general contractor for certain losses and damages. Each construction agreement also requires the contractor to obtain and maintain a performance bond and a labor and material payment bond, written by a surety company with a Best's Key Guide Rating of not less than A+12 and satisfactory to the owner of the land on which a project is developed and the construction lender. In connection with the Board of Directors' plan to reposition the Company, and due in part to the resignation of Bruce A. Rendina as Chief Executive Officer of the Company's real estate services segment, see "Certain Transactions," the Company has decided to significantly downsize its real estate services segment. During the fourth quarter ended January 31, 1999, the Company recorded a goodwill impairment write-down of approximately $9.1 million which eliminates the remaining goodwill of the real estate services segment. POTENTIAL LIABILITY AND INSURANCE The Company is subject to medical malpractice, personal injury and other liability claims related to the operation of its clinical studies business, healthcare facilities and provision of other healthcare services. 6 Clinical trials involve the testing of approved and non-approved drugs on human beings. This testing carries with it a significant risk of liability for personal injury or death to participants resulting from an adverse reaction to, or improper administration of, the trial drug. Many clinical trial participants are seriously ill and are at great risk of further illness or death as a result of factors other than their participation in the trial. The Company contracts on behalf of Sponsors with physicians who render professional services, including administering the drugs being tested, to participants in these trials. Company personnel and subcontractors also render professional services to participants in trials and are materially involved in the patient treatment process. Consequently, the Company may be subject to claims in the event of personal injury or death of persons participating in clinical trials and arising from professional malpractice of physicians with whom it has contracted and its own employees. To date, the Company has not received any claims resulting from either the testing of new drugs or professional malpractice. The Company believes that the risk of liability associated with clinical trials is mitigated by various regulatory requirements, including the role of independent review boards ("IRBs"). An IRB is an independent committee that includes medical and non-medical personnel and is obligated to protect the interests of patients enrolled in the trials. The FDA requires each human clinical trial to be reviewed and approved by the IRB at each research site. After the trial begins, the IRB monitors the protocol and the measures designed to protect patients, such as the requirement to obtain informed consent. In addition, regulations governing the conduct of clinical trials and the protection of human subjects place responsibility for proper study conduct and subject protection directly on the principal investigator at each location where a study is performed. The Company maintains liability and medical professional insurance policies with such coverages and deductibles as are deemed appropriate by management, based upon historical claims, industry standards and the nature and risks of its business. There can be no assurance that a future claim will not exceed available insurance coverages or that such coverages will continue to be available for the same scope of coverages at reasonable premium rates. Any substantial increase in the cost of such insurance or the unavailability of any such coverages could have a material adverse effect on the Company's business. GOVERNMENT REGULATION The clinical investigation of new drugs is highly regulated by government agencies to ensure the products are safe and effective before broad public use. Before a new drug may be approved and marketed, the drug must undergo extensive testing and regulatory review in order to determine that the drug is safe and effective. The standard for the conduct of clinical research and development studies comprises GCP, which stipulates procedures designed to ensure the quality and integrity of data obtained from clinical testing and to protect the rights and safety of clinical subjects. While GCP has not been formally adopted by the FDA nor, with certain exceptions, by similar regulatory authorities in other countries, some provisions of GCP have been included in regulations adopted by the FDA. Furthermore, in practice, the FDA and many other regulatory authorities require that study results submitted to such authorities be based on studies conducted in accordance with GCP. The clinical investigative site management services provided by the Company are ultimately subject to FDA regulation in the United States. The Company is obligated to comply with FDA requirements governing such activities as obtaining patient informed consents, verifying qualifications of investigators, reporting patients' adverse reactions to drugs and maintaining thorough and accurate records. The Company must maintain documents for each study for specified periods, and such documents may be reviewed by the study sponsor and the FDA during audits. If FDA audits indicate that the Company has failed to adequately comply with federal regulations and guidelines, it could have a material adverse effect on the Company's results of operations, financial condition and reputation. In addition, non-compliance with GCP can result in the disqualification of data collected during a clinical trial. The Company is also subject to various government regulations related to the businesses held for sale. REIMBURSEMENT AND COST CONTAINMENT Approximately 16% of the net revenues of the Company for its fiscal year ended January 31, 1999 was derived from payments made by government sponsored health care programs (principally, Medicare and Medicaid). As a 7 result, any change in reimbursement regulations, policies, practices, interpretations or statutes could adversely affect the operations of the Company. Congress has passed a fiscal year 1996 budget resolution that calls for reductions in the rate of spending increases over the next seven years of $270 billion in the Medicare program and $182 billion in the Medicaid program. Through the Medicare program, the federal government has implemented a resource-based relative value scale ("RBRVS") payment methodology for physician services. RBRVS is a fee schedule that, except for certain geographical and other adjustments, pays similarly situated physicians the same amount for the same services. The RBRVS is adjusted each year and is subject to increases or decreases at the discretion of Congress. The implementation of RBRVS may result in reductions in payment rates for procedures provided by physicians under current contract with the Company. RBRVS-type payment systems have also been adopted by certain private third party payors and may become a predominant payment methodology. A broader implementation of such programs would reduce payments by private third party payors and could indirectly reduce the Company's operating margins to the extent that the cost of providing management services related to such procedures could not be proportionately reduced. To the extent the Company's costs increase, the Company may not be able to recover such cost increases from government reimbursement programs. In addition, because of cost containment measures and market changes in nongovernmental insurance plans, the Company may not be able to shift cost increases to nongovernmental payors. The Company expects a reduction from historical levels in per patient Medicare revenue received by certain of the physician groups with which the Company contracts; however, the Company does not believe such reductions would, if implemented, result in a material adverse effect on the Company. In addition to current governmental regulation, the Clinton Administration and several members of Congress have proposed legislation for comprehensive reforms affecting the payment for and availability of health care services. Aspects of certain of such health care proposals, such as reductions in Medicare and Medicaid payments, if adopted, could adversely affect the Company. Other aspects of such proposals, such as universal health insurance coverage and coverage of certain previously uncovered services, could have a positive impact on the Company's business. It is not possible at this time to predict what, if any, reforms will be adopted by Congress or state legislatures or when such reforms would be adopted and implemented. As health care reform progresses and the regulatory environment accommodates reform, it is likely that changes in state and federal regulations will necessitate modifications to the Company's agreements and operations. While the Company believes it will be able to restructure in accordance with applicable laws and regulations, the Company cannot assure that such restructuring in all cases will be possible or profitable. EMPLOYEES As of January 31, 1999, the Company employed approximately 1,440 persons, primarily all of whom were full-time employees. The Company believes that its labor relations are good. ITEM 2. PROPERTIES The Company leases approximately 19,000 square feet of space in Providence, Rhode Island, where the Company's new headquarters are located. The lease expires in 2005. The Company also leases clinical research sites in 16 states. The Company leases other locations, many of which are related to businesses held for sale. ITEM 3. LEGAL PROCEEDINGS The Company is subject to legal proceedings in the ordinary course of its business. The Company does not believe that any such legal proceedings will have a material adverse effect on the Company, although there can be no assurance to this effect. On October 18, 1997, the Florida Board of Medicine, which governs physicians in Florida, declared that the payment of percentage-based fees by a physician to a physician practice management company in connection with 8 practice-enhancement activities subjects a physician to disciplinary action for a violation of a statute which prohibits fee-splitting. Some of the Company's contracts with Florida physicians include provisions providing for such payments. The Company has appealed the ruling to a Florida District Court of Appeals and the Board of Medicine has stayed the enforceability of its ruling pending the appeal. In the event the Board of Medicine's ruling is eventually upheld, a party to an affected contract may initiate legal process to invalidate the contract, or the Company may be forced to renegotiate those provisions of the contracts which are affected by the ruling. While these contracts call for renegotiation in the event that a provision is not found to comply with state law, there can be no assurance that the contracts will not be invalidated or that the Company would be able to renegotiate such provisions on acceptable terms. The majority of the contracts affected by this ruling are with the physician practices the Company has identified to be divested or disposed and the assets related to these practices are included in assets held for sale at January 31, 1999. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The following persons were elected as directors at the Annual Meeting of the Company's stockholders held on January 26, 1999 to serve as directors in the class of the Board of Directors whose terms expire at the annual meeting of stockholders to be held in 2001.
Number of Shares/Votes ---------------------- Authority For Withheld --- -------- Abraham D. Gosman 18,907,827 315,315 Hugh L. Carey 16,915,779 2,307,363
9 PART II ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the Nasdaq Stock Market under the symbol PHMX. The following table sets forth the range of high and low closing prices per share of the Common Stock for the periods indicated, as reported on the Nasdaq National Market.
1998 High Low - -------------- -------- -------- First Quarter $ 16.25 $ 11.00 Second Quarter 16.38 11.13 Third Quarter 17.00 12.00 Fourth Quarter 15.75 12.38 1999 - -------------- First Quarter $ 13.44 $ 9.50 Second Quarter 10.50 5.75 Third Quarter 6.25 2.00 Fourth Quarter 3.32 1.63 2000 - -------------- First Quarter (through April 9, 1999) $ 2.63 $ 1.63
On April 9, 1999, the last reported sales price for the Common Shares was $1.72. On April 9, 1999, there were 217 record holders for the Common Stock. The Company has never paid cash dividends on its capital stock and does not anticipate paying cash dividends in the foreseeable future. The declaration of dividends is currently restricted, in certain circumstances, by the Company's revolving line of credit agreement, and it is anticipated that other loan agreements the Company may enter into in the future will also contain restrictions on the payment of dividends by the Company. ITEM 6. SELECTED FINANCIAL DATA The following selected historical financial data was derived from the Company's Financial Statements, which have been audited by independent accountants, PricewaterhouseCoopers LLP. During October 1997, a subsidiary of the Company merged with CSL in a business combination that was accounted for as a pooling of interests. Accordingly, the financial statements for all periods prior to the effective date of the merger have been restated to include CSL. The data presented below should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto, included elsewhere in this Annual Report on Form 10-K. The amounts below are in thousands except per share data. 10
Combined Consolidated Year Ended -------------------------------------------------------------- December 31, January 31, -------------------- ------------------------------------- 1994 1995 1997 1998 1999 ------- --------- --------- --------- --------- Statement of Operations Data: Net revenues: Net revenues from services $ 7,368 $ 61,712 $ 98,765 $ 155,946 $ 179,472 Net revenues from management service agreements -- 12,717 47,942 94,134 103,112 Net revenues from real estate services -- -- 19,049 31,099 8,694 ------- --------- --------- --------- --------- Total revenue 7,368 74,429 165,756 281,179 291,278 Operating expenses: Salaries, wages and benefits 3,956 35,809 58,351 88,221 94,710 Depreciation and amortization 166 3,956 7,382 10,800 14,786 Rent expense 554 5,102 8,519 16,649 20,671 Earn out payment -- 1,271 -- -- -- Provision for closure loss -- 2,500 -- -- -- Gain on sale of assets -- -- (262) (1,891) (5,414) Provision for write-down of notes receivable -- -- -- -- 2,674 Merger and other noncontinuing expenses related to CSL 922 2,133 1,929 11,057 -- Goodwill impairment write-down -- -- -- -- 9,093 Nonrecurring expenses -- -- -- -- 10,465 Other (primarily capitation expense) 3,070 27,493 66,694 132,177 181,813 ------- --------- --------- --------- --------- Income (loss) from operations (1,300) (3,835) 23,143 24,166 (37,520) Interest expense, net 96 4,828 1,726 4,775 8,005 (Income) from investments in affiliates -- (569) (709) (731) -- ------- --------- --------- --------- --------- Net income (loss) before taxes and extraordinary item (1,396) (8,094) 22,126 20,122 (45,525) Income tax expense (benefit) -- -- 6,836 9,823 (11,549) ------- --------- --------- --------- --------- Net income (loss) before extraordinary item (1) (1,396) (8,094) 15,290 10,299 (33,976) ------- --------- --------- --------- --------- Extraordinary item, net of tax of $0 -- -- -- -- 96,784 ------- --------- --------- --------- --------- Net income (loss) $(1,396) $ (8,094) $ 15,290 $ 10,299 $(130,760) ------- --------- --------- --------- --------- ------- --------- --------- --------- --------- Net income (loss) per share- basic Income (loss) before extraordinary item $ -- $ -- $ 0.56 $ 0.35 $ (1.02) Extraordinary item, net of tax of $0 $ -- $ -- $ -- $ -- $ (2.89) Net income (loss) $ -- $ -- $ 0.56 $ 0.35 $ (3.91) Net income (loss) per share - diluted Income (loss) before extraordinary item $ -- $ -- $ 0.55 $ 0.35 $ (1.02) Extraordinary item, net of tax of $0 $ -- $ -- $ -- $ -- $ (2.89) Net income (loss) $ -- $ -- $ 0.55 $ 0.35 $ (3.91) Pro Forma Information (Unaudited) (2): Adjustment to income tax expense $ -- $ -- $ 1,293 $ 624 $ -- Net income -- -- 13,997 9,675 -- Net income per share - basic $ -- $ -- $ 0.51 $ 0.33 $ -- Net income per share - diluted $ -- $ -- $ 0.51 $ 0.33 $ -- Weighted average shares outstanding - basic -- -- 27,295 29,690 33,401 Weighted average shares outstanding - diluted -- -- 27,682 30,229 33,401
11
Combined Consolidated -------------------------- ------------------------------------------ December 31, January 31, 1994 1995 1997 1998 1999 ------------ ------------ ----------- ----------- ----------- Balance Sheet Data: Working capital $ 2,518 $ (19,897) $ 111,811 $ 86,390 $ 111,185 Accounts receivable, net 3,993 22,921 41,744 57,252 15,276 Total assets 15,976 138,467 313,310 378,160 252,851 Total debt 1,532 97,090 118,830 134,359 117,657 Shareholders' equity 11,714 15,437 153,780 212,035 105,900
(1) Provisions for income taxes have not been reflected in the combined financial statements because there is no taxable income on a combined basis. (2) The pro forma net income and net income per share information reflect the effect on historical results (prior to the merger with CSL) as if CSL had been a C corporation rather than an S corporation and had paid income taxes. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION PhyMatrix is repositioning itself as a company that provides diverse services supporting the needs of the pharmaceutical and managed care industries. The Company is focusing its operations on two integrated business lines: pharmaceutical services, including investigative site management, clinical and outcomes research and disease management, as well as multi and single-specialty provider network management. Historically, the Company has been an integrated medical management company that provides medical management services to the medical community, certain ancillary medical services to patients and medical real estate development and consulting services to related and unrelated third parties. In August 1998, the Company announced that it planned to change this business model. The Company is in the process of terminating its management of individual and group physician practices and divesting itself of related assets, and selling and divesting itself of its ancillary medical service businesses, such as diagnostic imaging, radiation therapy, lithotripsy services, home healthcare and infusion therapy. The Company also has significantly downsized its medical facility development and consulting services. The Company currently estimates that by the end of its current fiscal year it will have exited its physician practice management ("PPM") and ancillary medical service businesses. In January 1996, the Company changed its fiscal year end from December 31 to January 31. RECENT EVENTS During May 1998, the Company announced that the Board of Directors had instructed management to explore various strategic alternatives for the Company that could maximize stockholder value. During August 1998, the Company announced that the Board of Directors approved several strategic alternatives to enhance stockholder value. The Board authorized a series of initiatives designed to restructure the Company as a significant company in pharmaceutical contract research, specifically clinical trials site management and outcomes research. The Company intends to link its nationally focused hospital affiliations and its physician networks with its clinical trials site management and outcomes research operations. During August 1998, the Board approved, consistent with achieving its stated restructuring goal, its plan to divest and exit the Company's PPM business and certain of its ancillary services businesses, including diagnostic imaging, lithotripsy and radiation therapy. Subsequent to August 1998, the Company also decided to divest its home health business and exit its infusion therapy business. The revenue and pretax income of these businesses which have been identified to be divested or disposed for the year ended January 31, 1999 were $155.4 million and $0.5 million, respectively. Net loss for the year ended January 31, 1999 included an extraordinary item of $96.8 million which is primarily a non-cash charge related to these divestitures. In accordance with APB 16, the 12 Company is required to record these charges as an extraordinary item since impairment losses are being recognized for divestitures and disposals expected to be completed within two years subsequent to a pooling of interests (the pooling of interests with CSL was effective October 15, 1997). Based on fair market value estimates, which have primarily been derived from letters of intent, letters of interest and discussions with prospective buyers, the Company currently expects to realize net proceeds of approximately $100.8 million from the sale of the businesses identified to be divested or disposed and has recorded this amount as an asset held for sale on the balance sheet at January 31, 1999. During the fourth quarter ended January 31, 1999, the Company made the decision to significantly downsize its real estate services segment and recorded a goodwill impairment write-down of approximately $9.1 million which eliminates the remaining goodwill of the real estate services segment. YEAR ENDED JANUARY 31, 1999 TRANSACTIONS (ALL INFORMATION RELATED TO THE NUMBER OF PHYSICIANS IS AS OF THE TRANSACTION DATE) During February 1998, the Company purchased New England Research Center, a clinical research center located in Massachusetts. At the time of its acquisition, New England Research Center had over 50 ongoing studies, primarily in allergy and asthma. In conjunction with the acquisition, the Company entered into a 40-year agreement with the physicians and employees to manage the clinical trials at New England Research Center. The purchase price was approximately $5.7 million. Of such purchase price, approximately $1.5 million was paid in cash and 333,006 shares of Common Stock were issued having a value of $4.3 million. The purchase price was allocated primarily to management services agreements and is currently being amortized over 25 years. During February 1998, the Company completed the formation of an MSO with Beth Israel Medical Center and the physician organizations that represented more than 1,700 physicians of Beth Israel and its parent corporation. The Company owns one-third of the MSO. The Company provides management services for the MSO which provides the physicians and hospitals with medical management and contract negotiation support for risk agreements with managed care payors. In connection with the formation of the MSO, PhyMatrix Management Company, Inc. ("Management"), a subsidiary of the Company, agreed with Beth Israel Medical Center ("Beth Israel") that Management and its affiliates (including the Company) would not, directly or indirectly, (i) operate, manage or provide risk contract management services to any physicians, IPAs or group practices located in New York County, Kings County or Westchester County, New York (the "Restricted Zone") which are affiliated with a hospital or hospital system or any affiliate (with certain exceptions) or (ii) participate with a hospital or hospital system or any affiliate (other than Beth Israel) in an MSO or other person that operates, manages or provides risk contract management services within the Restricted Zone (with certain exceptions). In addition, the owners of two-thirds of the MSO have the right to require the Company to purchase their interests at the option price, which is based upon earnings, during years six and seven. During February 1998, the Company purchased a diagnostic imaging center located in Delray Beach, Florida. The base purchase price was approximately $6.6 million. The base purchase price was paid in 495,237 shares of Common Stock of the Company. There was also a potential contingent payment up to a maximum of $2.0 million which was not earned. The purchase price was allocated to the assets at fair market value including goodwill of $6.6 million. The resulting intangible has been amortized over 25 years. At January 31, 1999, the Company has recorded the estimated net realizable value of this business as assets held for sale. During March 1998, the Company entered into an administrative services agreement with HIA Bensonhurst Imaging Associates, LLP, a diagnostic imaging center in Brooklyn, New York. The consideration paid was approximately $5.1 million of Common Stock. There is also a contingent payment up to a maximum of $1.9 million based on the center's earnings before taxes, which is payable in cash and/or Common Stock of the Company. As of January 31, 1999, this contingent payment has not been earned. The purchase price was allocated to the assets at fair market value including management services agreements of $5.1 million. The resulting intangible has been amortized over 25 years. At January 31, 1999, the Company has recorded the estimated net realizable value of this business as assets held for sale. During April 1998, the Company completed the formation of an MSO, which is 51% owned by the Company, with LIPH, LLC. The Company manages for the MSO the medical risk contracting for more than 2,600 physicians which are members in IPAs in New York. The base purchase price was $3.0 million. Of such price, $1.5 million 13 was paid in cash and 143,026 shares of Common Stock were issued having a value of $1.5 million. There are also contingent payments up to a maximum of $5.0 million payable in cash and Common Stock, with $4.0 million of such amount based upon earnings during the three years after the closing date and the remaining $1.0 million based upon the achievement of certain conditions during any twelve-month period during the three years after the closing date. The Company and LIPH, LLC are in dispute as to amounts owed to the Company primarily for management services provided. During April 1998, the Company acquired the business and certain assets of a clinical research company in Massachusetts. The base purchase price was $2.6 million plus the assumption of liabilities of approximately $0.4 million. Of such purchase price, $1.5 million was paid in 144,405 shares of Common Stock of the Company, $70,000 is payable in shares of Common Stock on the first anniversary of the closing date and $1.1 million is payable in shares of Common Stock of the Company on the second anniversary of the closing date. In addition, there is a contingent payment up to a maximum of $2.4 million payable in Common Stock based on earnings before taxes during the next four years. As of January 31, 1999, this contingent payment has not been earned. The purchase price was allocated to the assets at fair market value including goodwill of $2.7 million. The resulting intangible is being amortized over 20 years. During January 1999, the Company acquired the stock of, and entered into a management agreement with, a clinical research company specializing in allergy and asthma research located in Illinois. The purchase price for the stock was approximately $4.2 million. Of such purchase price, $1.6 million was paid in cash during March 1999 and $2.6 million is payable primarily under non-interest bearing promissory notes between the second and fifth anniversaries of the closing date. The purchase price was allocated to the assets at fair market value including management service agreements of $3.5 million. The resulting intangible is being amortized over 25 years. ACCOUNTING TREATMENT The terms of the Company's relationships with its remaining affiliated physicians are set forth in various asset and stock purchase agreements, management services agreements and employment and consulting agreements. Through the asset and/or stock purchase agreement, the Company acquired the equipment, furniture, fixtures, supplies and, in certain instances, service agreements, of a physician practice at the fair market value of the assets. The accounts receivable typically were purchased at the net realizable value. The purchase price of the practice generally consisted of cash, notes and/or Common Stock of the Company and the assumption of certain debt, leases and other contracts necessary for the operation of the practice. The management services or employment agreements delineate the responsibilities and obligations of each party. Net revenues from services is reported at the estimated realizable amounts from patients, third-party payors and others for services rendered. Revenue under certain third-party payor agreements is subject to audit and retroactive adjustments. Provisions for estimated third-party payor settlements and adjustments are estimated in the period the related services are rendered and adjusted in future periods as final settlements are determined. The provision and related allowance are adjusted periodically, based upon an evaluation of historical collection experience with specific payors for particular services, anticipated reimbursement levels with specific payors for new services, industry reimbursement trends, and other relevant factors. Included in net revenues from services are revenues from the diagnostic imaging centers in New York which the Company operates pursuant to Administrative Service Agreements. These revenues are reported net of payments to physicians. Net revenues from management services agreements include the revenues generated by the physician practices net of payments to physicians. The Company, in most cases, is responsible and at risk for the operating costs of the physician practices. Expenses include the reimbursement of all medical practice operating costs as required under the various management agreements. For providing services under management services agreements entered into prior to April 30, 1996, physicians generally received a fixed percentage of net revenue of the practice. "Net revenues" is defined as all revenue computed on an accrual basis generated by or on behalf of the practice after taking into account certain contractual adjustments or allowances. The revenue is generated from professional medical services furnished to patients by physicians or other clinicians under physician supervision. In several of the practices, the Company has guaranteed that the net revenues of the practice will not decrease below the net revenues that existed immediately prior to the agreement with the Company. Under most management services agreements 14 entered into after April 30, 1996, the physicians receive a portion of the operating income of the practice which amounts vary depending on the profitability of the practice. In 1997, the Emerging Issues Task Force of the Financial Accounting Standards Board issued EITF 97-2 concerning the consolidation of physician practice revenues. PPMs are required to consolidate financial information of a physician where the PPM acquires a "controlling financial interest" in the practice through the execution of a contractual management agreement even though the PPM does not own a controlling equity interest in the physician practice. EITF 97-2 outlines six requirements for establishing a controlling financial interest. The Company adopted EITF 97-2 in the fourth quarter of its fiscal year ended January 31, 1999. Adoption of this statement reduced previously reported revenues and expenses for the years ended January 31, 1998 and 1997 by $65.4 million and $42.2 million, respectively. During August 1998, the Company announced its plan to divest and exit the PPM business. The Company is currently working to complete these divestitures and the majority of these assets are recorded as assets held for sale at January 31, 1999. RESULTS OF OPERATIONS The following table shows the percentage of net revenue represented by various expense categories reflected in the Consolidated Statements of Operations. The information that follows should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto included elsewhere herein.
1999 1998 1997 ----- ---- ---- Net revenues 100.0% 100.0% 100.0% Salaries, wages and benefits 32.5% 31.4% 35.2% Supplies 20.6% 16.0% 16.4% Depreciation and amortization 5.1% 3.9% 4.5% Rent expense 7.1% 5.9% 5.1% Provision for bad debts 2.9% 2.1% 2.8% Gain on sale of assets (1.8%) (0.7%) (0.2%) Provision for write-down of notes receivable 0.9% 0.0% 0.0% Merger and other noncontinuing expenses related to CSL 0.0% 3.9% 1.2% Goodwill impairment write-down 3.1% 0.0% 0.0% Nonrecurring expenses 3.6% 0.0% 0.0% Other (primarily capitation expense) 38.9% 28.9% 21.0% ----- ---- ---- 112.9% 91.4% 86.0% Interest expense, net 2.7% 1.7% 1.0% (Income) from investment in affiliate 0.0% (0.3%) (0.4%) ----- ---- ---- Income (loss) before taxes and extraordinary item (15.7%) 7.2% 13.3% Income tax expense (benefit) (4.0%) 3.5% 4.1% ----- ---- ---- Income (loss) before extraordinary item (11.7%) 3.7% 9.2% Extraordinary item, net of tax 33.2% 0.0% 0.0% ----- ---- ---- Net income (loss) (44.9%) 3.7% 9.2% ----- ---- ----
THE YEAR ENDED JANUARY 31, 1999 COMPARED TO THE YEAR ENDED JANUARY 31, 1998 The following discussion reviews the results of operations for the year ended January 31, 1999 ("1999") compared to the year ended January 31, 1998 ("1998"). 15 REVENUES The Company currently derives revenues primarily from the following segments: provider network management, site management organizations, real estate services and assets held for sale. Revenues from provider network management are derived from management services provided to hospitals, management services to MSOs and administrative services to health plans which include reviewing, processing and paying claims and subcontracting with specialty care physicians to provide covered services. Revenues from site management organizations are derived primarily from services provided to pharmaceutical companies for clinical trials. Revenues from real estate services are derived from the provision of a variety of services which include development fees, general contracting management fees, leasing and marketing fees, project cost savings income and consulting fees. Revenues from assets held for sale are derived primarily from providing the following services: physician practice management, diagnostic imaging, radiation therapy, home healthcare, infusion therapy and lithotripsy. Net revenues were $291.3 million during 1999. Of this amount, $93.5 million or 32.1% of such revenues was attributable to provider network management; $33.7 million or 11.6% was related to site management organizations; $8.7 million or 3.0% was attributable to real estate services; and $155.4 million or 53.3% was attributable to assets held for sale. Net revenues were $281.2 million during 1998. Of this amount, $67.8 million or 24.1% of such revenues was attributable to provider network management; $30.0 million or 10.7% was related to site management organizations; $31.1 million or 11.0% was attributable to real estate services; and $152.3 million or 54.2% was attributable to assets held for sale. EXPENSES The Company's salaries, wages, and benefits increased by $6.5 million from $88.2 million or 31.4% of net revenues during 1998 to $94.7 million or 32.5% of net revenues during 1999. The increase is primarily attributable to the additional salaries, wages and benefits from the acquisitions and affiliations of the Company's businesses during 1998 and early 1999, offset in part, by reductions in personnel in conjunction with the asset divestitures. 16 The Company's supplies expense increased by $15.1 million from $44.9 million or 16.0% of net revenues during 1998 to $60.0 million or 20.6% of net revenues during 1999. The increase in supplies expense as a percentage of net revenues was due to the growth of various ancillary services specifically infusion services, that are more supply intensive and for which the cost of pharmaceutical supplies is higher. The Company's depreciation and amortization expense increased by $4.0 million from $10.8 million or 3.9% of net revenues during 1998 to $14.8 million or 5.1% of net revenues during 1999. The increase is primarily a result of the acquisitions completed after 1997 and the allocation of the purchase prices as required by purchase accounting and also the effect of the Company's change in policy regarding certain intangibles. Effective February 1, 1998, management changed its policies regarding amortization of its management services agreement intangible assets. The Company adopted a maximum of 25 years (from the inception of the respective intangible asset) as the useful life for amortization of its management services agreement intangible assets. Using the unamortized portion of the intangible at January 31, 1998, the Company began amortizing the intangible over the remainder of the 25 year useful life. These costs had historically been charged to expense through amortization using the straight line method over the periods during which the agreements are effective, generally 30 to 40 years. This change represented a change in accounting estimate and, accordingly, does not require the Company to restate reported results for prior years. This change increased amortization expense relating to existing intangible assets at January 31, 1998, by approximately $0.7 million annually. The Company's rent expense increased by $4.0 million from $16.6 million or 5.9% of net revenues during 1998 to $20.6 million or 7.1% of net revenues during 1999, primarily as a result of acquisitions of imaging centers and the expansion of sites operated by the Company's site management organization. Rent expense as a percentage of net revenue also varies depending upon the size of each of the affiliated practice's offices, the number of satellite offices and the current market rental rate for medical office space in a particular geographic market. The Company's provision for bad debt increased by $2.5 million from $5.9 million or 2.1% of net revenues during 1998 to $8.4 million or 2.9% of net revenues during 1999. The increase as a percentage of revenues is primarily attributable to the additional provision required on the businesses held for sale. The Company's gain on sale of assets of $5.4 million during 1999 represents gains from the sale of real estate of approximately $4.5 million during July 1998 and from the sale of a radiation therapy center of approximately $0.9 million during February 1998. The gain on sale of assets of $1.9 million during 1998 resulted from the sale of real estate and a radiation therapy center. The Company's provision for write-down on notes receivable of $2.7 million during 1999 represents the write-down of several notes receivable, that were collateralized by shares of Common Stock of the Company, to their net realizable value. The Company's merger and other noncontinuing costs of $11.1 million during 1998 represent the merger transaction costs, of $10.2 million, related to the CSL merger as well as certain noncontinuing salary, consulting and management fee expenses incurred by CSL. The Company's goodwill impairment write-down of $9.1 million during 1999 represents the write-down of the remaining goodwill of the real estate services segment. The asset of goodwill was determined to have been impaired because of the Company's decision to significantly downsize the real estate segment and the inability to generate future operating income without substantial revenue growth, which is uncertain. Moreover, anticipated future cash flows of the real estate segment indicate that the recoverability of the asset is not likely. The Company's nonrecurring expenses of $10.5 million during 1999 primarily represent the termination of several physician management and employment agreements prior to the Company's decision in August 1998 to restructure as well as the write-off of the remaining investment in an ambulatory surgery center. The Company's other expenses increased by $32.0 million from $81.3 million or 28.9% of net revenues during 1998 to $113.3 million or 38.9% of net revenues during 1999 primarily due to an increase in the Company's provider network management services. 17 The Company's extraordinary item of $96.8 million during 1999 represents the charge resulting from divestitures or disposals that had occurred subsequent to August 1998 as well as the write-down of the assets of the businesses being held for sale at January 31, 1999. The carrying value of the assets of these businesses was written down to their estimated net realizable value (less costs to sell). The Company's loss prior to income taxes and extraordinary charges during 1999 was $45.2 million compared to income prior to income taxes and extraordinary charges during 1998 of $20.1 million. The deterioration of income during 1999 is primarily due to several factors, including: (i) The downsizing of the real estate services segment which was done in connection with the repositioning of the Company, and in part due to the resignation of Bruce A. Rendina as Chief Executive Officer of the Company's real estate services segment. The real estate services segment generated a pretax loss of $8.5 million during 1999 (which included a goodwill impairment write-down of $9.1 million) compared to pretax income of $24.7 million during 1998, (ii) Nonrecurring charges of $10.5 million (described above), (iii) The deterioration of the operating results during the second half of 1999 of certain of the businesses divested or to be divested. The assets held for sale segment generated pretax income, prior to extraordinary item, of $0.5 million during 1999 compared to pretax income of $13.4 million during 1998, and (iv) The provision for write-down of notes receivable of $2.7 million (described above). The Company's income tax expense (benefit) decreased by $21.4 million from $9.8 million or 32.4% of pretax income (prior to merger expenses of $10.2 million which are not tax deductible) during 1998 to $(11.5) million or 25.4% of pretax loss (prior to extraordinary item) during 1999. The pro forma net income and net income per share information in the consolidated statement of operations reflect the effect on historical results as if CSL had been a C corporation rather than an S corporation and had paid income taxes. Prior to the merger with CSL, CSL had elected to be treated as S corporation as provided under the Internal Revenue Code (the "Code"), whereby income taxes are the responsibility of the stockholders. Accordingly, the Company's statements of operations do not include provisions for income taxes for income related to CSL. Prior to the merger, dividends were primarily intended to reimburse stockholders for income tax liabilities incurred. The pro forma net income and net income per share information in the consolidated statement of operations reflect the effect on historical results as if CSL had been a C corporation rather than an S corporation for income tax purposes, and no tax benefit arose as a result of the change in tax status. REAL ESTATE SERVICES While the Company has historically derived significant revenues from real estate services, in the future the Company anticipates that it will generate significantly fewer revenues from such services. As a result, the Company decided to significantly downsize its real estate services. The Company has derived its real estate service revenues from the provision of a variety of services. In rendering such services, the Company generates income without bearing the costs of construction, expending significant capital or incurring substantial indebtedness. Net revenues from real estate services are recognized at the time services are performed. In some cases, fees are earned upon the achievement of certain milestones in the development process, including the receipt of a building permit and a certificate of occupancy of the building. During August 1998, Bruce A. Rendina resigned as CEO and President of DASCO (the Company's real estate services subsidiary) and Vice Chairman of the Company. During September 1998, Mr. Rendina entered into a Business Agreement (the "Business Agreement") with the Company. The Business Agreement was entered into in settlement of certain claims by both the Company and Rendina relating to Mr. Rendina's future competition with the Company. The Business Agreement provides that the Company has the exclusive development rights to 27 separate projects located in 12 separate states. In addition, the Company and Mr. Rendina have agreed to share fees with respect to five asset conversion projects and six medical facility development projects whereby Mr. Rendina is entitled to the first 25% of the projected development fees received on any shared fee project and the Company and Mr. Rendina evenly split the remaining portion of the fees for such projects. The Business Agreement also permits Mr. Rendina and his affiliates to pursue independently the development of six separate projects in five states. Finally, the Company and Mr. Rendina have provided mutual releases of each other with respect to any event related to the business and employment relationships of the parties. During the fourth quarter ended January 31, 1999, the Company recorded a goodwill impairment write-down of $9.1 million which eliminates the remaining goodwill of the real estate services segment. The asset of goodwill was determined to have been impaired because of the Company's decision to significantly downsize the real estate segment and the inability to generate future operating income without substantial revenue growth, which is uncertain. Moreover, anticipated future cash flows of the real estate segment indicate that the recoverability of the asset is not likely. During 1999, the Company's real estate services generated revenues of $8.7 million and pretax income (prior to goodwill impairment write-down) of $0.6 million. In addition, the real estate services segment recorded a gain on sale of real estate of $4.5 million during 1999. 18 RESULTS OF OPERATIONS THE YEAR ENDED JANUARY 31, 1998 COMPARED TO THE YEAR ENDED JANUARY 31, 1997 The following discussion reviews the results of operations for the year ended January 31, 1998 ("1998") compared to the year ended January 31, 1997 ("1997"). REVENUES Net revenues were $281.2 million during 1998. Of this amount, $67.8 million or 24.1% of such revenues was attributable to provider network management; $30.0 million or 10.7% was related to site management organizations; $31.1 million or 11.0% was attributable to real estate services; and $152.3 million or 54.2% was attributable to assets held for sale. Net revenues were $165.8 million during 1997. Of this amount, $16.5 million or 9.9% was related to provider network management; $18.0 million or 10.9% was related to site management organizations; $19.0 million or 11.5% was attributable to real estate services; and $112.2 million or 67.7% was attributable to assets held for sale. 19 EXPENSES The Company's salaries, wages and benefits increased by $29.8 million from $58.4 million or 35.2% of net revenues during 1997 to $88.2 million or 31.4% of net revenues during 1998. The decrease as a percentage of net revenues was primarily attributable to the Company's ability to spread its salaries, wages and benefits over a revenue base which expanded rapidly due to acquisitions and affiliations. In general, salaries, wages and benefits vary depending on whether the physician practice is owned or managed. The Company's supplies expense increased by $17.7 million from $27.2 million or 16.4% of net revenues during 1997 to $44.9 million or 16.0% of net revenues during 1998. The increase in supplies expense was primarily a result of the acquisition of additional physician practices. Supplies expense as a percentage of net revenues also varies depending upon the type of physician practices. The Company's depreciation and amortization expense increased by $3.4 million from $7.4 million or 4.5% of net revenues during 1997 to $10.8 million or 3.9% of net revenues during 1998. The increase was primarily a result of the acquisitions completed after 1997 and the allocation of the purchase prices as required by purchase accounting. During 1998, the Company sold assets that resulted in net gains of $2.2 million. In addition, the Company recorded nonrecurring charges of $0.3 million during 1998. The Company's rent expense increased by $8.1 million from $8.5 million or 5.1% of net revenues during 1997 to $16.6 million or 5.9% of net revenues during 1998, primarily as a result of acquisitions and affiliations completed by the Company. Rent expense as a percentage of net revenue varies depending upon the size of each of the affiliated practice's offices, the number of satellite offices and the current market rental rate for medical office space in a particular geographic market. The Company's merger and other noncontinuing costs of $1.9 million and $11.1 million during 1997 and 1998, respectively, represent the merger transaction costs, of $10.2 million, related to the CSL merger as well as certain noncontinuing salary, consulting and management fee expenses incurred by CSL. The merger transaction costs, of $10.2 million, were recorded during the quarter ended October 31, 1997, which represents the quarter in which the transaction closed. The Company's income tax expense increased by $3.0 million from $6.8 million or 30.9% of pretax income during 1997 to $9.8 million or 32.4% of pretax income (prior to merger costs of $10.2 million which are not tax deductible) during 1998. The pro forma net income and net income per share information in the consolidated statement of operations reflect the effect on historical results as if CSL had been a C corporation rather than an S corporation and had paid income taxes. The Company's pro forma income tax expense increased by $2.3 million from $8.1 million or 36.7% of pretax income during 1997 to $10.4 million or 34.5% of pre tax income (prior to merger costs of $10.2 million which are not tax deductible) during 1998. Prior to the merger with CSL, CSL had elected to be treated as S corporation as provided under the Internal Revenue Code (the "Code"), whereby income taxes are the responsibility of the stockholders. Accordingly, the Company's statements of operations do not include provisions for income taxes for income related to CSL. Prior to the merger, dividends were primarily intended to reimburse stockholders for income tax liabilities incurred. The pro forma net income and net income per share information in the consolidated statement of operations reflect the effect on historical results as if CSL had been a C corporation rather than an S corporation for income tax purposes, and no tax benefit arose as a result of the change in tax status. REAL ESTATE SERVICES During 1998, the Company's real estate services generated revenues of $31.1 million and pretax income of $24.7 million. During the fourth quarter ended January 31, 1998, the Company received $9.1 million for arranging the sale of 21 medical office buildings with a total sales price of $200 million, which approximated fair market value. 20 LIQUIDITY AND CAPITAL RESOURCES Cash used by operating activities was $4.9 million during 1999. Cash used by operating activities was $2.3 million during 1998. At January 31, 1999, the Company's principal sources of liquidity consisted of working capital of $111.2 million which included $10.1 million in cash, $10.8 million in a tax refund receivable and $100.8 million in assets held for sale (see below for further discussion of assets held for sale). The Company also had $38.9 million of current liabilities, including approximately $12.2 million of indebtedness maturing before January 31, 2000. Cash used by investing activities was $12.5 million during 1999 and primarily represented the funds required by the Company for acquisitions and capital expenditures of $17.8 million, and advances under notes receivable of $2.5 million, offset by net cash received from the sale of assets of $7.9 million. Cash used by investing activities was $34.6 million during 1998. This primarily represented the funds required by the Company for acquisitions and capital expenditures of $46.0 million, and the advances under notes receivable of $3.3 million, offset by the repayments of notes receivable of $10.2 million and cash received from the sale of land and two radiation therapy centers of $4.0 million. Cash used by financing activities was $22.0 million during 1999 and primarily represented the repayment of debt of $10.2 million, purchase of treasury stock of $0.8 million and a $10.9 million note to a company principally owned by Mr. Gosman primarily related to the development of a healthcare facility. Cash provided by financing activities was $4.8 million during 1998, which was primarily composed of the borrowings (net of issuance costs) from revolving lines of credit of $26.6 million and the release of restricted cash collateralizing debt of $4.5 million offset by the repayment of debt of $25.2 million and payment of dividends of $1.9 million (to the stockholders of CSL prior to its merger with the Company). In conjunction with various acquisitions that were completed through January 31, 1999, the Company may be required to make various contingent payments in the event that the acquired companies attain predetermined financial targets during established periods of time following the acquisitions. If all of the applicable financial targets were satisfied, for the periods covered, the Company would be required to pay an aggregate of approximately $24.9 million over the next four years, of which $2.3 million is accrued at January 31, 1999. The payments, if required, are payable in cash and/or Common Stock of the Company. In addition, in conjunction with the acquisition of a clinical research center and in conjunction with a joint venture entered into by the Company during the year ended January 31, 1998, the Company may be required to make additional contingent payments based on revenue and profitability measures over the next five years. The contingent payment will equal 10% of the excess gross revenue, as defined, provided the gross operating margins exceed 30%. During July 1997, the Company entered into a management services agreement to manage a network of over 100 physicians in New York. In connection with this transaction, the Company may expend, in certain circumstances, up to $40 million (of which none has been expended as of January 31, 1999) to be utilized for the expansion of the network. During February 1998, the Company completed the formation on an MSO in New York, one-third of which it owns. The owners of the remaining two-thirds of the MSO have the right to require the Company to purchase their interests at the option price, which is based upon earnings during years six and seven. In conjunction with certain of its acquisitions the Company has agreed to make payments in shares of Common Stock of the Company at a predetermined future date. The number of shares to be issued are generally determined based upon the average price of the Company's Common Stock during the five business days prior to the date of issuance. As of January 31, 1999, the Company had committed to issue $1.1 million of Common Stock of the Company using the methodology discussed above. This amount is included in other long-term liabilities on the balance sheet. The Company also guarantees a loan in the amount of $3.5 million which matures in March 2000. In conjunction with the restructuring (as described earlier in "Recent Events"), the Board of Directors approved its plan to divest and exit the Company's PPM business and certain of its ancillary services businesses including diagnostic imaging, lithotripsy, radiation therapy, home health and infusion therapy. The revenue and pretax income of these businesses which have been identified to be divested or disposed for the year ended January 31, 1999 were $155.4 million and $0.5 million. Net loss for the year ended January 31, 1999 includes an extraordinary item of $96.8 million which is primarily a non-cash charge related to these divestitures. In accordance with APB 16, the Company is required to 21 record these charges as an extraordinary item since impairment losses are being recognized for divestitures and disposals expected to be completed within two years subsequent to a pooling of interests (the pooling of interests with CSL was effective October 15, 1997). Based on fair market value estimates, which have primarily been derived from letters of intent, letters of interest and discussions with prospective buyers, the net realizable value of the assets identified to be divested or disposed was $100.8 million at January 31, 1999. In conjunction with a physician practice management agreement with a physician practice in Florida, the Company has filed suit against the practice to enforce the guarantees executed in connection with the management agreement. The practice has filed a counterclaim. The Company intends to vigorously prosecute and defend the case. However, if the Company is not successful it may be required to record an impairment charge up to a maximum of $3.7 million. The Board of Directors of the Company authorized a share repurchase plan pursuant to which the Company may repurchase up to $15 million of its Common Stock from time to time on the open market at prevailing market prices. Through January 31, 1999, the Company had repurchased 304,000 shares at a net purchase price of $0.8 million. Through April 22, 1999 the Company has repurchased an additional 294,000 shares at a net purchase price of approximately $0.6 million. The development and implementation of the Company's management information systems will require ongoing capital expenditures. The Company has estimated the total costs to be incurred for completion of its Year 2000 strategy is approximately $3.0 million, which includes costs for new systems and system upgrades which would have been incurred regardless of the need to remedy the Year 2000 issue. The Company expects that its working capital of $111.2 million at January 31, 1999, which includes cash of $10.1 million and the expected cash to be generated from the assets held for sale, will be adequate to satisfy the Company's cash requirements for the next 12 months. The Company's capital needs over the next several years may exceed capital generated from operations. In September 1997, the Company entered into a secured credit agreement with a bank providing for a $100 million revolving line of credit for working capital and acquisition purposes. During December 1998, the Company amended the credit agreement to reduce the availability thereunder, modify covenants and provide for the expiration of the line of credit in March 1999. At January 31, 1999, $14.6 million was outstanding ($5.5 million of which was for letters of credit). The credit agreement existing at January 31, 1999: (i) prohibited the payment of dividends by the Company; (ii) limited the Company's ability to incur indebtedness and make acquisitions except as permitted under the credit agreement and (iii) required the Company to comply with certain financial covenants which include minimum net cash flow requirements. During March 1999, the Company obtained a new $30.0 million revolving line of credit which has a three-year term and availability based upon eligible accounts receivable. Approximately $9.2 million of proceeds from the new line of credit were used to repay the previous line of credit. The new line of credit is secured by the assets of the Company, limits the ability of the Company to incur certain indebtedness and make certain dividend payments, and requires the Company to comply with other customary covenants. RISKS ASSOCIATED WITH YEAR 2000 The Year 2000 date change issue is believed to affect virtually all companies and organizations. If not corrected, many computer applications could fail or create erroneous results by or at the year 2000. The Company recognizes the need to ensure its operations will not be adversely impacted by the inability of the Company's information systems to process data having dates on or after January 1, 2000 (the "Year 2000" issue). The Company expects to complete its full assessment of the Year 2000 issue no later than May 31, 1999, which is prior to any anticipated impact on its operating systems. The Company has a committee, led by its Chief Information Officer, to build, develop and implement the information systems required for its pharmaceutical and provider network management services business lines and to assess and remediate the effect of the Year 2000 Issue on the Company's operations. The Company is contacting its clients, principal suppliers and other vendors to assess whether their Year 2000 Issues, if any, will affect the Company. There is no guarantee that the systems of other companies on which the Company relies will be corrected in a timely manner or that the failure to correct such systems will not have a material adverse effect on the Company's systems. Many Year 2000 deficiencies have already been identified and addressed through planned systems and infrastructure evolution, replacement or elimination. The continuing program described below is designed to permit the Company to identify and address all remaining Year 2000 systems and deficiencies well in advance of the millennium change. 22 The first phase of the program, conducting an inventory of all systems and deficiencies that may be affected by the Year 2000 issue, is substantially complete. The second phase of the program, the assessment and categorization of all the inventoried systems and deficiencies by level of priority, reflecting their potential impact on business continuation, is underway. Based on this prioritization, the third phase will be to develop detailed plans to address each Year 2000 issue and a general contingency plan in the event that any critical systems cannot be made fully compliant by January 1, 2000. The Company's information technology systems ("IT Systems") can be broadly categorized into the following areas: (i) clinical studies information systems, (ii) managed care information systems, (iii) other administrative information systems including financial accounting, payroll, human resource and other desktop systems and applications and (iv) information systems of businesses held for sale. The Company recognizes that investment in information systems is integral to its operations. The majority of the Company's technology expenditures are related to the development and implementation of both clinical information and managed care information systems that are Year 2000 compliant. The clinical information systems are expected to be fully operational at all sites by July 31, 1999. The managed care information systems are expected to be fully operational by December 31, 1999. The Company believes that the Year 2000 issue-related remediation costs incurred through 1998 have not been material to its results of operations. The Company has estimated the total costs to be incurred for completion of its Year 2000 strategy is approximately $3.0 million, which includes costs for new systems and system upgrades which would have been incurred regardless of the need to remedy the Year 2000 issue. The Company's financial accounting system is fully Year 2000 compliant at a total cost of approximately $30,000. Currently the Company is not assessing Year 2000 compliance for the information systems of the businesses held for sale since the Company expects these businesses to be divested by December 31, 1999. Risks involved in the managed care applications include the risk that failures in the Company's managed care systems causing a backlog of claims or failures at one or more of the Company's payors will cause a delay in the payment of claims and capitation payments, either of which could negatively affect cash flows of the Company. The Company intends to develop contingency plans for failures at the Company's electronic trading partners. The Company intends to have contingency plans in place by July 1999. The nature of the Year 2000 issue, and the lack of historical experience in addressing it, however, could result in unforeseen risks. The Company bills and collects for medical services from numerous third party payors in operating its business. These third parties include fiscal intermediaries that process claims and make payments on behalf of the Medicare program as well as insurance companies, HMO's and other private payors. As part of the Company's Year 2000 strategy, a comprehensive survey has been sent to all significant payors to assess their timeline for Year 2000 compliance and the impact to the Company of any potential interruptions in services or payments. The Company is working to accumulate the results by July 31, 1999. The Company is in the process of contacting its principal clients, suppliers and other vendors concerning the state of their Year 2000 compliance. Until that effort is completed, the Company cannot be assured that such third party systems are or will be Year 2000 compliant and the Company is unable to estimate at this time the impact on the Company if one or more third party systems is not Year 2000 compliant. The foregoing assessment is based on information currently available to the Company. The Company can provide no assurance that applications and equipment that the Company believes to be Year 2000 compliant will not experience problems. Failure by the Company or third parties on which it relies to resolve Year 2000 problems could have a material adverse effect on the Company's results of operations. FACTORS TO BE CONSIDERED THE PARTS OF THIS ANNUAL REPORT ON FORM 10-K TITLED "BUSINESS," "LEGAL PROCEEDINGS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "MAY," "WILL," "SEEK," "PLAN," "EXPECT," "BELIEVE," "ANTICIPATE," "CONTINUE," "ESTIMATE," "PROJECT," "INTEND" AND 23 SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT REGARDING EVENTS, CONDITIONS AND FINANCIAL TRENDS THAT MAY AFFECT THE COMPANY'S FUTURE PLANS OF OPERATIONS, BUSINESS STRATEGY, RESULTS OF OPERATIONS AND FINANCIAL POSITION. THE COMPANY WISHES TO ENSURE THAT SUCH STATEMENTS ARE ACCOMPANIED BY MEANINGFUL CAUTIONARY STATEMENTS PURSUANT TO THE SAFE HARBOR ESTABLISHED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE INCLUDED WITHIN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. SUCH FORWARD-LOOKING STATEMENTS SHOULD, THEREFORE, BE CONSIDERED IN LIGHT OF VARIOUS IMPORTANT FACTORS, INCLUDING THOSE SET FORTH HEREIN, INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH BELOW AND UNDER "BUSINESS - PHYSICIAN MANAGEMENT SERVICES" AND "BUSINESS - GOVERNMENT REGULATION," AND OTHERS SET FORTH FROM TIME TO TIME IN THE COMPANY'S REPORTS AND REGISTRATION STATEMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"). THE COMPANY DISCLAIMS ANY INTENT OR OBLIGATION TO UPDATE SUCH FORWARD-LOOKING STATEMENTS. RISKS RELATED TO REPOSITIONING. During the last fiscal year, the Board of Directors adopted strategic initiatives to reposition the Company along two primary business lines: pharmaceutical services, including clinical and outcomes research and provider network management services. There can be no assurance that the Company will be successful in repositioning itself or that these business lines will be profitable. The Company intends to grow these business lines. The Company is subject to various risks associated with its growth strategy, including the risk that the Company will be unsuccessful in its effort to grow its businesses internally and that it will be unable to identify, acquire and integrate acquisition candidates in the clinical studies management area or to identify, affiliate with and manage additional physician networks. Any failure of the Company to grow its business internally and implement economically feasible affiliations and acquisitions may have a material adverse effect on the Company. There can be no assurance that the Company will be able to achieve synergies between its provider network and clinical studies site management businesses. ASSETS HELD FOR SALE. The Company's repositioning strategy involves the sale of approximately $100.8 million of assets held for sale, the proceeds from which would be used primarily for expansion of its clinical and outcomes research and provider network management businesses. The Company also is considering using proceeds to repurchase outstanding Common Stock and/or retire debt. There can be no assurance that the Company will be able to sell these businesses before the end of the current fiscal year or that the Company will receive proceeds equal to the current estimated value of such assets. In addition, there can be no assurance that the application of the net proceeds from the sale will have a positive effect on the Company's business, future results of operations or stock price. DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS. The Company's investigative site management revenues are dependent on research and development expenditures by the pharmaceutical and biotechnology industries. The Company's operations could be materially and adversely affected by general economic downturns in its clients' industries, the impact of the current trend toward consolidation in these industries or any decrease in research and development expenditures. POTENTIAL LOSS OF CONTRACTS. Although the Company's clinical research study contracts with Sponsors provide that it is entitled to receive fees earned through the date of termination, as well as all non-cancelable costs, Sponsors generally are free to terminate a clinical trial or the Company's contract related thereto at any time. The length of a typical clinical trial contract varies from several weeks to several years. Sponsors may terminate clinical trials for several reasons, including unexpected results or adverse patient reactions to a potential product, inadequate patient enrollment or investigator recruitment, manufacturing problems resulting in shortages of a potential product or decisions by the Sponsor to de-emphasize or terminate a particular trial or development efforts with respect to a particular potential product. A Sponsor's decision to terminate a trial in which the Company participates could have a material adverse effect on the Company's business, results of operations and financial condition. GOVERNMENT REGULATION; POTENTIAL IMPACT OF REFORM. Demand for the Company's clinical research site management services is largely a function of the regulatory requirements associated with the approval of a new drug application imposed by the FDA. These requirements are more stringent and thus more burdensome than those 24 imposed by many other developed countries. In recent years, efforts have been made to streamline the drug approval process and coordinate United States standards with those of other developed countries. Changes in the level of regulation, including a relaxation in regulatory requirements or the introduction of simplified drug approval procedures could have a material adverse effect on the demand for the Company's clinical trial services. Several competing proposals to reform the system of healthcare delivery in the United States have been considered by Congress from time to time. The process by which the government will pursue additional or modified proposals for national healthcare reform and the precise nature of any such proposals is unclear at this time. Some of the proposals put forth to date incorporate price controls on drugs and limits on overall medical spending which may adversely affect expenditures by the pharmaceutical and biotechnology industries for research and development, which could have a material adverse effect on the Company's business, results of operations and financial condition. At present, it is impossible to predict the effect of any new legislation or changes in regulatory environment on the Company. The failure of the Company to comply with applicable regulations could result in the termination of on-going research or the disqualification of data for submission to regulatory authorities. Further, the issuance of a notice or finding by the FDA to either the Company or its clients based upon a material violation by the Company of either Good Clinical Practices or Good Laboratory Practices could have a material adverse effect on the Company's business, results of operations and financial condition. POTENTIAL LIABILITY FROM OPERATIONS. Clinical trials involve the testing of approved and experimental drugs on human beings. This testing carries with it a significant risk of liability for personal injury or death to participants resulting from an adverse reaction to, or improper administration of, the potential product. The Company participates with Sponsors in the selection process. The Company also contracts on behalf of its clients with physicians who render, and itself renders, professional services including administering the drugs being tested to participants in these trials. Consequently, the Company may be subject to claims in the event of personal injury or death of persons participating in clinical trials and arising from professional malpractice of physicians with whom it has contracted and its own employees. Although the Company is generally indemnified by its clients for liability relating to adverse drug reactions, in order for such indemnification to be valid, the Company and its employees and agents must act within the bounds of specific procedural requirements governing the conduct of the clinical trial. Since the value of the Company's indemnification depends on the financial viability of the indemnifying party, there can be no assurance that the Company will be able to rely on such indemnification in each instance of potential liability. If the Company was forced to undertake the defense of, or found financially responsible for, claims based upon the foregoing or related risks, there could be a material adverse effect on the Company's business, results of operations and financial condition. With respect to the businesses held for sale, there can be no assurance that claims, suits or complaints relating to services delivered by an affiliated physician or medical service provider will not be asserted against the Company. Although the Company maintains insurance it believes is adequate both as to risks and amounts, there can be no assurance that any claim asserted against the Company for professional or other liability will be covered by, or will not exceed the coverage limits of, such insurance. YEAR 2000 MAY ADVERSELY IMPACT OPERATIONS. As described under "Risks Associated with Year 2000," the Company is attempting to address its Year 2000 issues. If the Company fails to identify or correct all such problems in its operations, or if the Company is affected by the inability of a supplier or major customer to continue operations due to such a problem, the Company's business and financial results could be materially adversely affected. RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS. As an increasing percentage of patients come under the control of managed care entities, the Company believes that its success will be, in part, dependent upon the Company's ability to negotiate contracts with health maintenance organizations ("HMOs"), employer groups and other private third party payors pursuant to which services will be provided on a risk-sharing or capitated basis. Under some of these agreements, a healthcare provider accepts a predetermined amount per member per month ("PMPM") in exchange for providing all covered services to patients. Such contracts pass much of the economic risk of providing care from the payor to the provider. To date, the Company has not taken the risk of any shortfall between PMPM revenue and expenses for patient care. 25 There is no certainty that the Company will be able to establish and maintain satisfactory relationships with third party payors, many of which already have existing provider structures in place and may not be able or willing to rearrange their provider networks. Increasingly, some jurisdictions are taking the position that capitated agreements in which the provider bears the risk should be regulated by insurance laws. As a consequence, the Company may be limited in some of the states in which it operates in its attempt to enter into or arrange capitated agreements for its provider network management business when those capitated arrangements involve the assumption of risk. DEPENDENCE ON THIRD PARTY REIMBURSEMENT; TRENDS AND COST CONTAINMENT. Substantially all of the Company's patient service revenues are derived from third party payors. The Company's revenues and profitability may be materially adversely affected by the current trend within the healthcare industry toward cost containment as government and private third party payors seek to impose lower reimbursement and utilization rates and negotiate reduced payment schedules with service providers. The Company believes that this trend will continue to result in a reduction from historical levels of per-patient revenue. Continuing budgetary constraints at both the federal and state level and the rapidly escalating costs of healthcare and reimbursement programs have led, and may continue to lead, to significant reductions in government and other third party reimbursements for certain medical charges and to the negotiation of reduced contract rates or capital or other financial risk-shifting payment systems by third party payors with service providers. Both the federal government and various states are considering imposing limitations on the amount of funding available for various healthcare services. The federal government and government agencies have taken various actions over the years to reduce reimbursement rates for diagnostic imaging services and proposals to reduce rates further are anticipated. There have been many proposals discussed within the last few years to further modify reimbursement. The Company cannot predict whether or when any such proposals will be adopted or, if adopted and implemented, what effect, if any, such proposals would have on the Company. Further reductions in payments to physicians or other changes in reimbursement for healthcare services could have a material adverse effect on the Company, unless the Company is otherwise able to offset such payment reductions. Rates paid by private third party payors, including those that provide Medicare supplemental insurance, are based on established physician, clinic and hospital charges and are generally higher than Medicare payment rates. Changes in the mix of the Company's patients among the non-government payors and government sponsored healthcare programs, and among different types of non-government payor sources, could have a material adverse effect on the Company. The Company is a provider of certain medical treatment and diagnostic services including, but not limited to radiation therapy, infusion therapy, lithotripsy and home healthcare. Because many of these services receive governmental reimbursement, they may be subject from time to time to changes in both the degree of regulation and level of reimbursement. Additionally, factors such as price competition and managed care also could reduce the Company's revenues. There can be no assurance that payments under governmental and private third party payor programs will not be reduced or will, in the future, be sufficient to cover costs allocable to patients eligible for reimbursement pursuant to such programs, or that any reductions in the Company's revenues resulting from reduced payments will be offset by the Company through cost reductions, increased volume, introduction of new procedures or otherwise. GOVERNMENT REGULATION. Providers of healthcare services, including physicians and other clinicians, are subject to extensive federal and state regulation. The fraud and abuse provisions of the Social Security Act prohibit the solicitation, payment, receipt or offering of any direct or indirect remuneration in return for, or the inducement of, the referral of patients, items or services that are paid for, in whole or in part, by Medicare or Medicaid. These laws also impose significant penalties for false or improper billings for physician services and impose restrictions on physicians' referrals for designated health services to entities with which they have financial relationships. Violations of these laws may result in substantial civil or criminal penalties for individuals or entities, including large civil monetary penalties and exclusion from participation in the Medicare and Medicaid programs. Similar 26 state laws also apply to the Company. Such exclusion and penalties, if applied to the Company's affiliated physician groups or ancillary service providers, could have a material adverse effect on the Company. The laws of many states prohibit business corporations such as the Company from exercising control over the medical judgments or decisions of physicians and from engaging in certain financial arrangements, such as splitting fees with physicians. These laws and their interpretations vary from state to state and are enforced by both the courts and regulatory authorities, each with broad discretion. Expansion of the operations of the Company to certain jurisdictions may require structural and organizational modifications of the Company's form of relationship with physician groups, which could have an adverse effect on the Company. There can be no assurance that the Company's physician management agreements will not be challenged as constituting the unlicensed practice of medicine or that the enforceability of the provisions of such agreements, including non-competition covenants, will not be limited. Under certain provisions of the Omnibus Budget Reconciliation Act of 1993 known as "Stark II," physicians who refer Medicare and Medicaid patients to the Company for certain designated services may not own stock in the Company, and the Company may not accept such referrals from physicians who own stock in the Company. Stark II contains an exemption which applies to the Company during any year if at the end of the previous fiscal year the Company had stockholders' equity in the amount of at least $75 million. The Company was not eligible for this exemption as of its fiscal year ending December 31, 1995. In 1996, the Company changed its fiscal year end to January 31, at which time it satisfied the Stark II stockholders' equity exemption. Violation of Stark II by the Company could have a material adverse effect on the Company. The Company believes that its operations are conducted in material compliance with applicable laws, however, the Company has not received a legal opinion to this effect and many aspects of the Company's business operations have not been the subject of state or federal regulatory interpretation. Moreover, as a result of the Company providing both physician practice management services and ancillary services, the Company may be the subject of more stringent review by regulatory authorities, and there can be no assurance that a review of the Company's operations by such authorities will not result in a determination that could have a material adverse effect on the Company or its affiliated physicians. Additionally, there can be no assurance that the healthcare regulatory environment will not change so as to restrict the Company's or the affiliated physicians' existing operations or their expansion. The regulatory framework of certain jurisdictions may limit the Company's expansion into, or ability to continue operations within, such jurisdictions if the Company is unable to modify its operational structure to conform to such regulatory framework or to obtain necessary approvals, licenses and permits. Any limitation on the Company's ability to expand could have a material adverse effect on the Company. CONTROL BY EXISTING STOCKHOLDERS. All of the Company's executive officers and directors as a group beneficially own approximately 29.0% of the outstanding shares of Common Stock. As a result, such executive officers and directors, should they choose to act together, will be able to determine the outcome of corporate actions requiring stockholder approval and to control the election of the Company's Board of Directors. This ownership may have the effect of discouraging unsolicited offers to acquire the Company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk from exposure to changes in interest rates based on its financing, investing and cash management activities. The Company does not expect changes in interest rates to have a material effect on income or cash flows for the year ended January 31, 2000, although there can be no assurances that interest rates will not significantly change. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information with respect to Item 8 of Part II is included herein as to the Company's financial statements and 27 financial statement schedules filed with this report; See Item 14 of Part IV. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER MATTERS The FASB recently issued statement No. 131, "Disclosures About Segments of an Enterprise and Related Information," which is effective for the Company's financial statements as of and for the year ended January 31, 1999. This Statement requires reporting of summarized financial results for operating segments as well as established standards for related disclosures about products and services, geographic areas and major customers. Primary disclosure requirements include total segment revenues, total segment profit or loss and total segment assets. The adoption of SFAS 131 did not affect results of operations or financial position but did affect the disclosure of segment information. In 1997, the Emerging Issues Task Force of the Financial Accounting Standards Board issued EITF 97-2 concerning the consolidation of physician practice revenues. PPMs will be required to consolidate financial information of a physician where the PPM acquires a "controlling financial interest" in the practice through the execution of a contractual management agreement even though the PPM does not own a controlling equity interest in the physician practice. EITF 97-2 outlines six requirements for establishing a controlling financial interest. The Company adopted EITF 97-2 in the fourth quarter ended January 31, 1999. Adoption of this statement reduced reported revenues and expenses for the years ended January 31, 1998 and 1997 by $65.4 million and $42.2 million, respectively. 28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information pertaining to the Company's directors and executive officers.
NAME CURRENT POSITION - ---- --------------- Abraham D. Gosman Chairman of the Board of Directors and Co-Chief Executive Officer Michael T. Heffernan Co-Chief Executive Officer, President and Director Gregory Gardner Executive Vice President Finance James M. Hogan, M.D. Chief Medical Officer Frederick R. Leathers Chief Financial Officer and Treasurer Eric Moskow, M.D. Executive Vice President of Strategic Planning and Director John Wardle Chief Operating Officer for Provider Network Services H. Loy Anderson, Jr. Director Hugh L. Carey Director Joseph N. Cassese Director David M. Livingston, M.D. Director Kevin E. Moley Director Stephen E. Ronai Director
Set forth below is a description of the backgrounds of each of the directors and executive officers of the Company. ABRAHAM D. GOSMAN, age 70, has served since June 1994 as an executive officer of the Company and is presently the Chairman of the Board of Directors and Co-Chief Executive Officer of the Company. Mr. Gosman has served as Chairman of the Board of CareMatrix Corporation, an assisted living development and management company, since October 1996 and as its Chief Executive Officer since April 1999. Previously, Mr. Gosman was the Chief Executive Officer of The Mediplex Group, Inc. ("Mediplex"), a diversified health care company, from its inception in 1982 to September 1988 and from August 1990 to June 1994. In addition, Mr. Gosman served as Chairman of the Board of Meditrust Corporation and Chairman of the Board, Chief Executive Officer and Treasurer of Meditrust Operating Company from November 1997 to August 1998 and Chairman of the Board and Chief Executive Officer of their predecessor, Meditrust, from its inception in 1985 until November 1997. MICHAEL T. HEFFERNAN, age 34, has served as President of the Company since December 1998, as Co-Chief Executive Officer since April 1999 and as a director of the Company since February 1998. He also serves as the Chief Executive Officer of the Company's subsidiary Clinical Studies, Ltd. ("CSL"), a multitherapeutic site management organization acquired by the Company in October 1997. Prior to the Company's acquisition of CSL, Mr. Heffernan served as the President and Chief Executive Officer of CSL, a position he held since 1994. From 1993 to 1994, Mr. Heffernan served as a Regional Manager with Eli Lilly & Company. 29 GREGORY GARDNER, age 43, has served since November 1996 as Executive Vice President of Finance of the Company. Previously, he served as Senior Vice President, Financial Operations of Good Samaritan & St. Mary's Medical Centers from August 1995 to November 1996. From November 1990 to December 1993, Mr. Gardner served as American Medical International, Inc.'s Corporate Director of Finance and from January 1994 to July 1995 as its Corporate Director of Development. JAMES M. HOGAN, M.D., age 54, has been an employee of the Company since January 1997 and has served as Chief Medical Officer of the Company since December 1998. Dr. Hogan was Corporate Medical Director of Health Insurance Plan of Greater New York from July 1996 to April 1997 and its Senior Vice President for Professional Affairs and Medical Director from October 1994 to April 1997. Dr. Hogan served as Vice President of the Medical Division and Medical Director of Health Insurance Plan of Florida from January 1994 to October 1994 and as its Medical Director from May 1993 to January 1994. FREDERICK R. LEATHERS, age 41, has served since June 1994 as the Chief Financial Officer and Treasurer of the Company. Previously, he served as Treasurer, Chief Financial Officer and Principal Accounting Officer of Mediplex from October 1991 to June 1994. He was Treasurer of A.M.A. Advisory Corp. and Controller of Meditrust from July 1988 to January 1991. ERIC MOSKOW, M.D., age 40, has served as a director of the Company since September 1996 and has been Executive Vice President of Strategic Planning of the Company since September 1996. He founded Physician's Choice Management, LLC in October 1995 and served as its Executive Vice President from October 1995 to October 1996. Prior to establishing Physician's Choice, he served as Medical Director for Mediplex of Ridgefield from November 1994 to August 1996 and as Associate Medical Director for US Healthcare in Connecticut from 1988 to 1992. Dr. Moskow is board-certified in internal medicine and served as President of the Family Medical Associates of Ridgefield for nine years. JOHN WARDLE, age 44, has served since April 1999 as the Chief Operating Officer of the Company. Previously, he served as Senior Vice President of United HealthCare of New England from July 1997 to April 1999. Mr. Wardle served as the General Manager for External Affairs at Southern Health Care from November 1995 to July 1997. He also served United HealthCare Corporation as a Vice President from May 1994 to November 1995 and as a Director of Subsidiary Network Development from June 1993 to May 1994. H. LOY ANDERSON, JR., age 55, has served as a director of the Company since December 1998. He has served as President, Chief Executive Officer and a director of Palm Beach National Bank & Trust Company since June 1990. Mr. Anderson is a director of CareMatrix Corporation. HUGH L. CAREY, age 79, has served as a director of the Company since February 1996. Currently, he is of counsel to the New York law firm of Whitman Breed Abbott & Morgan. He served as an Executive Vice President of W.R. Grace & Company from 1987 to December 1995. He was Governor of the State of New York from 1975 to 1983 and a member of Congress from 1960 until 1975. He is currently a director of Triarc Companies, Inc. and China Trust Bank. JOSEPH N. CASSESE, age 69, has served as a director of the Company since January 1996. He also serves as a director of Liberty Healthcare Management Company. Mr. Cassese was Vice President of Mediplex from January 1976 to March 1986 and the President of Mediplex from March 1986 to March 1988 and again from August 1990 to December 1991. Mr. Cassese was also a Vice President of A.M.A. Advisory Corp., an advisor to Meditrust, from April 1988 to August 1990. Mr. Cassese has been retired since December 1991. DAVID M. LIVINGSTON, M.D., age 57, has served as a director of the Company since January 1996. Dr. Livingston has previously served as Director of Dana-Farber Cancer Institute in Boston, Massachusetts and has been employed as a physician at the Institute since 1973. He currently serves as Chairman of the Institute's Executive Committee for Research and as a Trustee of the Institute. He is also the Emil Frei Professor of Medicine and Genetics at Harvard Medical School where he has taught since 1973. 30 KEVIN E. MOLEY, age 52, has served as a director of the Company since February 1999. From March to October of 1998, Mr. Moley was an executive consultant to Kinetra LLC. He served as President and Chief Executive Officer of Integrated Medical Systems, Inc. from January 1996 to March 1998. From February 1993 to January 1996, he served as Senior Vice President to PCS Health Systems, Inc. During the Administration of President George Bush, Mr. Moley served in the United States Department of Health and Human Services in various capacities including as a member of the Transition Team from February to May of 1989, as an Assistant Secretary for Management and Budget from May 1989 to November 1991, and as a Deputy Secretary from November 1991 to January 1993. Mr. Moley has served as the Chairman of the Board of Patient Care Dynamics since November 1998. Mr. Moley has served as a director of each of Cephalon, Inc., Merge Technology Inc. and Medaphis Corporation since March 1994, February 1998, and April 1998, respectively. STEPHEN E. RONAI, age 62, has served as a director of the Company since January 1996. Mr. Ronai has been a partner in the Connecticut law firm of Murtha, Cullina, Richter and Pinney since 1984 where he serves as Chairman of the firm's Health Care Department. He is a member of the American Health Lawyers Association. From 1989 to 1995, he served as a member of the Board of Directors of the National Health Lawyers Association, which merged in 1998 with the American Academy of Health Care Attorneys of the American Hospital Association and was subsequently denominated as the American Health Lawyers Association. He also has served as Chairman of the Board of Trustees of the Connecticut Hospital Association. He is currently a director of CareMatrix Corporation and also serves as a director of various non-profit tax-exempt health care provider organizations. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Dr. Hogan filed a Form 3 with the Securities Exchange Commission on January 19, 1999 in connection with his appointment as an executive officer of the Company on December 7, 1998. Dr. Moskow filed a Form 5 with the Securities and Exchange Commission on February 5, 1999 for stock options granted on January 21, 1998. Messrs. Cassese and Carey intend to file Form 5s, with respect to the grant of stock options on November 14, 1996, September 8, 1997 and January 26, 1999. ITEM 11. EXECUTIVE COMPENSATION DIRECTOR COMPENSATION Officers who are members of the Board of Directors do not receive compensation for serving on the Board. Each other member of the Board receives annual compensation of $15,000 for serving on the Board, plus a fee of $1,000 for each Board of Directors' meeting attended. In addition, such directors receive an additional fee of $500 for each committee meeting attended, except that only one fee will be paid in the event that more than one such meeting is held on a single day. All directors receive reimbursement of reasonable expenses incurred in attending Board and committee meetings and otherwise carrying out their duties. Each director who is a member of the Equity Incentive and Compensation Committee on the first business day following each annual meeting of the stockholders will receive an option to purchase 2,500 shares of Common Stock. Any of such options granted to a member of the Equity Incentive and Compensation Committee under the Equity Plan will be exercisable one year following the date of grant. 31 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table contains a summary of the compensation paid or accrued during the fiscal years ended January 31, 1997, 1998 and 1999 to the Chief Executive Officer of the Company and the four other named executive officers (the "Named Executive Officers").
LONG TERM ANNUAL COMPENSATION COMPENSATION AWARDS ---------------------------- --------------------- BONUS SECURITIES ALL OTHER NAME AND PRINCIPAL POSITION YEAR(1) SALARY ($) COMPENSATION($) UNDERLYING OPTIONS (#) COMPENSATION($) --------------------------- ------- ------------ --------------- ---------------------- --------------- Abraham D. Gosman 1999 225,000 -- -- -- Chairman and Co-Chief Executive 1998 225,000 -- -- -- Officer 1997 225,000 -- -- -- Michael T. Heffernan 1999 214,842 100,000 -- -- President, Co-Chief Executive Officer 1998 200,000 75,295 300,000 720(5) and Director James M. Hogan, M.D. (2) 1999 507,200 -- -- -- Chief Medical Officer Frederick R. Leathers 1999 229,525 -- -- -- Chief Financial Officer and Treasurer 1998 229,197 -- -- -- 1997 229,197 -- -- -- Gregory Gardner (3) 1999 185,875 -- -- -- Executive Vice President of Finance 1998 185,875 -- -- -- Bruce A. Rendina (4) 1999 344,366 -- -- 81,764(5) Former Vice Chairman and 1998 460,435 -- 300,000 81,207(5) Former Chairman 1997 435,782 -- -- 53,948(5) and Chief Executive Officer of DASCO Robert A. Miller (6) 1999 283,944 -- -- 617,528(7) Former President 1998 304,135 -- -- -- 1997 304,171 -- -- --
- ----------------------- (1) The Company's fiscal year end is January 31. (2) Dr. Hogan became an executive officer of the Company in December 1998. (3) Mr. Gardner became an executive officer of the Company in November 1996. (4) Mr. Rendina resigned as an executive officer of the Company during August 1998. (5) Represents life insurance premiums paid by the Company. (6) Mr. Miller resigned as an executive officer of the Company during December 1998. (7) Includes severance pay pursuant to the Miller Severance Agreement (defined herein). See "-- Separation Agreements" below. 32 OPTION GRANTS IN LAST FISCAL YEAR There were no options granted during the year ended January 31, 1999 by the Company to any of the Named Executive Officers. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The Named Executive Officers did not exercise any options during the fiscal year ended January 31, 1999. As of such date, Mr. Heffernan, Dr. Hogan and Mr. Gardner held options to purchase 300,000, 100,000 and 100,000 shares of Common Stock, respectively, 100,000 of which were exercisable by Mr. Heffernan, 33,333 of which were exercisable by Dr. Hogan and 43,333 of which were exercisable by Mr. Gardner. None of the options held by Mr. Heffernan, Dr. Hogan and Mr. Gardner were in-the-money as of January 31, 1999, and none of the other Named Executive Officers held any options as of such date. EMPLOYMENT AGREEMENTS In connection with the Company's acquisition of Clinical Studies, Ltd. ("CSL"), on October 14, 1997, the Company entered into an employment agreement with Mr. Heffernan to be the Chief Executive Officer of CSL. The agreement provides for an initial three-year term (expiring on October 14, 2000), which may be renewed upon agreement of the parties. The base salary for Mr. Heffernan under the agreement is $200,000 per year, plus a guaranteed bonus of $100,000 per year, payable in quarterly installments. The agreement also provides for the grant of an option to purchase 300,000 shares of the Common Stock of the Company at $16.25 per share (the price per share of the Common Stock as of the date of the agreement), which option is exercisable in three annual installments of 100,000 shares commencing on October 14, 1998. In addition, Mr. Heffernan is entitled to receive other bonuses and benefits that may be offered by the Company to its executive officers. The agreement may be terminated by the Company without cause effective immediately upon delivery of written notice by the Company to Mr. Heffernan. Mr. Heffernan may terminate the agreement upon delivery of written notice to the Company if the Company (i) fails to pay any sums due under the agreement, (ii) reassigns Mr. Heffernan from Providence, Rhode Island without his consent, or (iii) materially changes his employment duties without his consent. If the agreement is terminated by the Company without cause or by Mr. Heffernan for one of the reasons noted in the preceding sentence, Mr. Heffernan shall continue to receive his salary and guaranteed bonus for a period of 18 months after such a termination or for the remainder of the term of the agreement, whichever is longer. In the event of a "change in control" (as defined in the agreement) of the Company or CSL during the term of the agreement, Mr. Heffernan is entitled to receive a bonus payment from the Company equal to 2.99 times the sum of his salary and guaranteed annual bonus. The agreement contains restrictive covenants prohibiting Mr. Heffernan from competing with the Company, or soliciting employees of the Company to leave, during his employment and for a period equal to the longer of (i) one year after termination of the agreement or (ii) the period during which Mr. Heffernan is paid as a result of a termination of the agreement by the Company without cause or by Mr. Heffernan for cause. On January 27, 1997, the Company entered into an employment agreement with James M. Hogan, M.D.. The agreement provides for an initial three-year term ending March 17, 2000, which is automatically renewed for successive one year periods unless either the Company or Dr. Hogan provides a written notice of an election not to renew at least 60 days but not more than 180 days before the termination of the agreement. The base salary for Dr. Hogan under the agreement is $500,000 per year, plus such benefits and bonuses as the Company in its sole discretion may grant to him. The agreement also provides for the grant of an option to purchase 100,000 shares of Common Stock at $12.50 per share (the fair market value of the Common Stock on the date of the agreement), which option is exercisable in three annual installments commencing on March 17, 1998. In addition, Dr. Hogan is entitled to receive other bonuses and benefits that may be offered by the Company to its executive officers. The agreement may be terminated by the Company on 30 days written notice to Dr. Hogan. In addition, the Company may terminate the agreement with cause if Dr. Hogan engages in certain proscribed behavior. Dr. Hogan may terminate the agreement on 30 days written notice to the Company if the Company fails to honor the terms of the agreement, upon a change of control of the Company or if a material change in his title, responsibilities, salary or benefits occurs. If the agreement is terminated by the Company without cause or by Dr. Hogan for one of the reasons noted in the immediately preceding sentence, Dr. Hogan shall continue to receive his salary for a period of 12 months after such termination or for the remainder of the term of the agreement, whichever is longer. The agreement contains restrictive covenants prohibiting Dr. Hogan from competing with the Company, or soliciting employees of the Company to leave during his employment or for a period equal to the longer of (i) one year after the termination of the agreement or (ii) the period during which Dr. Hogan is paid as a result of a termination of the agreement by the Company without cause or by Dr. Hogan for cause. The Company, through its subsidiary DASCO Development Corporation ("DASCO"), entered into an employment agreement with Mr. Rendina that provided for an initial one-year term automatically renewable for successive one-year periods until either party elects not to renew. The initial base salary for Mr. Rendina under the agreement was $330,000 per year with automatic annual increases. In addition, he was entitled to receive bonuses and benefits, including life, accident, health and dental insurance. The agreement with Mr. Rendina was terminated in September 1998. BUSINESS AGREEMENT In September 1998, Bruce A. Rendina entered into a Business Agreement (the "Business Agreement") with the Company, DASCO and Mr. Gosman. The Business Agreement was entered into to address the parties' future cooperation with respect to the development of certain real estate projects. The Business Agreement provides that the Company has the exclusive development rights to 27 separate projects located in 12 states, and Mr. Rendina has the exclusive development rights to six projects in five states. In addition, the Company and Mr. Rendina have agreed under certain conditions to share fees with respect to five asset conversion projects and six medical facility development projects. Pursuant to the terms of the Business Agreement, Mr. Rendina is entitled to the first 25% of the fees received on any shared fee project. Thereafter, the Company and Mr. Rendina evenly split the remaining portion of the fees for such projects. SEPARATION AGREEMENT In December 1998, the Company and Robert A. Miller, former President of the Company entered into a Separation and Severance Agreement (the "Miller Severance Agreement") and a Consulting Agreement for Physician Practice Management Assets (the "Miller Consulting Agreement"). Pursuant to the Miller Severance Agreement, the Company will pay to Mr. Miller a severance payment equal to $617,528 less applicable taxes and deductions. Mr. Miller agreed not to solicit any employees of the Company and not to compete against the Company's site management and clinical trial related business for a period of two years from the termination of the Miller Consulting Agreement. The Miller Consulting Agreement provides for Mr. Miller to assist the Company in its divestiture of its non-network physician practice management assets for the six months following his resignation. In consideration for such services, the Company will pay to Mr. Miller $390,000 over the term of contract. 33 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of April 22, 1999 (unless otherwise indicated), certain information regarding the beneficial ownership of shares of Common Stock by each person known by the Company to be the beneficial owner of more than 5% of outstanding Common Stock, by each director and each of the Named Executive Officers of the Company and by all current directors and executive officers as a group. Except as indicated in the footnotes, all of such shares of Common Stock set forth in the following table are owned directly, and the indicated person has sole voting and investment power with respect to all Common Stock shown as beneficially owned by such person:
AMOUNT OF BENEFICIAL OWNERSHIP ------------------------------ SHARES BENEFICIALLY PERCENTAGE OF OWNED OUTSTANDING(1) ----- -------------- DIRECTORS AND NAMED EXECUTIVE OFFICERS Abraham D. Gosman (2)............................................ 8,537,126 25.6% Michael T. Heffernan (3)......................................... 419,493 1.3 Gregory Gardner (4).............................................. 43,333 * James M. Hogan, M.D. (5)......................................... 66,666 * Frederick R. Leathers............................................ 491,505 1.5 Eric Moskow, M.D. (6)............................................ 187,252 * H. Loy Anderson, Jr.............................................. 315 * Hugh L. Carey (7)................................................ 5,000 * Joseph N. Cassese (8)............................................ 35,000 * David M. Livingston, M.D......................................... -- * Kevin E. Moley................................................... -- * Stephen E. Ronai (9)............................................. 12,000 * Robert A. Miller (10)............................................ 459,655 1.4 Bruce A. Rendina (11)............................................ 604,766 1.8 All current directors and executive officers as a group (12 persons) (12).............................................. 9,797,690 29.0 OTHER 5% STOCKHOLDERS Crabbe Huson Group, Inc.(13)..................................... 3,320,600 9.9 The WAB Family Limited Partnership (14).......................... 1,900,576 5.7
- -------------------------- * Less than one percent. (1) Based upon a total of 33,386,145 shares of Common Stock outstanding on April 22, 1999. (2) Includes (i) 4,018,707 shares held by Chancellor Partners Limited Partnership I ("CPLP I") and (ii) 2,000,000 shares held in a revocable trust. The sole general partner of CPLP I is CLP, Inc., which has sole voting and dispositive powers as to the securities held by CPLP I. Mr. Gosman is the sole stockholder and director of CLP, Inc. Mr. Gosman's business address is PhyMatrix Corp., 777 South Flagler Drive, Suite 1000E, West Palm Beach, Florida 33401. (3) Includes 100,000 shares that Mr. Heffernan has the right to acquire upon exercise of an option. (4) Consists of 43,333 shares that Mr. Gardner has a right to acquire upon exercise of an option. (5) Includes 66,666 shares that Dr. Hogan has a right to acquire upon exercise of an option. (6) Includes (i) 120,000 shares that Dr. Moskow has the right to acquire upon exercise of an option and (ii) 12,101 shares held of record by Physician's Choice Management, LLC. (7) Consists of 5,000 shares that Mr. Carey has the right to acquire upon exercise of an option. (8) Includes 15,000 shares that Mr. Cassese has the right to acquire upon exercise of an option. (9) Includes 10,000 shares that Mr. Ronai has the right to acquire upon exercise of an option. (10) Based upon information contained in Mr. Miller's most recent Form 4 filed with the SEC for September 1996. Includes 150 shares held for the benefit of three of Mr. Miller's children. (11) Based upon information provided by Mr. Rendina in April 1999. (12) Includes 359,999 shares that the current directors and executive officers have the right to acquire upon exercise of options. 34 (13) Crabbe Huson Group, Inc. ("CHG") disclaims beneficial ownership of all shares owned by each of its clients and also disclaims that a "group" within the meaning of Rule 13d-5(b) under the Securities Exchange Act of 1934 has been or will be formed. CHG asserts that it does not directly own any shares of the Company, but shares voting power with respect to 3,058,200 shares and dispositive power with respect to 3,320,600 shares owned by its clients. The address of CHG is 121 SW Morrison, Suite 1400, Portland, Oregon 97204. Based upon information contained in CHG's Schedule 13G filed with the SEC on February 12, 1999. (14) The partnership's address is 106 Driftwood Drive, Tiverton, Rhode Island 02878. Walter A. Brown is the sole limited partner and general partner of the partnership. Based upon information provided by Mr. Brown to the Company in April 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company occupies office space for offices in West Palm Beach, Florida under the terms of a lease which the Company assumed from a company the stockholders and executive officers of which include Messrs. Gosman and Leathers. The terms of the assumed lease are the same as those to which such affiliated company was obligated. As of January 31, 1999, the total amount of lease payments to be made under the assumed lease through the end of the current lease term was estimated to be approximately $0.4 million. During the year ended January 31, 1999, the Company leased office space on behalf of certain of its affiliated physicians from a limited partnership of which Mr. Gosman owns a controlling interest in the limited partner and general partner. The aggregate base rent paid during the year under such leases was approximately $0.1 million. In January 1997, a privately-held entity principally owned by Mr. Gosman assumed the Company's obligations as lessee under a capital lease, which obligations then exceeded the fair market value of the lease by $0.6 million. DASCO provides development and other services in connection with the establishment of health parks, medical malls and medical office buildings. DASCO provides these services to or for the benefit of the owners of the new facilities, which owners are either corporations or limited partnerships. As of January 31, 1999, Mr. Gosman individually and as trustee for his two sons, and Frederick R. Leathers had obtained equity interests in an aggregate of 17 facilities developed or being developed by DASCO, and had interests in five of such facilities. The interest 35 of Mr. Gosman (individually and as trustee) in such facilities ranged from 6.0% to 40.1%. The interest of Mr. Leathers ranged from 0. 1 % to 0.95%. During the year ended January 31, 1999, DASCO recorded revenues in the amount of approximately $3.0 million, related to facilities developed by DASCO in which equity interests have been obtained by related parties. The Company provides construction management, development marketing and consulting services to entities principally owned by Mr. Gosman in connection with the development and operation by such entities of several healthcare related facilities (including a medical office building and a retirement community). During the years ended January 31, 1999 and 1998, the Company recorded revenues in the amount of $1.4 million and $10.5 million, respectively, related to such services and as of January 31, 1999, the Company advanced $10.9 million, pursuant to a note due in July 2000, to a company principally owned by Mr. Gosman relating to the development of a healthcare facility. The Company provides these services to such affiliated parties on terms no more or less favorable to the Company than those provided to unaffiliated parties. Interest on the note accrues at the prime rate. In May 1998, the Company made a loan in the original principal amount of $1.0 million to Dr. Moskow. The loan bears interest at a rate of 5.56% per annum and becomes due in May 2005. Pursuant to the terms of the note governing the loan, the balance due under the note will be forgiven upon a change of control of the Company. In addition, during the year ended January 31, 1999, the Company loaned $0.9 million to a limited partnership of which Mr. Gosman is a partner. The loan bears interest at 10% and has a final maturity of July 1999. Mr. Ronai is a partner in the Connecticut law firm of Murtha, Cullina, Richter and Pinney which has been retained to perform certain legal services for the Company. During July 1995, the Company purchased the assets of and entered into a 15-year management agreement with a medical oncology practice with three medical oncologists. An affiliate of the Company, Continuum Care of Massachusetts, Inc., guarantees the performance of the Company's obligations under the management agreement. 36 PART IV ITEM 14. FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)1. Financial Statements PAGE ---- Financial Statements Report of Independent Accountants F-2 Consolidated Balance Sheets as of January 31, 1999 and 1998 F-3 Consolidated Statements of Operations for the years ended January 31, 1999, 1998 and 1997 F-4 Consolidated Statements of Changes in Shareholders' Equity for the years ended January 31, 1999, 1998 and 1997 F-5 Consolidated Statements of Cash Flows for the years ended January 31, 1999, 1998 and 1997 F-6 Notes to Consolidated Financial Statements F-7 2 Financial Statement Schedules Report of Independent Accountants S-1 Schedule II Valuation and Qualifying Accounts for the years ended January 31, 1999, 1998 and 1997 S-2
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 3. Exhibits
Exhibit No. Exhibit - ----------- ------- 3.1(1) Restated Certificate of Incorporation of the Company. 3.2(1) By-laws of the Company. 4(2) Indenture with respect to the Company's 6-3/4% Convertible Subordinated Debentures. 10.1(1) Registration Agreement dated January 29, 1996 between PhyMatrix Corp. and various stockholders of PhyMatrix Corp. 10.2(2) Registration Agreement dated June 21, 1996 between PhyMatrix Corp. and the Initial Purchasers. 10.3(1) Employment Agreement dated as of January 1, 1995 between DASCO and Bruce A. Rendina. 10.4(2) Employment Agreement dated January 29, 1996 between PhyMatrix Corp. and Robert A. Miller. 10.5(1) 1995 Equity Incentive Plan. 10.6 Amended and Restated Agreement and Plan of Merger dated as of July 15, 1997 by and among the Company, PhyMatrix Acquisition I, Inc., Clinical Studies Ltd., Dr. Michael Rothman, Dr. Walter Brown, Michael T. Heffernan and Ronald Phillips as Trustee of The Alexander Rothman 1993 Qualified Sub-Chapter S Trust and as Trustee of The Julie Rothman Qualified Sub-Chapter S Trust (incorporated by reference from the Company's Current Report on Form 8-K filed on October 6, 1997). 10.7(3) Employment Agreement dated October 14, 1997 between PhyMatrix Corp. and Michael T. Heffernan. 10.8(3) Separation and Settlement Agreement dated April 30, 1998 between Frank Tidikis and PhyMatrix Corp. *10.9 Loan and Security Agreement dated March 12, 1999 by and among the Company, certain of its subsidiaries and HCFP Funding, Inc. *10.10 Loan and Security Agreement dated March 12, 1999 by and among the Company, PhyMatrix Diagnostic Imaging, Inc., PhyMatrix Management Company, Inc. and HCFP Funding, Inc. *10.11 Loan and Security Agreement dated March 12, 1999 by and between the Company, Clinical Studies, Ltd., Clinical Marketing, Ltd. and HCFP Funding, Inc. *10.12 Separation and Settlement Agreement dated December 8, 1998 between the Company and Robert A. Miller *10.13 Consulting Agreement for Physician Practice Management Assets dated December 8, 1999 between the Company and RAM Advisors, Inc. *10.14 Business Agreement dated September 4, 1998 among the Company, certain of its subsidiaries, Abraham D. Gosman, The Rendina Companies, Inc., The Rendina Companies West, Inc. and Bruce A. Rendina. 10.15(3) Section 3.4(a) of the Operating Agreement of Tri-State Network Management, L.L.C. dated February 17, 1998 among PhyMatrix Management Company, Inc. ("Management"), Beth Israel Medical Center and Landmark Physicians Organization, L.L.C., which imposes certain restrictions on Management and PhyMatrix Corp. *10.16 Employment Agreement between the Company and James M. Hogan, M.D. *21 Subsidiaries of the Registrant. *23.1 Consent of PricewaterhouseCoopers LLP *27 Financial Data Schedule.
37 - --------------- * Filed herewith. (1) All exhibits not filed herewith or otherwise incorporated by reference are hereby incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No. 33-97854). (2) Incorporated by reference to the Company's Registration Statement on Form S-1 (Reg. No. 333-08269). (3) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended January 31, 1998. (b) Reports on Form 8-K None 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. PHYMATRIX CORP. By: /S/ ABRAHAM D. GOSMAN ---------------------------------- Abraham D. Gosman Chairman of the Board of Directors and Co-Chief Executive Officer Date: April 30, 1999 Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dated indicated.
SIGNATURE TITLE DATE --------- ----- ---- Chairman of the Board of Directors and Co-Chief Executive Officer /s/ Abraham D. Gosman (Principal Executive Officer) April 30, 1999 - ------------------------------ Chief Financial Officer (Principal Financial and Accounting /s/ Frederick R. Leathers Officer) April 30, 1999 - ------------------------------ /s/ H. Loy Anderson Director April 30, 1999 - ------------------------------ Governor Hugh L. Carey Director April 30, 1999 - ------------------------------ /s/ Joseph N. Cassese Director April 30, 1999 - ------------------------------ Director, President and Co-Chief /s/ Michael T. Heffernan Executive Officer April 30, 1999 - ------------------------------ David M. Livingston, M.D. Director April 30, 1999 - ------------------------------ /s/ Kevin Moley Director April 30, 1999 - ------------------------------ Director and Executive Vice Eric Moskow President of Strategic Planning April 30, 1999 - ------------------------------ /s/ Stephen E. Ronai, Esq. Director April 30, 1999 - ------------------------------
PHYMATRIX CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants F-2 Consolidated Balance Sheets as of January 31, 1999 and 1998 F-3 Consolidated Statements of Operations for the years ended January 31, 1999, 1998, and 1997 F-4 Consolidated Statements of Changes in Shareholders' Equity for the years ended January 31, F-5 1999, 1998, and 1997 Consolidated Statements of Cash Flows for the years ended January 31, 1999, 1998 and 1997 F-6 Notes to Consolidated Financial Statements F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders of PhyMatrix Corp.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of changes in shareholders' equity present fairly, in all material respects, the financial position of PhyMatrix Corp. and its subsidiaries at January 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 1999, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts March 19, 1999, except for Note 23, for which the date is April 22, 1999 F-2 PHYMATRIX CORP. CONSOLIDATED BALANCE SHEETS (In thousands)
January 31, ----------- 1999 1998 -------- -------- ASSETS Current assets Cash and cash equivalents $ 10,137 $ 49,536 Receivables: Accounts receivable, net of allowances of $1,350 and $48,428 at January 31, 1999 and 1998, respectively 15,276 57,252 Income tax refund receivable 10,789 -- Other receivables 6,760 14,240 Notes receivable (Note 5) 5,060 1,851 Prepaid expenses and other current assets 1,260 6,167 Assets held for sale (Note 2) 100,795 -- -------- -------- Total current assets 150,077 129,046 Property, plant and equipment, net (Note 6) 11,024 44,295 Notes receivable (Note 5) 7,274 7,831 Goodwill, net (Note 2) 41,007 93,880 Management service agreements, net (Note 2) 28,167 89,470 Investment in affiliates (Note 7) 98 4,944 Other assets (including advances to shareholder) 15,204 8,694 -------- -------- Total assets $252,851 $378,160 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of debt and capital leases (Note 9) $ 12,192 $ 13,742 Accounts payable 13,602 13,101 Accrued compensation 1,475 2,282 Accrued and other current liabilities (Note 8) 11,623 13,531 -------- -------- Total current liabilities 38,892 42,656 Long-term debt and capital leases (Note 9) 5,465 20,617 Convertible subordinated debentures (Note 9) 100,000 100,000 Other long-term liabilities (Notes 3 and 12) 1,191 1,651 Minority interest 1,403 1,201 -------- -------- Total liabilities 146,951 166,125 Commitments and contingencies (Notes 3 and 12) Shareholders' equity: Common stock, par value $.01, 40,000 shares authorized, 33,344 and 31,248 shares issued at January 31, 1999 and 1998, respectively, 32,916 and 31,244 shares outstanding at January 31, 1999 and 1998, respectively 329 312 Treasury stock (1,202) (75) Additional paid in capital 224,715 198,893 Retained earnings (accumulated deficit) (117,942) 12,905 -------- -------- Total shareholders' equity 105,900 212,035 -------- -------- Total liabilities and shareholders' equity $252,851 $378,160 -------- -------- -------- -------- The accompanying notes are an integral part of the consolidated financial statements.
F-3 PHYMATRIX CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data)
Year Ended January 31, ---------------------- 1999 1998 1997 --------- --------- --------- Net revenues (Note 2): Net revenues from services $ 179,472 $ 155,946 $ 98,765 Net revenues from management service agreements 103,112 94,134 47,942 Net revenues from real estate services 8,694 31,099 19,049 --------- --------- --------- Total revenue 291,278 281,179 165,756 --------- --------- --------- Operating costs and administrative expenses: Salaries, wages and benefits 94,710 88,221 58,351 Professional fees 16,287 9,597 7,322 Supplies 60,055 44,909 27,203 Utilities 5,501 4,574 2,868 Depreciation and amortization 14,786 10,800 7,382 Rent 20,671 16,649 8,519 Provision for bad debts 8,428 5,915 4,608 Gain on sale of assets (Note 6) (5,414) (1,891) (262) Provision for write-down of notes receivable (Note 5) 2,674 -- -- Merger and other noncontinuing expenses related to CSL (Note 3) -- 11,057 1,929 Goodwill impairment write-down (Note 2) 9,093 -- -- Nonrecurring expenses (Note 4) 10,465 -- -- Capitation expense 53,875 44,341 12,442 Other 37,667 22,841 12,251 --------- --------- --------- 328,798 257,013 142,613 --------- --------- --------- Interest expense, net 8,005 4,775 1,357 Interest expense shareholder -- -- 369 (Income) from investment in affiliates -- (731) (709) --------- --------- --------- 8,005 4,044 1,017 --------- --------- --------- Income (loss) before provision for income taxes and extraordinary item (45,525) 20,122 22,126 Income tax expense (benefit) (11,549) 9,823 6,836 --------- --------- --------- Net income (loss) before extraordinary item (Note 2) (33,976) 10,299 15,290 Extraordinary item, net of tax of $0 (Note 4) 96,784 -- -- --------- --------- --------- Net income (loss) $(130,760) $ 10,299 $ 15,290 --------- --------- --------- --------- --------- --------- Net income per weighted average share - basic (Note 19) Income (loss) before extraordinary item $ (1.02) $ 0.35 $ 0.56 Extraordinary item $ (2.89) $ -- $ -- Net income (loss) $ (3.91) $ 0.35 $ 0.56 Net income per weighted average share - diluted (Note 19) Income (loss) before extraordinary item $ (1.02) $ 0.35 $ 0.55 Extraordinary item $ (2.89) $ -- $ -- Net income (loss) $ (3.91) $ 0.35 $ 0.55 Proforma Information (Note 2): Adjustment to income tax expense $ -- $ 624 $ 1,293 Net income $ -- $ 9,675 $ 13,997 Net income per weighted average share - basic $ -- $ 0.33 $ 0.51 Net income per weighted average share - diluted $ -- $ 0.33 $ 0.51 Weighted average shares outstanding - basic (Note 19) 33,401 29,690 27,295 --------- --------- --------- --------- --------- --------- Weighted average shares outstanding - diluted (Note 19) 33,401 30,229 27,682 --------- --------- --------- --------- --------- --------- The accompanying notes are an integral part of the consolidated financial statements.
F-4 PHYMATRIX CORP. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the years ended January 31, 1999, 1998 and 1997 (In thousands)
Retained Common Stock Additional Earnings Outstanding Treasury Paid-in (Accumulated Shares Amount Stock Capital Deficit) Total --------- --------- --------- --------- --------- --------- Balances - December 31, 1995 4,885 $ 49 $ -- $ 25,071 $ (9,683) $ 15,437 Initial public offering, net of costs 21,263 213 -- 111,494 -- 111,707 Issuance of common stock for acquisitions 267 3 -- 3,997 -- 4,000 Issuance of common stock pursuant to pooling of interests with Clinical Studies, Ltd. ("CSL") 319 3 -- 625 -- 628 Adjustment for immaterial pooling of interests 433 4 -- -- 779 783 Issuance costs -- -- -- (743) -- (743) Issuance of stock pursuant to acquisitions 406 4 -- 9,223 -- 9,227 Issuance of stock pursuant to stock plans 52 -- -- 359 -- 359 Net loss for month ended January 31,1996 -- -- -- -- (1,176) (1,176) Net income for the year ended January 31, 1997 -- -- -- -- 15,290 15,290 Dividends -- -- -- -- (1,732) (1,732) --------- --------- --------- --------- --------- --------- Balances - January 31, 1997 27,625 276 -- 150,026 3,478 153,780 Adjustment for immaterial pooling of interests -- -- -- -- 644 644 CSL's January 1997 earnings excluded from net income (as described in Note 2) -- -- -- -- 344 344 Purchase of treasury stock at cost -- -- (75) -- -- (75) Issuance of stock pursuant to acquisitions 3,430 34 -- 48,059 -- 48,093 Issuance of stock pursuant to stock plans 193 2 -- 920 -- 922 Issuance costs -- -- -- (112) -- (112) Net income for the year ended January 31, 1998 -- -- -- -- 10,299 10,299 Dividends -- -- -- -- (1,860) (1,860) --------- --------- --------- --------- --------- --------- Balances - January 31, 1998 31,248 312 (75) 198,893 12,905 212,035 Purchase of treasury stock at cost (427) (4) (1,127) -- -- (1,131) Issuance of stock pursuant to acquisitions 2,059 21 -- 25,785 -- 25,806 Issuance of stock pursuant to stock plans 36 -- -- 130 -- 130 Issuance costs and other -- -- -- (93) (87) (180) Net loss for the year ended January 31, 1999 -- -- -- -- (130,760) (130,760) --------- --------- --------- --------- --------- --------- Balances - January 31, 1999 32,916 $ 329 $ (1,202) $ 224,715 $(117,942) $ 105,900 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- The accompanying notes are an integral part of the consolidated financial statements.
F-5 PHYMATRIX CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended January 31, ------------------------------------- 1999 1998 1997 --------- --------- --------- Cash flows from operating activities: Net income (loss) $(130,760) $ 10,299 $ 15,290 Noncash items included in net income (loss): Depreciation and amortization 14,786 10,800 7,382 Extraordinary item 96,784 -- -- Gain on sale of assets (5,414) (1,891) (292) Nonrecurring charges 10,465 -- -- Write-down of notes receivable 2,674 -- -- Goodwill impairment write-down 9,093 -- -- Amortization of debt issuance costs 1,708 727 277 Issuance of common stock as compensation -- -- 628 Other 656 (688) (359) Changes in receivables (1,699) (8,571) (14,154) Changes in accounts payable and accrued liabilities (1,020) 215 (3,637) Changes in amounts due from physicians 3,216 (6,243) (1,006) Changes in other assets (5,393) (6,932) 1,518 --------- --------- --------- Net cash provided (used) by operating activities (4,904) (2,284) 5,647 Cash flows from investing activities: Capital expenditures (6,601) (10,248) (5,687) Sale of assets 7,888 4,019 1,244 Notes receivable, net (2,550) 6,957 (15,214) Purchase of investments in affiliates -- (1,354) -- Other assets (110) 439 (1,440) Acquisitions, net of cash acquired (Note 17) (11,164) (34,444) (27,734) --------- --------- --------- Net cash used by investing activities (12,537) (34,631) (48,831) Cash flows from financing activities: Borrowings under revolving lines of credit, net -- 26,571 3,132 Advances to shareholders (10,904) -- (15,523) Proceeds from issuance of common stock 130 914 360 Dividends to shareholders -- (1,861) (1,732) Proceeds from issuance of convertible subordinated debentures -- -- 96,566 Release of cash collateral -- 4,504 1,997 Offering costs and other (234) (88) (2,823) Repurchase of treasury stock (769) -- -- Repayment of debt (10,181) (25,239) (7,179) --------- --------- --------- Net cash provided (used) by financing activities (21,958) 4,801 74,798 Increase (decrease) in cash and cash equivalents (39,399) (32,114) 31,614 Cash and cash equivalents, beginning of year 49,536 81,650 49,709 --------- --------- --------- Cash and cash equivalents, end of year $ 10,137 $ 49,536 $ 81,323 --------- --------- --------- --------- --------- --------- The accompanying notes are an integral part of the consolidated financial statements.
F-6 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND RECENT EVENTS DESCRIPTION OF BUSINESS PhyMatrix Corp. (together with its subsidiaries, the "Company" or "PhyMatrix") is repositioning itself as a company that provides diverse services supporting the needs of the pharmaceutical and managed care industries. The Company is focusing its operations on two integrated business lines: pharmaceutical services, including investigative site management, clinical and outcomes research and disease management, as well as multi and single-specialty provider network management. Historically, the Company has been an integrated medical management company that provides medical management services to the medical community, certain ancillary medical services to patients and medical real estate development and consulting services to related and unrelated third parties. In August 1998, the Company announced that it planned to change this business model. The Company is in the process of terminating its management of individual and group physician practices and divesting itself of related assets, and selling and divesting itself of its ancillary medical service businesses, such as diagnostic imaging, radiation therapy, lithotripsy services, home healthcare and infusion therapy. The Company also has significantly downsized its medical facility development and consulting services. The Company currently estimates that by the end of its current fiscal year it will have exited its physician practice management ("PPM") and ancillary medical service businesses. PhyMatrix Corp., formerly known as Continuum Care Corporation, was formed to create a healthcare company which consummated an initial public offering (the "offering") during January 1996 and simultaneously exchanged 13,040,784 shares of its Common Stock for all of the outstanding Common Stock of several business entities (the "IPO entities") which were operated under common control prior to the offering by Abraham D. Gosman and with respect to DASCO Development Corporation and affiliate ("DASCO") by Mr. Gosman and Bruce A. Rendina, since their respective dates of acquisition. Subsequent to the offering, the Company changed its fiscal year end from December 31 to January 31. During October 1997, the Company combined with Clinical Studies, Ltd. ("CSL"). This business combination was accounted for as a pooling of interests. CSL is a site management organization conducting clinical research for pharmaceutical and biotechnology companies and clinical research organizations at 38 centers located in 16 states. Accordingly, the financial statements for all periods prior to the effective date of the merger have been restated to include CSL and Clinical Marketing Ltd. ("CML") which was merged into CSL on January 1, 1997. RECENT EVENTS During May 1998, the Company announced that the Board of Directors had instructed management to explore various strategic alternatives for the Company that could maximize stockholder value. During August 1998, the Company announced that the Board of Directors approved several strategic alternatives to enhance stockholder value. The Board authorized a series of initiatives designed to restructure the Company as a significant company in pharmaceutical contract research, specifically clinical trials site management and outcomes research. The Company intends to link its nationally focused hospital affiliations and its physician networks with its clinical trials site management and healthcare outcomes research operations. During August 1998, the Board approved, consistent with achieving its stated restructuring goal, its plan to divest and exit the Company's PPM business and certain of its ancillary services businesses, including diagnostic imaging, lithotripsy and radiation therapy. Subsequent to August 1998, the Company has also decided to divest its home health business and exit its infusion therapy business. Net loss for the year ended January 31, 1999 included an extraordinary item of $96.8 million which is primarily a non-cash charge related to F-7 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) these divestitures. In accordance with APB 16, the Company is required to record these charges as an extraordinary item since impairment losses are being recognized for divestitures and disposals expected to be completed within two years subsequent to a pooling of interests (the pooling of interests with CSL was effective October 15, 1997). Based on fair market value estimates, which have primarily been derived from letters of intent, letters of interest and discussions with prospective buyers, the Company currently expects to realize net proceeds of approximately $100.8 million from the sale of the businesses identified to be divested or disposed and has recorded this amount as an asset held for sale on the balance sheet at January 31, 1999. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its 50% or greater owned subsidiaries over which it exercises control. Significant intercompany accounts and transactions have been eliminated in consolidation. ESTIMATES USED IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used when accounting for the estimated proceeds to be realized from the assets held for sale, collectibility of receivables and third party settlements, depreciation and amortization, taxes and contingencies. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of highly liquid instruments with original maturities at the time of purchase of three months or less. REVENUE RECOGNITION Net revenues from services is reported at the estimated realizable amounts from patients, third-party payors and others for services rendered. Revenue under certain third-party payor agreements is subject to audit and retroactive adjustments. Provisions for estimated third-party payor settlements and adjustments are estimated in the period the related services are rendered and adjusted in future periods as final settlements are determined. The provision and related allowance are adjusted periodically, based upon an evaluation of historical collection experience with specific payors for particular services, anticipated reimbursement levels with specific payors for new services, industry reimbursement trends and other relevant factors. Included in net revenues from services are revenues from the diagnostic imaging centers in New York which the Company operates pursuant to Administrative Service Agreements. These revenues are reported net of payments to physicians. Net revenues from clinical studies (which are included in net revenues from services) equals the fees to be received, primarily from pharmaceutical companies, as services are provided to patients enrolled in the studies. Revenues are recognized as patient visits are conducted and such services are provided. Payments received prior to providing services are recorded as unearned revenue. Included in accounts receivable at January 31, 1999 and 1998 are unbilled contract receivables of $4.6 million and $3.9 million, respectively. Net revenues from management service agreements include fees paid to the Company by the management service agreements for providing management services. These fees generally are either a fixed amount per enrollee or a specified percentage of capitated revenues. In addition, the Company may be entitled to participate in risk pools. F-8 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In accordance with EITF 97-2, which the Company implemented during the fourth quarter of fiscal 1999, net revenues from management service agreements generally includes the net revenue generated by the physician practices net of payments to physicians. Under the agreements, the Company, in most cases, is responsible and at risk for the operating costs which include the reimbursement of all medical practice operating costs. For the years ended January 31, 1999, 1998 and 1997, the payments to physicians which have been netted against revenues were $67.7 million, $65.4 million and $42.2 million, respectively. Net revenues from real estate services are recognized at the time services are performed. In some cases fees are earned upon the achievement of certain milestones in the development process, including the receipt of a building permit and a certificate of occupancy of the building. Unearned revenue relates to all fees received in advance of services being completed on development projects. THIRD PARTY REIMBURSEMENT For the years ended January 31, 1999, 1998 and 1997, approximately 16%, 19% and 28%, respectively, of the Company's net revenue was primarily from the participation of the Company's home healthcare entities and physician practices in Medicare programs. Medicare compensates the Company on a "cost reimbursement" basis for home healthcare, meaning Medicare covers all reasonable costs incurred in providing home healthcare. Medicare compensates the Company for physician services based on predetermined fee schedules. In addition to extensive existing governmental healthcare regulation, there are numerous initiatives at the federal and state levels for comprehensive reforms affecting the payment for and availability of healthcare services. Legislative changes to federal or state reimbursement systems could adversely and retroactively affect recorded revenues. ASSETS HELD FOR SALE During August 1998, the Board approved, consistent with achieving its stated restructuring goal, its plan to divest and exit the Company's PPM business and certain of its ancillary services businesses, including diagnostic imaging, lithotripsy and radiation therapy. Subsequent to August 1998, the Company has also decided to divest its home health business and exit its infusion therapy business. Net loss for the year ended January 31, 1999 includes an extraordinary item of $96.8 million which is primarily a non-cash charge related to these divestitures. In accordance with APB 16, the Company is required to record these charges as an extraordinary item since impairment losses are being recognized for divestitures and disposals expected to be completed within two years subsequent to a pooling of interests (the pooling of interests with CSL was effective October 15, 1997). Based on fair market value estimates, which estimates were primarily derived from letters of intent, letters of interest and discussions with prospective buyers, the Company currently expects to realize net proceeds of approximately $100.8 million from the sale of the businesses identified to be divested or disposed and has recorded this amount as an asset held for sale on the balance sheet at January 31, 1999. Assets and liabilities of the businesses held for sale have been removed from their respective accounts and therefore are excluded from the foregoing footnote disclosures related to these individual balance sheet items at January 31, 1999, since these amount have been reclassed to assets held for sale. PROPERTY AND EQUIPMENT Additions are recorded at cost, or in the case of capital lease property, at the net present value of the minimum lease payments required, and depreciation is recorded principally by use of the straight-line method of depreciation for buildings, improvements and equipment over their useful lives. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Maintenance and repairs are charged to expense as incurred. Major renewals or improvements are capitalized. Assets recorded under capital leases are amortized over the shorter of their estimated useful lives or the lease terms. INCOME TAXES The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Deferred taxes arise primarily from the recognition of revenues and expenses in F-9 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) different periods for income tax and financial reporting purposes. Prior to the merger with CSL, CSL had elected to be treated as S Corporations as provided under the Internal Revenue Code (the "Code"), whereby income taxes are the responsibility of the shareholders. Accordingly, the Company's statements of operations do not include provisions for income taxes for income related to CSL prior to the merger. Prior to the merger, dividends were primarily intended to reimburse shareholders for income tax liabilities incurred. PRO FORMA INFORMATION The pro forma net income and net income per share information in the consolidated statement of operations reflect the effect on historical results (prior to the merger with CSL) as if CSL had been a C corporation rather than an S corporation for income tax purposes. GOODWILL Goodwill relates to the excess of cost over the value of net assets of the businesses acquired. Amortization is calculated on a straight line basis over periods ranging from ten to 40 years. Accumulated amortization of goodwill was $3.2 million and $6.0 million at January 31, 1999 and 1998, respectively. The decrease in accumulated amortization of goodwill is primarily attributable to the entities divested/disposed during the year ended January 31, 1999 or the reclassification of accumulated amortization to assets held for sale at January 31, 1999. MANAGEMENT SERVICE AGREEMENTS Management service agreements consist of the costs of purchasing the rights to manage medical oncology, physician groups and certain diagnostic imaging centers. These costs are amortized over the initial noncancelable terms of the related management service agreements ranging from ten to 25 years. Under the long-term agreements, the medical groups have agreed to provide medical services on an exclusive basis only through facilities managed by the Company. Accumulated amortization of management service agreements was $1.4 million and $4.1 million at January 31, 1999 and 1998, respectively. The decrease in accumulated amortization of management service agreements is primarily attributable to the entities divested/disposed during the year ended January 31, 1999 or the reclassification of accumulated amortization to assets held for sale at January 31, 1999. Effective February 1, 1998, management changed its policies regarding amortization of its management services agreement intangible assets. The Company adopted a maximum of 25 years (from the inception of the respective intangible asset) as the useful life for amortization of its management services agreement intangible assets. Using the unamortized portion of the intangible at January 31, 1998, the Company began amortizing the intangible over the remainder of the 25 year useful life. These costs had historically been charged to expense through amortization using the straight line method over the periods during which the agreements are effective, generally 30 to 40 years. This change represented a change in accounting estimate and, accordingly, does not require the Company to restate reported results for prior years. This change increased amortization expense relating to existing intangible assets at January 31, 1998, by approximately $0.7 million annually. DEBT ISSUANCE COSTS Offering costs of approximately $5.6 million related to the convertible subordinated debentures and the revolving line of credit agreement (see Note 9) have been deferred and are being amortized over the life of the convertible subordinated debentures and the term of the revolving line of credit agreement, respectively. The revolving line of credit agreement was amended during December 1998 and the maturity was changed to March 1999. Therefore, the amortization of the debt issuance costs related to this line of credit were accelerated, resulting in additional amortization expense of $0.6 million for the year ended January 31, 1999. Amortization expense of F-10 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) $1.7 million, $0.7 million and $0.3 million has been included as interest expense in the accompanying financial statements for the years ended January 31, 1999, 1998 and 1997, respectively. LONG-LIVED ASSETS The Company periodically assesses the recoverability of long-lived assets, including property and equipment and intangibles, when there are indications of potential impairment, based on estimates of undiscounted future cash flows. The amount of impairment is calculated by comparing anticipated discounted future cash flows with the carrying value of the related asset. In performing this analysis, management considers such factors as current results, trends and future prospects, in addition to other economic factors. In connection with the Board of Directors' plan to reposition the Company, and due in part to the resignation of Bruce A. Rendina as Chief Executive Officer of the Company's real estate services segment, the Company has made the decision to significantly downsize its real estate services segment. During the fourth quarter ended January 31, 1999, the Company recorded a goodwill impairment write-down of approximately $9.1 million which eliminates the remaining goodwill of the real estate services segment. The asset of goodwill was determined to have been impaired because of the Company's decision to significantly downsize the real estate segment and the inability to generate future operating income without substantial revenue growth, which is uncertain. Moreover, anticipated future cash flows of the real estate segment indicate that the recoverability of the asset is not likely. INVESTMENTS The equity method of accounting is used for investments when there exists a noncontrolling ownership interest in another company that is greater than 20%. Under the equity method of accounting, original investments are recorded at cost and adjusted by the Company's share of earnings or losses of such companies, net of distributions. NET INCOME (LOSS) PER COMMON SHARE Effective December 15, 1997, the Company adopted SFAS No. 128, "Earnings Per Share." Under SFAS No. 128, the basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period. Stock to be issued at a future date pursuant to acquisition agreements is treated as outstanding in determining basic earnings per share. In addition, diluted earnings per share is calculated using the weighted average number of shares of common stock and common stock equivalents, if dilutive. STOCK OPTION PLANS On February 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation", which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made during the years ended January 31, 1999, 1998 and 1997, and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. FISCAL YEAR Upon the completion of the merger during October 1997, CSL changed its fiscal year end from December 31 to January 31. Amounts consolidated for CSL for the year ended January 31, 1997 were based on a December 31 fiscal year end. As a result, CSL's historical results of operations for the month ending January 31, 1997 are not included in the Company's consolidated statements of operations or cash flows. F-11 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) RECLASSIFICATIONS Certain prior year balances have been reclassified to conform with the current year presentation. Such reclassifications had no material effect on the previously reported consolidated financial position, results of operations or cash flows of the Company. COMPREHENSIVE INCOME For the periods included in the Form 10-K, the Company does not have items of comprehensive income requiring reporting or disclosure. ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS In 1997, the Emerging Issues Task Force of the Financial Accounting Standards Board issued EITF 97-2 concerning the consolidation of physician practice revenues. PPMs are required to consolidate financial information of a physician where the PPM acquires a "controlling financial interest" in the practice through the execution of a contractual management agreement even though the PPM does not own a controlling equity interest in the physician practice. EITF 97-2 outlines six requirements for establishing a controlling financial interest. EITF 97-2 is effective for the Company's financial statements for the year ended January 31, 1999. Adoption of this statement reduced previously reported revenues and expenses for the years ended January 31, 1998 and 1997 by $65.4 million and $42.2 million, respectively. During August 1998, the Company announced its plan to divest and exit the PPM business. The majority of these assets which have not yet been divested are recorded as assets held for sale at January 31, 1999. During the year ended January 31, 1999, the Company adopted SFAS 131, "Disclosures About Segments of an Enterprise and Related Information." This Statement requires reporting of summarized financial results for operating segments as well as established standards for related disclosures about products and services, geographic areas and major customers. Primary disclosure requirements include total segment revenues, total segment profit or loss and total segment assets. The adoption of SFAS 131 did not affect results of operations or financial position but did affect the disclosure of segment information (see Note 21). 3. ACQUISITIONS YEAR ENDED JANUARY 31, 1999 TRANSACTIONS (ALL INFORMATION RELATED TO THE NUMBER OF PHYSICIANS IS AS OF THE TRANSACTION DATE) During February 1998, the Company purchased New England Research Center, a clinical research center located in Massachusetts. At the time of its acquisition, New England Research Center had over 50 ongoing studies, primarily in allergy and asthma. In conjunction with the acquisition, the Company entered into a 40-year agreement with the physicians and employees to manage the clinical trials at New England Research Center. The purchase price was approximately $5.7 million. Of such purchase price, approximately $1.5 million was paid in cash and 333,006 shares of Common Stock were issued having a value of $4.3 million. The purchase price was allocated primarily to management services agreements and is currently being amortized over 25 years. During February 1998, the Company completed the formation of an MSO with Beth Israel Medical Center and the physician organizations that represented more than 1,700 physicians of Beth Israel and its parent corporation. The Company owns one-third of the MSO. The Company provides management services for the MSO which provides the physicians and hospitals with medical management and contract negotiation support for risk agreements with managed care payors. In connection with the formation of the MSO, PhyMatrix Management Company, Inc. ("Management"), a subsidiary of the Company, agreed with Beth Israel Medical Center ("Beth Israel") that Management and its affiliates (including the Company) would not, directly or indirectly, (i) operate, manage or provide risk contract management services to any physicians, IPAs or group practices located in New York County, Kings County or Westchester County, New York (the "Restricted Zone") which are affiliated with a hospital or hospital system or any affiliate (with certain exceptions) or (ii) participate with a hospital or hospital system or any affiliate (other than Beth Israel) in an MSO or other person that operates, manages or provides risk contract management services within the Restricted Zone (with certain exceptions). In addition, the owners of two-thirds of the MSO have the right to require the Company to purchase their interests at the option price, which is based upon earnings, during years six and seven. F-12 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During February 1998, the Company purchased a diagnostic imaging center located in Delray Beach, Florida. The base purchase price was approximately $6.6 million. The base purchase price was paid in 495,237 shares of Common Stock of the Company. There was also a potential contingent payment up to a maximum of $2.0 million which was not earned. The purchase price was allocated to the assets at fair market value including goodwill of $6.6 million. The resulting intangible has been amortized over 25 years. At January 31, 1999, the Company has recorded the estimated net realizable value of this business as assets held for sale. During March 1998, the Company entered into an administrative services agreement with HIA Bensonhurst Imaging Associates, LLP, a diagnostic imaging center in Brooklyn, New York. The consideration paid was approximately $5.1 million of Common Stock. There is also a contingent payment up to a maximum of $1.9 million based on the center's earnings before taxes, which is payable in cash and/or Common Stock of the Company. As of January 31, 1999, this contingent payment has not been earned. The purchase price was allocated to the assets at fair market value including management services agreements of $5.1 million. The resulting intangible has been amortized over 25 years. At January 31, 1999, the Company has recorded the estimated net realizable value of this business as assets held for sale. During April 1998, the Company completed the formation of an MSO, which is 51% owned by the Company, with LIPH, LLC. The Company manages for the MSO the medical risk contracting for more than 2,600 physicians which are members in IPAs in New York. The base purchase price was $3.0 million. Of such price, $1.5 million was paid in cash and 143,026 shares of Common Stock were issued having a value of $1.5 million. There are also contingent payments up to a maximum of $5.0 million payable in cash and Common Stock, with $4.0 million of such amount based upon earnings during the three years after the closing date and the remaining $1.0 million based upon the achievement of certain conditions during any twelve-month period during the three years after the closing date. The Company and LIPH, LLC are in dispute as to amounts owed to the Company primarily for management services provided. During April 1998, the Company acquired the business and certain assets of a clinical research company in Massachusetts. The base purchase price was $2.6 million plus the assumption of liabilities of approximately $0.4 million. Of such purchase price, $1.5 million was paid in 144,405 shares of Common Stock of the Company, $70,000 is payable in shares of Common Stock on the first anniversary of the closing date and $1.1 million is payable in shares of Common Stock of the Company on the second anniversary of the closing date. In addition, there is a contingent payment up to a maximum of $2.4 million payable in Common Stock based on earnings before taxes during the next four years. As of January 31, 1999, this contingent payment has not been earned. The purchase price was allocated to the assets at fair market value including goodwill of $2.7 million. The resulting intangible is being amortized over 20 years. During January 1999, the Company acquired the stock of, and entered into a management agreement with, a clinical research company specializing in allergy and asthma research located in Illinois. The purchase price for the stock was approximately $4.2 million. Of such purchase price, $1.6 million was paid in cash during March 1999 and $2.6 million is payable primarily under non-interest bearing promissory notes between the second and fifth anniversaries of the closing date. The purchase price was allocated to the assets at fair market value including management service agreements of $3.5 million. The resulting intangible is being amortized over 25 years. F-13 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED JANUARY 31, 1998 ACQUISITIONS PHYSICIAN PRACTICE ACQUISITIONS (ALL INFORMATION RELATED TO THE NUMBER OF PHYSICIANS IS AS OF THE ACQUISITION DATE) During February 1997, the Company purchased the stock of a six physician practice pursuant to a merger and entered into a 40-year management agreement with the practice in exchange for 159,312 shares of Common Stock of the Company having a value of approximately $2.4 million. The transaction has been accounted for using the pooling-of-interests method of accounting. During the year ended January 31, 1999, the Company divested this practice. During February 1997, the Company purchased the assets of and entered into a 40-year management agreement with five physicians in Utah. The purchase price was $2.5 million. Of such purchase price, $1.4 million was paid in cash and 75,293 shares of Common Stock of the Company were issued having a value of $1.1 million. The purchase price was allocated to the assets at their fair market value, including management service agreements of $1.4 million. The resulting intangible is being amortized over 25 years. At January 31, 1999, the Company has recorded the estimated net realizable value of this business as assets held for sale. During May 1997, the Company entered into a 40-year management agreement with a radiation therapy center in Westchester, New York. The consideration paid in this transaction was $2.6 million. The amount paid has been allocated to management service agreements and is being amortized over 25 years. At January 31, 1999, the Company has recorded the estimated net realizable value of this business as assets held for sale. During July 1997, the Company entered into a 40-year management services agreement with Beth Israel Hospital to manage its DOCS Division which consists of more than 100 physicians located throughout the greater Metropolitan New York area. Pursuant to this management services agreement, the Company is reimbursed for all operating expenses incurred by the Company for the provision of services to the practices plus its applicable management fee. The Company may expend up to $40 million, in certain circumstances (none of which has been expended as of January 31, 1999), in conjunction with the transaction to be utilized for the expansion of the Beth Israel delivery system throughout the New York region. In connection with the agreement, the Company paid $13.7 million in cash, which was allocated to management service agreements and is being amortized over 25 years. ANCILLARY SERVICE COMPANIES ACQUISITIONS AND CSL MERGER During April 1997, the Company acquired the business and certain assets of a clinical research company in the Washington, DC area for $0.7 million in the form of a promissory note plus contingent consideration based on revenue and profitability measures over the next five years. The contingent payments will equal 10% of the excess gross revenue, as defined, provided the gross operating margins of the acquired business exceed 30%. The purchase price was allocated to intangibles, including goodwill, and is being amortized over 20 years. The note and contingent payments are, in certain circumstances, convertible into shares of Common Stock. During June 1997, the Company purchased the assets of two diagnostic imaging centers in Dade County, Florida. The purchase price was approximately $12.6 million plus the assumption of debt and capital leases totaling $1.6 million. Of such purchase price, $0.6 million was paid in cash and the remaining $12.0 million was paid by the issuance of 773,026 shares of Common Stock of the Company, 562,500 of which were issued in June 1997 and 210,526 of which were issued in September 1997. There is also a contingent payment up to a maximum of $2.7 million based on the centers' earnings before taxes over the two years subsequent to the closing, which is payable in cash. During September 1998, the Company paid $1.3 million of such contingent payment in cash and has accrued for the remaining $1.3 million at January 31, 1999. The purchase price was allocated to the assets at their fair market value, including goodwill of $13.0 million. The resulting intangible is being amortized over 30 years. At January 31, 1999, the Company has recorded the estimated net realizable value of this business as assets held for sale. During June 1997, the Company acquired the remaining 20% interest in a lithotripsy company that it purchased during 1994. The interest was acquired in exchange for cash and 54,500 shares of Common Stock of the Company F-14 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) having a total value of $2.0 million. The purchase price was allocated to goodwill and is being amortized over 20 years. At January 31, 1999, the Company has recorded the estimated net realizable value of this business as assets held for sale. During August 1997, the Company purchased certain assets and assumed certain liabilities of, and entered into an administrative services agreement with BAB Nuclear Radiology, P.C., to provide administrative services to five diagnostic imaging centers on Long Island, New York. The consideration paid in this transaction was approximately $10.5 million in cash, $15.0 million in convertible notes and the assumption of $1.6 million in debt. The convertible notes bear interest at 5% and were paid in three equal installments in November 1997 and February and May 1998. At the option of the Company, the notes were payable in either cash or shares of Common Stock of the Company. The first two installments were paid in shares of Common Stock of the Company and the final installment was paid in cash during May 1998. The amount paid was allocated to the assets at their fair market value, including management service agreements of $23.0 million and is being amortized over 25 years. At January 31, 1999, the Company has recorded the estimated net realizable value of this business as assets held for sale. During November 1997, the Company purchased certain assets of, and entered into an administrative services agreement with Highway Imaging Associates, LLP, to provide administrative services to a diagnostic imaging center in Brooklyn, New York. The consideration paid in this transaction was approximately $1.7 million. Of such amount, approximately $0.2 million was paid in cash and $1.5 million was paid by the issuance of 108,108 shares of Common Stock of the Company. The amount paid was allocated to the assets at their fair market value, including management service agreements of $1.6 million, and is being amortized over 25 years. At January 31, 1999, the Company has recorded the estimated net realizable value of this business as assets held for sale. During December 1997, the Company purchased certain assets, assumed certain liabilities of, and entered into an administrative services agreement with Ray-X Management Services, Inc., to provide administrative services to a diagnostic imaging center in Queens, New York. The consideration paid in this transaction was approximately $9.5 million. Of such amount, approximately $0.2 million was paid in cash, $0.8 million was assumed debt and $8.5 million was paid by the issuance of 616,215 shares of Common Stock of the Company. The amount paid was allocated to the assets at their fair market value, including management service agreements of $8.1 million, and is being amortized over 25 years. At January 31, 1999, the Company has recorded the estimated net realizable value of this business as assets held for sale. CSL MERGER Effective October 15, 1997, a subsidiary of the Company merged with CSL in a transaction that was accounted for as a pooling of interests. The Company exchanged 5,204,305 shares of its common stock for all of the outstanding common stock of CSL. The Company's historical financial statements for all periods have been restated to include the results of CSL. The following table, which is unaudited, reflects the combined revenues, net income, net income per share and weighted average number of shares outstanding for the respective periods. The Pro Forma Combined column adjusts the historical net income for CSL to reflect the results of operations as if CSL had been a C corporation rather than an S corporation for income tax purposes. The Adjusted Pro Forma Combined column adjusts the Pro Forma Combined column by eliminating certain noncontinuing charges incurred by CSL. F-15 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ADJUSTED PRO FORMA PRO FORMA PHYMATRIX CSL COMBINED COMBINED --------- --- --------- --------- (IN THOUSANDS EXCEPT PER SHARE DATA) FOR THE YEAR ENDED JANUARY 31, 1998 ---------------------------------------------- Revenues $251,211 $29,968 $281,179 $281,179 Net income $7,253 $2,422 $9,675 $20,368 Net income per share--basic $0.30 $0.46 $0.33 $0.69 Net income per share--diluted $0.30 $0.46 $0.33 $0.68 Weighted average number of shares outstanding--basic 24,482 5,208 29,690 29,690 Weighted average number of shares outstanding--diluted 24,940 5,289 30,229 30,229
FOR THE YEAR ENDED JANUARY 31, 1997 ---------------------------------------------- Revenues $147,716 $18,040 $165,756 $165,756 Net income $ 12,057 $ 1,940 $ 13,997 $ 15,154 Net income per share--basic $ 0.54 $ 0.38 $ 0.51 $ 0.56 Net income per share--diluted $ 0.54 $ 0.37 $ 0.51 $ 0.55 Weighted average number of shares outstanding--basic 22,196 5,099 27,295 27,295 Weighted average number of shares outstanding--diluted 22,491 5,192 27,682 27,682
The following items reflect the noncontinuing charges, referred to above, incurred by CSL during the respective periods (unaudited):
YEAR ENDED ------------------------------- DECEMBER 31, JANUARY 31, 1996 1998 ------------ ----------- (IN THOUSANDS) Salaries expense related to the equity interest granted to an officer of CSL. During January 1997, the officer entered into an employment agreement with no provisions for sharing of profits or proceeds. $ 628 $ -- Consulting fees based on a profit sharing arrangement. The profit sharing arrangement was terminated during 1997. 314 -- Management fees paid to the principal shareholders of CSL. 987 907 ------- ----- Total nonrecurring items 1,929 907 After tax impact of nonrecurring items $ 1,157 $ 544
Prior to its merger with the Company, CSL reported on a fiscal year ending December 31. The restated financial statements for the year ended January 31, 1997 are based on a combination of the Company's results for its January 31 fiscal year and a December 31 fiscal year for CSL. CSL's historical results of operations for the month ending January 31, 1997 are not included in the Company's consolidated statements of operations or cash flows. An adjustment has been made to shareholder's equity as of February 1, 1997 to adjust for the effect of excluding CSL's results of operations for the month ending January 31, 1997. As a result of using the pooling of interests method of accounting, transaction expenses of $10.2 million were recorded as a one-time charge to the Company's statement of operations during the quarter ended October 31, 1997 which represents the period in which the transaction closed. A summary of these expenses is as shown below: F-16 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CSL PHYMATRIX TOTAL --- --------- ----- (IN THOUSANDS) Legal $200 $300 $500 Accounting 200 175 375 Investment Banking 3,600 325 3,925 Other 250 100 350 ------ ---- ------- Subtotal transaction expenses 4,250 900 5,150 ------ ---- ------- CNS Consulting (1) 5,000 -- 5,000 ------ ---- ------- Total $9,250 $900 $10,150 ------ ---- ------- ------ ---- -------
(1) Represents buyout of consulting contract. CONTRACT MANAGEMENT ACQUISITIONS During April 1997, the Company acquired a pulmonary physician network company for a base purchase price of $3.2 million. Of such purchase price, $0.9 million was paid in cash and 180,717 shares of Common Stock of the Company were issued during May 1997 having a value of $2.3 million. There is also a contingent payment up to a maximum of $2.0 million based on the acquired entities' earnings before taxes during the three years subsequent to the closing, which will be paid in cash and/or Common Stock of the Company. During May 1998, the Company issued 88,149 shares of Common Stock of the Company having a value of $1.1 million, representing a portion of the aforementioned contingent payment. As of January 31, 1999, no additional amount has been earned. The purchase price was allocated to goodwill and is being amortized over 30 years. During December 1997, the Company purchased the stock of Urology Consultants of South Florida. The base purchase price was approximately $3.6 million, paid in 244,510 shares of Common Stock of the Company. There is also a contingent payment up to a maximum of $2.0 million based on the acquired entities' earnings before taxes during the three years subsequent to the closing, which will be paid in cash and/or Common Stock of the Company. As of January 31, 1999, this contingent amount has not been earned. The purchase price has been allocated to the assets at their fair market value including goodwill of $3.6 million. The resulting goodwill is being amortized over 30 years. The accompanying financial statements include the results of operations derived from the businesses purchased by the Company since their respective date of acquisition. The following unaudited pro forma information presents the results of operations of the Company for the years ended January 31, 1999 and 1998 as if the acquisition of the entities purchased during such fiscal years had been consummated on February 1, 1997. Such unaudited pro forma information is based on the historical financial information of the entities that have been purchased and does not include operational or other changes which might have been effected pursuant to the Company's management. The unaudited pro forma information presented below is for illustrative informational purposes only and is not necessarily indicative of results which would have been achieved or results which may be achieved in the future: F-17 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA JANUARY 31, ------------------------------------ 1999 1998 --------------- ---------------- (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE DATA) ------------------------------------ Revenues $295,369 $310,729 Net income (loss) (129,070) 15,647 Net income (loss) per share--basic $ (3.92) $ 0.48 Net income (loss) per share--diluted $ (3.92) $ 0.48
4. EXTRAORDINARY ITEMS AND NONRECURRING CHARGES During August 1998, the Company initiated its plan to divest and exit the PPM business and certain of its ancillary service businesses. Through the nine months ended October 31, 1998, the Company had recorded an extraordinary charge (net of tax of $8.4 million) of $51.6 million related to the planned divestitures. During the fourth quarter ended January 31, 1999, the Company recorded an additional extraordinary charge of $45.2 million. In accordance with APB 16, the Company is required to record these charges as an extraordinary item since impairment losses are being recognized for divestitures and disposals expected to be completed within two years subsequent to a pooling of interests (the pooling of interests with CSL was effective October 15, 1997). The $45.2 million extraordinary charge during the fourth quarter, which was primarily a non-cash charge, consisted of (i) approximately $19.0 million resulting from the entities divested during the fourth quarter as well as a revision of the estimated proceeds, based on current fair market value estimates, for the sale of the remaining businesses originally identified to be divested or disposed; (ii) approximately $17.8 million primarily related to the Company's decision, during the fourth quarter, to divest its home health business and exit its infusion therapy business; and (iii) approximately $8.4 million represented a tax benefit that was applied to the extraordinary item during the nine months ended October 31, 1998 and subsequently applied to ordinary income in the fourth quarter as required by SFAS 109. Extraordinary items generated a tax loss of $54.0 million. This loss cannot reasonably be expected to be utilized in the future. Accordingly, a full valuation allowance has been established at January 31, 1999. During the year ended January 31, 1999, the Company recorded a nonrecurring pretax charge of $10.5 million. Of this amount, $8.7 million related primarily to the termination of several physician management and employment agreements prior to the Company's decision in August 1998 to restructure (see Note 1) and $1.8 million related to the write-off of the remaining investment in an ambulatory surgery center. 5. NOTES RECEIVABLE As of January 31, 1999 and 1998, the Company loaned an aggregate of $2.7 million to the shareholders of Physicians Choice, LLC pursuant to the agreement under which the Company purchased the remaining ownership interests in Physicians Choice Management, LLC. The notes have a variable rate of interest, a final maturity in April 2004 and are collateralized by shares of Common Stock of the Company. In connection with the sale of real estate during the years ended January 31, 1999 and 1998, the Company recorded notes receivable of $5.2 million and $1.7 million, respectively. The notes bear interest at 9.5% and 8.5%, respectively, and have final maturities through August 2008. F-18 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As of January 31, 1999 and 1998, the Company had loaned an aggregate net amount of $1.9 million and $2.5 million, respectively, to various other entities and individuals (including $1.0 million to an officer of the Company during May 1998, $0.9 million to a limited partnership in which Mr. Gosman is a partner and $1.0 million to an employee during March 1997). The $1.0 million loaned to an employee during March 1997 was collateralized by shares of Common Stock of the Company. The notes bear interest at rates ranging from 5.56% to the prime rate plus 1% and have final maturities ranging from October 1998 to June 2012. During the year ended January 31, 1999, the Company wrote down certain notes receivable that were collateralized by shares of Common Stock of the Company to their estimated net realizable value. In the case of one such note receivable the shares of Common Stock were tendered to the Company in satisfaction of the note and accordingly the Company recorded the shares as treasury stock. Based on the estimated net realizable value of these notes receivable which were collateralized by shares of Common Stock of the Company, the Company recorded a pretax charge of approximately $2.7 million. In connection with the divestiture of two physician practices and an investment in a lithotripsy entity, the Company had recorded notes receivable of approximately $2.6 million during the year ended January 31, 1999 which remained outstanding at January 31, 1999. 6. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
ESTIMATED JANUARY 31, USEFUL LIFE --------------------------- (YEARS) 1999 1998 ----------- ----------- ---------- (IN THOUSANDS) Land -- $ 3,926 $ 5,502 Building 15 795 835 Furniture and fixtures 5-7 5,152 12,969 Equipment 5-10 2,160 29,079 Automobiles 3-5 -- 66 Computer software 5 1,173 1,482 Leasehold improvements 4-20 640 7,642 ------- ------- Property and equipment, gross 13,846 57,575 ------- ------- Less accumulated depreciation (2,822) (13,280) ------- ------- Property and equipment, net $11,024 $44,295 ------- ------- ------- -------
Depreciation expense was $6.1 million, $5.0 million and $4.2 million, respectively, for the years ended January 31, 1999, 1998 and 1997, respectively. Included in property and equipment at January 31, 1998 are assets under capital leases of $4.8 million, with accumulated depreciation of $1.1 million. During the year ended January 31, 1999, the Company sold real estate and a radiation therapy center for $7.8 million and $2.5 million, respectively. These sales resulted in gains of $4.5 million and $0.9 million, respectively. In connection with the sale of real estate, $2.6 million was paid in cash and the Company recorded a note receivable for the balance of $5.2 million. During the year ended January 31, 1998 the gain on sale of assets resulted primarily from the sale of a radiation therapy center and real estate. Proceeds from these sales were $1.5 million and $3.1 F-19 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) million (including a $1.7 million note receivable), respectively. These sales resulted in gains of $0.7 million and $1.2 million, respectively. 7. INVESTMENT IN AFFILIATES On December 31, 1994, the Company purchased a 36.8% interest in Mobile Lithotripter of Indiana Partners, for $2.7 million. During December 1998, the Company, in connection with its plan to divest and exit the lithotripsy business, sold this investment for $1.9 million. During August 1995, the Company purchased a 46% interest in I Systems, Inc., for $0.2 million. I Systems, Inc. is engaged in the business of claims processing and related services. The Company has the option to purchase up to an additional 30% interest in I Systems for $33,333 in cash for each additional one percent of ownership interest purchased. As of January 31, 1999, the Company's ownership interest in I Systems, Inc. was approximately 49% and such investment is included in assets held for sale. This investment is being accounted for using the equity method at January 31, 1999. During 1997, the Company entered into a partnership agreement whereby it became a 50% partner in an ambulatory surgery center. The Company contributed approximately $1.5 million to the partnership for its partnership interest. During the year ended January 31, 1999, the Company recorded a nonrecurring pretax charge of $1.8 million to write-off its remaining investment in the ambulatory surgery center as well as accrue for its portion of the future lease obligations. 8. ACCRUED AND OTHER CURRENT LIABILITIES Accrued and other current liabilities consist of the following:
JANUARY 31, ---------------------------- 1999 1998 ---------- ---------- (IN THOUSANDS) Accrued rent $ 1,442 $ 321 Accrued income taxes (1) 515 2,325 Accrued professional fees 2,116 2,368 Accrued additional purchase price 1,000 -- Accrued interest 907 1,332 Unearned revenue 2,015 3,433 Other 3,628 3,752 ------- ------- Total accrued and other current liabilities $11,623 $13,531 ------- ------- ------- -------
(1) Included in accrued income taxes is a deferred tax liability of $0.4 million at January 31, 1998. F-20 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. LONG-TERM DEBT, NOTES PAYABLE AND CAPITAL LEASES Long-term debt, notes payable and capital leases consist of the following:
JANUARY 31, ----------------------- 1999 1998 ---------- ---------- (IN THOUSANDS) Convertible subordinated debentures, with an interest rate of 6.75%, a maturity date of June 15, 2003, and a conversion price of $28.20 per share. $100,000 $100,000 Note payable due to four individuals payable in eight equal semi-annual installments of $28,125, including interest at 8% through November 1998. -- 28 Note payable to a bank, collateralized by the assets of a multispecialty group practice, payable in monthly installments of $14,027, including interest at 7.50%. -- 174 Note payable to a bank, collateralized by the assets of a multispecialty group practice, payable in monthly installments of $20,608, at 8.75%. -- 580 Mortgage note payable to a bank, collateralized by the assets of an outpatient surgery center, payable in monthly installments of $6,628 including interest at 8.86% and a final maturity of November 2001. 686 697 Note payable to a bank, payable in monthly installments, interest at the prime rate plus .375% and a final maturity of June 1998. -- 356 Note payable to the former shareholders of a medical oncology practice in South Florida, payable in ten equal semi-annual installments of $682,867, which includes interest at 9%. The note payable is collateralized by an irrevocable letter of credit. -- 3,522 Note payable to former shareholders of a clinical research company. The note is non-interest bearing and has a final maturity of January 2004. 3,760 -- Convertible acquisition notes payable with various maturity dates through August 31, 2001 and interest rates ranging from 5% to 7%. 3,925 14,425 Acquisition earnouts payable with various maturity dates through 2001. 138 181 Revolving line of credit with a financial institution with a maturity date of March 1999 and an interest rate of 9% at January 31, 1999. 9,117 10,000 Note payable to a financing institution with a maturity date of January 2000 and an interest rate of 16.50%. -- 316 Capital lease obligations with maturity dates through September 2015 and interest rates ranging from 8.75% to 12%. 31 4,080 -------- -------- 117,657 134,359 Less current portion of capital leases (6) (1,193) Less current portion of debt (12,186) (12,549) -------- -------- Long-term debt and capital leases $105,465 $120,617 -------- -------- -------- --------
The convertible acquisition notes payable are convertible into Common Stock of the Company. At the option of the note holders, $4.4 million of the amount outstanding at January 31, 1998 is convertible at a conversion price of $16.425 per share. Of this amount, $0.5 million was repaid in cash during the year ended January 31, 1999. At the option of the Company, $10.0 million of the amount outstanding at January 31, 1998 was payable in either cash or Common Stock of the Company. Of such amount $5.0 million was paid in shares of Common Stock of the Company during February 1998 and $5.0 million was paid in cash during May 1998. In September 1997, the Company entered into a secured credit agreement with a bank providing for a $100 million revolving line of credit for working capital and acquisition purposes. During December 1998, the Company amended the credit agreement to reduce the availability thereunder, modify covenants and provide for the expiration of the line of credit in March 1999. At January 31, 1999, $14.6 million was outstanding ($5.5 million of which was F-21 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) for letters of credit). The credit agreement existing at January 31, 1999 (i) prohibited the payment of dividends by the Company; (ii) limited the Company's ability to incur indebtedness and make acquisitions except as permitted under the credit agreement and (iii) required the Company to comply with certain financial covenants which include minimum net cash flow requirements. The maximum amount outstanding under the line of credit during the year ended January 31, 1999 was $10.0 million (not including letters of credit). The following is a schedule of future minimum principal payments of the Company's long-term and convertible debt and the present value of the minimum lease commitments at January 31, 1999:
CAPITAL DEBT LEASES ---- ------- (IN THOUSANDS) Through January 31, 2000 $ 12,186 $ 10 Through January 31, 2001 892 10 Through January 31, 2002 2,794 10 Through January 31, 2003 1,054 8 Through January 31, 2004 100,000 -- Thereafter 701 -- --------- ---- Total 117,627 38 Less amounts representing interest and executory costs -- (8) --------- ---- Total long-term debt and present value of minimum lease payments 117,627 30 Less current portion (12,186) (6) --------- ---- Long-term portion $ 105,441 $ 24 --------- ---- --------- ----
10. LEASE COMMITMENTS The Company leases various office space and certain equipment pursuant to operating lease agreements. Future minimum lease commitments (including entities held for sale) consisted of the following at January 31 (in thousands): 2000 $11,019 2001 8,026 2002 6,732 2003 5,811 2004 4,489 Thereafter 7,743 ------- $43,820 ------- -------
11. TREASURY STOCK During 1998, the Board of Directors authorized a share repurchase plan pursuant to which the Company may repurchase up to $15.0 million of its Common Stock from time to time on the open market at prevailing market prices. Through January 31, 1999, the Company had repurchased 304,000 shares at a net purchase price of $0.8 million. During December 1998, the Board of Directors temporarily discontinued the share repurchase plan until the completion of certain asset sales at which time it will be reinstated. F-22 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. COMMITMENTS AND CONTINGENCIES The Company is subject to legal proceedings in the ordinary course of its business. While the Company cannot estimate the ultimate settlements, or awards with respect to these legal proceedings, if any, it does not believe that they will have a material adverse effect on the Company, its liquidity, financial position or results of operations, although there can be no assurance to this effect. On October 18, 1997, the Florida Board of Medicine, which governs physicians in Florida, declared that the payment of percentage-based fees by a physician to a physician practice management company in connection with practice-enhancement activities subjects a physician to disciplinary action for a violation of a statute which prohibits fee-splitting. Some of the Company's contracts with Florida physicians include provisions providing for such payments. The Company is currently in the process of appealing the ruling to a Florida District Court of Appeals and the Board has stayed the enforceability of its ruling pending the appeal. In the event the Board of Medicine's ruling is eventually upheld, the Company may be forced to renegotiate those provisions of the contracts which are affected by the ruling. While these contracts call for renegotiation in the event that a provision is not found to comply with state law, there can be no assurance that the Company would be able to renegotiate such provisions on acceptable terms. The majority of the contracts affected by this ruling are with the physician practices the Company has identified to be divested or disposed and for which the assets are included in assets held for sale at January 31, 1999. A subsidiary of the Company, Oncology Therapies, Inc. ("OTI") (formerly Radiation Care, Inc., ("RCI")) is subject to the litigation which relates to events prior to the Company's operation of RCI, and the Company has agreed to indemnify and defend certain defendants in the litigation who were former directors and officers of RCI, subject to certain conditions. The Company has entered into definitive agreements to settle this litigation. The terms of the settlements will not have a material adverse effect on the Company's business, financial position or results of operations. In conjunction with a physician practice management agreement with a physician practice in Florida, the Company has filed suit against the practice to enforce the guarantees executed in connection with the management agreement. The practice has filed a counterclaim. The Company intends to vigorously prosecute and defend the case. However, if the Company is not successful it may be required to record an impairment charge up to a maximum of $3.7 million. The Company has entered into employment agreements with certain of its employees, which include, among other terms, noncompetition provisions and salary and benefits continuation. During December 1998, Robert A. Miller resigned as President and a member of the Board of Directors of the Company. In addition, during December 1998, the Company and Robert A. Miller entered into a Separation and Severance Agreement (the "Miller Severance Agreement") and a Consulting Agreement for Physician Practice Management Assets (the "Miller Consulting Agreement"). Pursuant to the Miller Severance Agreement, the Company is required to pay Mr. Miller a severance payment equal to $0.6 million, which was recorded as severance expense during the fourth quarter ended January 31, 1999. Mr. Miller agreed not to solicit any employees of the Company and not to compete against the Company for a period of two years from the termination of the Miller Consulting Agreement. The Miller Consulting Agreement provides for Mr. Miller to assist the Company in its divestiture of certain assets held for sale. In consideration for such services, the Company is required to pay to Mr. Miller $0.4 million. In conjunction with the acquisition of a clinical research center during the year ended January 31, 1998, the Company may be required to make contingent payments based on revenue and profitability measures over the next five years. The contingent payment will equal 10% of the excess gross revenue, as defined, provided the gross operating margins exceed 30%. In conjunction with various acquisitions that were completed during the years ended January 31, 1999, 1998 and 1997, the Company may be required to make various contingent payments in the event that the acquired companies attain predetermined financial targets during established periods of time following the acquisitions. If all of the applicable financial targets were satisfied, for the periods covered, the Company would be required to pay an aggregate of approximately $24.9 million over the next four years, of which $2.3 million has been accrued at January 31, 1999. The payments, if required, shall be payable in cash and/or Common Stock of the Company. The Company also guarantees a loan in the amount of $3.5 million which matures in March 2000. In conjunction with certain of its acquisitions, the Company has agreed to make payments in shares of Common Stock of the Company which are generally issued one year from the closing date of such acquisitions with the F-23 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) number of shares generally determined based upon the average price of the stock during the five business days prior to the date of issuance. As of January 31, 1999, the Company had committed to issue $1.1 million of Common Stock of the Company using the methodology discussed above. 13. RELATED PARTY TRANSACTIONS Included in operating expenses are discretionary management fees that were paid or accrued, prior to the CSL merger, to the principal shareholders of CSL for management-related services. Approximately $0.9 million and $1.0 million of such management fees were incurred for the years ended January 31, 1998 and 1997, respectively, and are included in operating expenses. An officer of CSL entered into an employment agreement with CSL, dated January 1995, which entitled him to additional compensation of 5.5% of annual net profits and, in the event of an IPO or sale of CSL, 5% of the proceeds from any such transaction. In June 1996, the principal shareholders in CSL decided to formalize their arrangement with this officer as to his equity participation in the business. To effect this decision, the employee was granted a 15% equity interest in CML, which was merged into CSL effective January 1, 1997. Based on an independent appraisal, the Company valued the transaction at $0.7 million and recorded the amount as a 1996 operating expense. On January 1, 1997, the officer entered into a new employment agreement with CSL, with no provisions as to the sharing of profits, or proceeds, in the event of an IPO or sale of CSL. The Company occupies office space for offices in West Palm Beach, Florida under the terms of a lease which the Company assumed from a company the stockholders and executive officers of which include Messrs. Gosman and Leathers. The terms of the assumed lease are the same as those to which such affiliated company was obligated. As of January 31, 1999, the total amount of lease payments to be made under the assumed lease through the end of the current lease term was estimated to be approximately $0.4 million. During the year ended January 31, 1999, the Company leased office space on behalf of certain of its affiliated physicians from a limited partnership of which Mr. Gosman owns a controlling interest in the limited partner and general partner. The aggregate base rent paid during the year under such leases was approximately $0.1 million. In January 1997, a privately-held entity principally owned by Mr. Gosman assumed the Company's obligations as lessee under a capital lease, which obligations then exceeded the fair market value of the lease by $0.6 million. DASCO provides development and other services in connection with the establishment of health parks, medical malls and medical office buildings. DASCO provides these services to or for the benefit of the owners of the new facilities, which owners are either corporations or limited partnerships. As of January 31, 1999, Mr. Gosman, individually and as trustee for his two sons, and Frederick R. Leathers had obtained equity interests in an aggregate of 17 facilities developed or being developed by DASCO and had interests in five of such facilities. The interest of Mr. Gosman (individually and as trustee) in such facilities ranged from 6.0% to 40.1%. The interest of Mr. Leathers ranged from 0.1% to 0.95%. During the years ended January 31, 1999 and 1998, DASCO recorded revenues in the amount of approximately $3.0 million and $19.2 million, respectively, related to facilities developed by DASCO in which equity interests have been obtained by related parties. Meditrust Corporation and Meditrust Operating Company, a publicly traded real estate investment trust (the "Meditrust Companies") of which Mr. Gosman served as Chairman of the Board and Chief Executive Officer, respectively, until August 1998, had provided financing to customers of DASCO in the aggregate amount of approximately $229.0 million as of January 31, 1998 for 25 facilities developed by DASCO. In January 1998, the Meditrust Companies acquired, at fair market value, 21 medical office buildings developed by DASCO from the corporate or limited partnership owners of such facilities for an aggregate purchase price of approximately $200.0 million. The Company received $9.1 million during 1998 in these transactions from the corporation or limited partnership owners of such facilities. As a result of their ownership interests in the corporations or limited partnerships owning the facilities sold to the Meditrust Companies during 1998, Messrs. Gosman (individually and as trustee for his two sons) and Leathers received $4.7 million and $0.1 million, respectively, from the sale of the facilities. The Company provides construction management, development marketing and consulting services to entities principally owned by Mr. Gosman in connection with the development and operation by such entities of several F-24 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) healthcare related facilities (including a medical office building and a retirement community). During the years ended January 31, 1999 and 1998, the Company recorded revenues in the amount of $1.4 million and $10.5 million, respectively, related to such services and as of January 31, 1999, the Company advanced $10.9 million, pursuant to a note due in July 2000, to a company principally owned by Mr. Gosman relating to the development of a healthcare facility. The Company provides these services to such affiliated parties on terms no more or less favorable to the Company than those provided to unaffiliated parties. Interest on the note accrues at the prime rate. In January 1998, the Company transferred to CareMatrix Corporation, of which Mr. Gosman is the Chairman of the Board and a principal stockholder, its rights under a management agreement with respect to a Florida skilled nursing facility in exchange for $0.8 million. During September 1995, the Company provided a letter of credit in the amount of $5.4 million to a seller in connection with entering into a management agreement and purchasing the assets of a medical oncology practice. Cash collateralizing the letter of credit, which had a balance of $4.5 million at January 31, 1997, was released during the year ended January 31, 1998. Prior to the completion of the offering, the collateral for the letter of credit was provided by Mr. Gosman. During July 1995, the Company purchased the assets of and entered into a 15-year management agreement with a medical oncology practice with three medical oncologists. An affiliate of the Company, Continuum Care of Massachusetts, Inc., guarantees the performance of the Company's obligations under the management agreement. 14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The methods and assumptions used to estimate the fair value of each class of financial instruments, for which it is practicable to estimate that value, and the estimated fair values of the financial instruments are as follows: CASH AND CASH EQUIVALENTS The carrying amount approximates fair value because of the short effective maturity of these instruments. LONG-TERM DEBT The fair value of the Company's long-term debt and capital leases is estimated based on the current rates offered to the Company for debt of the same remaining maturities or quoted market prices. At January 31, 1999, the book value of long-term debt (other than the convertible subordinated debentures) and capital leases, including current maturities is $17.7 million and which approximates fair value. At January 31, 1999, the estimated fair value of the convertible subordinated debentures was $48.4 million. The F-25 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) estimated fair value of these convertible subordinated debentures is based on quoted market prices at January 31, 1999. 15. EMPLOYEE BENEFIT PLAN The Company sponsors 401(k) plans, covering substantially all of its employees. Contributions under the primary 401(k) plan equal 50% of the participants' contributions up to a maximum of $400 per participant per year. 16. INCOME TAXES The Company became subject to federal and state income taxes effective the date of the Company's initial public offering. As a result of the Company's restructuring, large net operating losses will be utilized to offset prior tax liabilities. Significant components of the Company's provision for income taxes for the years ended January 31, 1999 and 1998 are as follows:
1999 1998 ---- ---- (IN THOUSANDS) Federal Current $(11,155) $9,032 Deferred (272) (813) --------- ------ Total federal (11,427) 8,219 --------- ------ State: Current (54) 1,828 Deferred (68) (202) --------- ------ Total state (122) 1,626 --------- ------ Totals: $(11,549) $9,845 --------- ------ --------- ------
F-26 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Significant components of the Company's deferred tax assets and liabilities as of January 31, 1999 and 1998 are as follows:
1999 1998 ---- ---- (IN THOUSANDS) Deferred tax asset Allowance for doubtful accounts, reserves and other accrued expenses $ 2,898 $ 2,064 Net operating loss carryforward 13,550 12,005 Assets held for sale 21,704 -- -------- -------- Total deferred tax assets 38,152 14,069 -------- -------- Deferred tax liability Property and depreciation (307) (1,897) Amortization (1,767) (1,199) Installment gain (1,210) -- Other (296) (356) -------- -------- Total deferred tax liability (3,580) (3,452) -------- -------- Deferred tax asset (liability) 34,572 10,617 -------- -------- Valuation allowance (34,572) (10,956) -------- -------- Net deferred tax liability $ -- $ (339) -------- -------- -------- --------
The Company reasonably believes that because of the large net operating loss for the year ended January 31, 1999 and the anticipated losses due to the restructuring of the Company, the Company may not be able to fully utilize all the net operating losses. Accordingly, the Company has established a full valuation allowance on the Company's net deferred tax assets. The net operating losses attributable to OTI of $33.1 million will begin to expire in 2005. The reconciliation of income tax computed at statutory rates to income tax expense is as follows:
1999 1998 ---- ---- Statutory rate (35%) 35% Nondeductible merger expenses 0% 18% Permanent differences 3% 1% Basis difference, assets held for sale 10% 0% State income tax (net of federal benefit) 0% 6% Change in valuation allowance 14% (11%) ---- ----- (8%) 49% ---- ----- ---- -----
17. SUPPLEMENTAL CASH FLOW INFORMATION During the years ended January 31, 1999, 1998 and 1997, the Company acquired the assets and/or stock, entered into management and employment agreements, assumed certain liabilities of various physician practices, ancillary service companies, networks and organizations and sold certain assets. In addition, during the years ended January 31, 1999 and 1998, the Company issued shares of stock which had been committed to be issued in conjunction with acquisitions completed during the year ended January 31, 1998. During the year ended F-27 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 1999, the Company also recorded a goodwill impairment charge, terminated several physician management and employment agreements, wrote down certain notes receivable to their estimated net realizable value and wrote down certain assets that are being held for sale at January 31, 1999 to their net realizable value (less cost to sell). The transactions had the following non-cash impact on the balance sheets of the Company as of January 31, 1999, 1998 and 1999:
1999 1998 1997 ---- ---- ---- (IN THOUSANDS) Current assets $ 50,284 $ 8,981 $ 4,692 Property, plant and equipment (33,806) 16 4,413 Intangibles (105,661) 74,418 56,964 Other noncurrent assets (3,052) 1,391 26 Current liabilities (1,836) (535) (9,668) Debt 6,520 (12,816) (8,004) Noncurrent liabilities 339 9,740 (11,923) Equity 90,489 (50,977) (10,010)
During the year ended January 31, 1997, the Company purchased $0.6 million of equipment under capital leases. In addition, cash paid for interest during the years ended January 31, 1999, 1998 and 1997 was $9.3 million, $8.5 million and $5.6 million, respectively. Cash paid for income taxes for the years ended January 31, 1999, 1998 and 1997 was $1.1 million, $10.8 million and $3.3 million, respectively. 18. STOCK OPTION PLAN The Company has adopted a stock option plan and authorized the issuance of 4.1 million shares of the Company's Common Stock to key employees and directors of the Company. Under this plan, the exercise provision and price of the options will be established on an individual basis generally with the exercise price of the options being not less than the market price of the underlying stock at the date of grant. The options generally will become exercisable beginning in the first year after grant in 20% -- 33% increments per year and expire ten years after the date of grant. Information related to the stock option plan is summarized as follows:
--------------------------------------------------------------- YEAR ENDED JANUARY 31, --------------------------------------------------------------- 1999 1998 1997 ------------------- ------------------ ------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------ -------- ------ -------- ------ -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Outstanding, beginning of period 3,909 $16.12 2,201 $16.68 1,060 $15.03 Options granted: At fair market value 894 4.94 2,020 14.66 1,107 19.16 Above fair market value (CSL options--see below) -- -- -- -- 109 3.13 Options exercised (36) 3.61 (145) 6.31 (52) 6.97 Options canceled (1,741) 16.95 (167) 14.23 (23) 18.14 ----- ------ ----- ------ ----- ------ Outstanding, end of period 3,026 $12.11 3,909 $16.12 2,201 $16.68 ----- ------ ----- ------ ----- ------ Weighted average fair value of options granted during the year $ 4.94 $ 7.55 $10.08 ------ ------ ------ ------ ------ ------
F-28 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At January 31, 1999, 1998 and 1997, options for 1.3 million, 1.3 million and 0.8 million, respectively, were exercisable. Significant option groups outstanding at January 31, 1999 and related weighted average price and life are as follows (in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- --------------------------- SHARES SHARES OUTSTANDING WEIGHTED EXERCISABLE WEIGHTED AT REMAINING AVERAGE AT AVERAGE RANGE OF JANUARY 31, CONTRACTUAL EXERCISE JANUARY 31, EXERCISE EXERCISE PRICE 1999 LIFE PRICE 1999 PRICE -------------- ------------- ------------- ---------- ------------ ---------- $3.00 - $5.00 840 9.8 years $3.99 12 $3.13 $6.00 - $12.00 35 9.2 10.13 -- -- $12.50 - $18.75 1,921 8.2 14.93 1,043 14.99 $19.00 - $24.75 230 7.4 19.70 197 19.81
The fair value of each option grant is estimated on the date of grant using the Black-Sholes option-pricing model with the following weighted average assumptions for grants in the years ended January 31, 1999, 1998 and 1997: expected volatility (post-offering) of 65%, 56% and 56%, respectively; risk free interest rates of 4.7%, 6.0% and 6.4%, respectively; expected option life of 4.5, 4.4 and 4.4 years, respectively; and expected dividends of $0. Options which were assumed in connection with CSL employees during 1996 were valued using the minimum value method, which is appropriate for nonpublic companies, assuming a ten year option life, 5.5% risk free interest rate and no volatility. These options were granted with an exercise price significantly greater than the market value of the company and accordingly had a fair market value and associated expense of zero. Former CSL options have been converted to 108,914 of the Company's options with an exercise price of $3.13 and are included above. The Company continues to account for stock based compensation under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", as allowed by SFAS No. 123. Accordingly, no compensation cost has been recognized for options granted. Had compensation for those plans been determined based on the fair value at the grant date for awards during the years ended January 31, 1999, 1998 and 1997, consistent with SFAS No. 123, the Company's net income (loss) and earnings (loss) per share would have been reduced to the following pro forma amounts:
YEAR ENDED JANUARY 31, ---------------------------------------- 1999 1998 1997 ------ ------ ------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income (loss) As reported $(130,760) $10,299 $15,290 Pro forma $(133,844) $ 5,601 $12,536 Basic earnings (loss) per share As reported $(3.91) $0.35 $0.56 Pro forma $(4.01) $0.19 $0.46 Diluted earnings (loss) per share As reported $(3.91) $0.35 $0.55 Pro forma $(4.01) $0.19 $0.45
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. F-29 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. NET INCOME PER SHARE The following is a reconciliation of the numerators and denominators of the basic and fully diluted earnings per share computations for net income:
PER SHARE INCOME (LOSS) SHARES AMOUNT ------------ ------ --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED JANUARY 31, 1999 - --------------------------- Basic loss per share Loss available to common stockholders $ (33,976) 33,401 $(1.02) Extraordinary item (96,784) -- (2.89) ---------- ------ ------ Net loss available to common stockholders (130,760) 33,401 (3.91) Effect of dilutive securities: -- -- -- ---------- ------ ------ Diluted earnings per share $ (130,760) 33,401 $(3.91) ---------- ------ ------ ---------- ------ ------ YEAR ENDED JANUARY 31, 1998 - --------------------------- Basic earnings per share Income available to common stockholders $ 10,299 29,690 $ 0.35 Effect of dilutive securities: Stock options -- 145 -- Convertible debt 191 394 -- ---------- ------ ------ Diluted earnings per share $ 10,490 30,229 $ 0.35 ---------- ------ ------ ---------- ------ ------ YEAR ENDED JANUARY 31, 1997 - --------------------------- Basic earnings per share Income available to common stockholders $ 15,291 27,295 $ 0.56 Effect of dilutive securities Stock options -- 387 -- ---------- ------ ------ Diluted earnings per share $ 15,291 27,682 $ 0.55 ---------- ------ ------ ---------- ------ ------
For the years ended January 31, 1999, 1998 and 1997, approximately 3.0 million, 3.5 million and 0.6 million shares, respectively, related to stock options were not included in the computation of diluted earnings per share because the option exercise price was greater than the average market price of the common shares. For the years ended January 31, 1999, 1998 and 1997, no additional securities or related adjustments to income were made for the common stock equivalents related to the Debentures since the effect would be antidilutive. F-30 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. RATIO OF EARNINGS TO FIXED CHARGES For the year ended January 31, 1999, the ratio of earnings to fixed charges was less than 1.0. For the years ended January 31, 1998 and 1997, the ratio of earnings to fixed charges was 2.29 and 3.46, respectively. For purposes of computing the ratio of earnings to fixed charges, earnings represent income from operations before minority interest and income taxes, plus fixed charges. Earnings also includes the equity in less-than-fifty-percent-owned investees only to the extent of distributions. Fixed charges include interest, amortization of financing costs and the portion of operating rental expense which management believes is representative of the interest component of the rental expense. For the year ended January 31, 1999, for purposes of computing the ratio of earnings to fixed charges, the Company's earnings were inadequate to cover fixed charges by $45.1 million. 21. SEGMENT INFORMATION For the fiscal year ending January 31, 1999, the Company adopted SFAS 131. The prior year's segment information has been restated to present the Company's reportable segments. The Company has determined that its reportable segments are those that are based on its current method of internal reporting. The reportable segments are: provider network management, site management organization, real estate services and assets held for sale. The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies." There are no intersegment revenues and the Company does not allocate corporate overhead to its segments. The tables below present revenue, pretax income (loss) prior to extraordinary item and net assets of each reportable segment for the indicated periods:
PROVIDER SITE ASSETS NETWORK MANAGEMENT REAL HELD FOR RECONCILING CONSOLIDATED MANAGEMENT ORGANIZATIONS ESTATE SALE ITEMS (1) TOTALS ---------- ------------- ------ -------- ----------- ------------ YEAR ENDED JANUARY 31, 1999 - --------------------------- Net revenues $ 93,479 $ 33,695 $ 8,694 $ 155,410 $ -- $ 291,278 Income (loss) before income taxes and extraordinary item (2,907) (6,723) (8,471) 517 (27,941) (45,525) Net assets 44,398 20,509 9,301 100,795 (69,103) 105,900 YEAR ENDED JANUARY 31, 1998 - --------------------------- Net revenues $67,761 $29,968 $31,099 $152,351 $ -- $281,179 Income (loss) before income taxes and extraordinary item 2,310 (7,970) 24,674 13,860 (12,752) 20,122 Net assets 45,966 12,195 15,582 189,785 (51,493) 212,035 YEAR ENDED JANUARY 31, 1997 - --------------------------- Net revenues $16,479 $18,040 $19,049 $112,188 $ -- $165,756 Income (loss) before income taxes and extraordinary item 727 3,233 10,519 11,890 (4,243) 22,126 Net assets 18,559 3,460 11,684 119,038 1,039 153,780
(1) Reconciling items consist of corporate expenses and corporate net assets (primarily the Convertible subordinated debentures, net of cash) which are not allocated. F-31 PHYMATRIX CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for the periods shown (in thousands, except per share data):
YEAR ENDED JANUARY 31, 1999 ------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Net revenues $84,193 $77,362 $ 67,946 $ 61,777 Income (loss) before income taxes and extraordinary item 9,601 75 (13,790) (41,411) Income (loss) before extraordinary item 6,453 51 (9,119) (31,361) Extraordinary item -- -- (51,552) (45,232) Net income (loss) 6,453 51 (60,671) (76,593) Net income per share--basic: Income (loss) before extraordinary item $ 0.20 $ -- $ (0.27) $ (0.94) Extraordinary item $ -- $ -- $ (1.54) $ (1.35) Net income (loss) $ 0.20 $ -- $ (1.81) $ (2.29) Net income per share--diluted: Income (loss) before extraordinary item $ 0.20 $ -- $ (0.27) $ (0.94) Extraordinary item $ -- $ -- $ (1.54) $ (1.35) Net income (loss) $ 0.20 $ -- $ (1.81) $ (2.29)
YEAR ENDED JANUARY 31, 1998 ------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Net revenues $58,891 $66,350 $74,704 $81,234 Income (loss) before income taxes 6,485 6,887 (1,830) 8,580 Net income (loss) 4,240 4,586 (4,369) 5,842 Net income (loss) per share--basic $ 0.15 $ 0.16 $ (0.15) $ 0.19 Net income (loss) per share--diluted $ 0.15 $ 0.16 $ (0.14) $ 0.19
23. SUBSEQUENT EVENTS During March 1999, the Company obtained a new $30.0 million revolving line of credit. The revolving line of credit has a three-year term and availability based upon eligible accounts receivable. Approximately $9.2 million of proceeds from the new line of credit were used to repay the previous line of credit agreement which matured during March 1999. During March 1999, the Company reinstated the share repurchase program which had been temporarily discontinued during December 1998. Subsequent to January 31, 1999, the Company has repurchased an additional 294,000 shares. During April 1999, the Company announced the appointment of Michael Heffernan to the role of Co-Chief Executive Officer. Mr. Heffernan assumed the role of President of the Company in December 1998. The Company also announced that effective upon the completion of the sale of a majority of its non-core assets it intends to change its name to Innovative Clinical Solutions, Ltd. F-32 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders of PhyMatrix Corp.: Our audits of the consolidated financial statements referred to in our report dated March 19, 1999 (except for Note 23, for which the date is April 22, 1999) appearing in this Annual Report on Form 10-K also included an audit of the Financial Statement Schedule on page S-2 of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Boston, Massachusetts March 19, 1999 S-1 PHYMATRIX CORP. VALUATION AND QUALIFYING ACCOUNTS For the years ended January 31, 1999, 1998 and 1997 (In thousands)
ADDITIONS BALANCE AT CHARGED TO DEDUCTIONS RECLASSIFICATION BALANCE AT BEGINNING OPERATING FROM OF RESERVES TO END OF OF PERIOD EXPENSES RESERVES ASSETS HELD FOR SALE OTHER (A) PERIOD ---------- ---------- ---------- -------------------- --------- ---------- Year ended January 31, 1999 $48,428 $167,443 $168,685 $46,640 $ 804 $ 1,350 Year ended January 31, 1998 29,525 156,145 146,591 - 9,349 48,428 Year ended January 31, 1997 16,802 100,504 91,246 - 3,465 29,525
(A) Other represents the allowances of acquired entities. S-2 EX-10.9 2 EXHIBIT 10.9 Exhibit 10.9 $15,000,000.00 LOAN AND SECURITY AGREEMENT by and among PHYMATRIX CORP. BREATHCO INCORPORATED CCC-LITHOTRIPSY, INC. CCC INDIANA LITHOTRIPSY, INC. CCC NATIONAL LITHOTRIPSY, INC. CCC REHAB, INC. DASCO DEVELOPMENT CORPORATION DASCO DEVELOPMENT WEST, INC. FIRST CHOICE HEALTH CARE SERVICES, INC. FIRST CHOICE HEALTH CARE SERVICES OF FORT LAUDERDALE, INC. FIRST CHOICE HOME CARES, INC. FIRST PHYNET, INC. FIRST PHYNET, LLC INFUMATRIX, INC. (F/K/A CCC INFUSION, INC.) LITHOTRIPSY AMERICA, INC. NUTRICHEM, INC. ONCOLOGY THERAPIES, INC. ONCOLOGY THERAPIES OF AMERICA, INC. PHYMATRIX OF BROOKLYN, INC. PHYMATRIX OF CENTRAL GEORGIA, INC. PHYMATRIX DIAGNOSTIC IMAGING, INC. PHYMATRIX DIAGNOSTIC IMAGING NORTHEAST, INC. PHYMATRIX MANAGEMENT COMPANY, INC. PHYMATRIX OF MANATEE COUNTY, INC. PHYMATRIX MID-ATLANTIC MANAGEMENT, INC. PHYMATRIX NETWORK MANAGEMENT, INC. PHYMATRIX OF NEW JERSEY, INC. PHYMATRIX NORTHEAST, INC. (F/K/A PHYSICIANS CHOICE, INC.) PHYMATRIX PHYSICIAN MANAGEMENT, INC. PHYMATRIX PULMONARY NETWORK, INC. PHYMATRIX UROLOGY NETWORK, INC. PHYSICIANS CONSULTANT AND MANAGEMENT CORPORATION OF NORTH CAROLINA PHYSICIANS CONSULTANT AND MANAGEMENT CORPORATION PHYSICIANS CONSULTANT AND MANAGEMENT CORPORATION OF NEW YORK (CONTINUED) PINNACLE ASSOCIATES, INC. UROLOGY CONSULTANTS OF SOUTH FLORIDA, INC. ATLANTA RADIATION CARE, INC. BILTMORE ADVANCED IMAGING CENTER, INC. CHARLOTTE RADIATION CARE, INC. CHATTANOOGA RADIATION CARE, INC. COLLEGE PARK RADIATION CARE, INC. COMPUTERIZED TOMOGRAPHY CENTER, INC. FALLS CHURCH RADIATION CARE, INC. NORTH ATLANTA RADIATION CARE, INC. NORTH FULTON RADIATION CARE, INC. ORLANDO RADIATION CARE, INC. ROCKVILLE RADIATION CARE, INC. VISTA RADIATION CARE, INC. WALDORF RADIATION CARE, INC. ("Borrower") and HCFP FUNDING, INC. ("Lender") March 12, 1999 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of March 12, 1999 by and between PHYMATRIX CORP., a Delaware corporation, BREATHCO INCORPORATED, a Florida corporation, CCC-LITHOTRIPSY, INC., a Florida corporation, CCC INDIANA LITHOTRIPSY, INC., a Florida corporation, CCC NATIONAL LITHOTRIPSY, INC., a Florida corporation, CCC REHAB, INC., a Florida corporation, DASCO DEVELOPMENT CORPORATION, a Florida corporation, DASCO DEVELOPMENT WEST, INC., a California corporation, FIRST CHOICE HEALTH CARE SERVICES, INC. , a Delaware corporation, FIRST CHOICE HEALTH CARE SERVICES OF FORT LAUDERDALE, INC., a Delaware corporation, FIRST CHOICE HOME CARES, INC., a Delaware corporation, FIRST PHYNET, INC., a Delaware corporation, FIRST PHYNET, LLC, a Delaware limited liability company, INFUMATRIX, INC. (F/K/A CCC INFUSION, INC.), a Florida corporation, LITHOTRIPSY AMERICA, INC., a Florida corporation, NUTRICHEM, INC., a Maryland corporation, ONCOLOGY THERAPIES, INC., a Delaware corporation, ONCOLOGY THERAPIES OF AMERICA, INC., a Florida corporation, PHYMATRIX OF BROOKLYN, INC., a Delaware corporation, PHYMATRIX OF CENTRAL GEORGIA, INC., a Delaware corporation, PHYMATRIX DIAGNOSTIC IMAGING, INC., a Delaware corporation, PHYMATRIX DIAGNOSTIC IMAGING NORTHEAST, INC., a Delaware corporation, PHYMATRIX MANAGEMENT COMPANY, INC., a Florida corporation, PHYMATRIX OF MANATEE COUNTY, INC., a Delaware corporation, PHYMATRIX MID-ATLANTIC MANAGEMENT, INC., a Delaware corporation, PHYMATRIX NETWORK MANAGEMENT, INC., a Delaware corporation, PHYMATRIX OF NEW JERSEY, INC., a Delaware corporation, PHYMATRIX NORTHEAST, INC. (F/K/A PHYSICIANS CHOICE, INC.), a Delaware corporation, PHYMATRIX PHYSICIAN MANAGEMENT, INC., a Delaware corporation, PHYMATRIX PULMONARY NETWORK, INC., a Florida corporation, PHYMATRIX UROLOGY NETWORK, INC., a Delaware corporation, PHYSICIANS CONSULTANT AND MANAGEMENT CORPORATION OF NORTH CAROLINA, a Florida corporation, PHYSICIANS CONSULTANT AND MANAGEMENT CORPORATION, a Florida corporation, PHYSICIANS CONSULTANT AND MANAGEMENT CORPORATION OF NEW YORK, a New York corporation, PINNACLE ASSOCIATES, INC., a Georgia corporation, UROLOGY CONSULTANTS OF SOUTH FLORIDA, INC., a Florida corporation, ATLANTA RADIATION CARE, INC., a Delaware corporation, BILTMORE ADVANCED IMAGING CENTER, INC., an Arizona corporation, CHARLOTTE RADIATION CARE, INC., a Delaware corporation, CHATTANOOGA RADIATION CARE, INC., a Delaware corporation, COLLEGE PARK RADIATION CARE, INC., a Delaware corporation, COMPUTERIZED TOMOGRAPHY CENTER, INC., a Georgia corporation, FALLS CHURCH RADIATION CARE, INC., a Delaware corporation, NORTH ATLANTA RADIATION CARE, INC., a Delaware corporation, NORTH FULTON RADIATION CARE, INC., a Delaware corporation, ORLANDO RADIATION CARE, INC., a Delaware corporation, ROCKVILLE RADIATION CARE, INC., a Delaware corporation, VISTA RADIATION CARE, INC., a Delaware corporation, and WALDORF RADIATION CARE, INC., a Delaware corporation (collectively with the preceding entities, "Borrower"), and HCFP FUNDING, INC., a Delaware corporation ("Lender"). RECITALS A. Borrower desires to establish certain financing arrangements with and borrow funds from Lender, and Lender is willing to establish such arrangements for and make loans and extensions of credit to Borrower, on the terms and conditions set forth below. B. The parties desire to define the terms and conditions of their relationship and to reduce their agreements to writing. NOW, THEREFORE, in consideration of the promises and covenants contained in this Agreement, and for other consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, unless otherwise specified, all references to "Sections" shall be deemed to refer to Sections of this Agreement, and the following terms shall have the meanings set forth below: SECTION 1.1. ACCOUNT. "Account" means any right to payment for Medical Services, whether or not evidenced by an Instrument or Chattel Paper, and whether or not earned by performance. SECTION 1.2. ACCOUNT DEBTOR. "Account Debtor" means any Person obligated on any Account of Borrower, including without limitation, any Insurer and any Medicaid/Medicare Account Debtor. SECTION 1.3. AFFILIATE. "Affiliate" means, with respect to a specified Person, any Person directly or indirectly controlling, controlled by, or under common control with the specified Person including without limitation their stockholders and any Affiliates of such stockholders. A Person shall be deemed to control a corporation or other entity if the Person possesses, directly or indirectly, the power to direct or cause the direction of the management and business of the corporation or other entity, whether through the ownership of voting securities, by contract, or otherwise. SECTION 1.4. AFFILIATED BORROWERS. "Affiliated Borrowers" means, collectively, the Affiliated PPM Borrowers and the Affiliated SMO Borrowers. SECTION 1.5. AFFILIATED LOAN AGREEMENTS. "Affiliated Loan Agreements" means, collectively, the Affiliated PPM Loan Agreement and the Affiliated SMO Loan Agreement. SECTION 1.6. AFFILIATED LOAN DOCUMENTS. "Affiliated Loan Documents" means, collectively, the Affiliated PPM Loan Documents and the Affiliated SMO Loan Documents. SECTION 1.7 AFFILIATED PPM BORROWERS. "Affiliated PPM Borrowers" means the entities listed on SCHEDULE 1.7. SECTION 1.8. AFFILIATED PPM LOAN AGREEMENT. "Affiliated PPM Loan Agreement" means that certain Loan and Security Agreement dated as of even date with this Agreement and made by and among Lender and PhyMatrix and the Affiliated PPM Borrowers, as it may be amended, modified or supplemented from time to time. SECTION 1.9. AFFILIATED PPM LOAN DOCUMENTS. "Affiliated PPM Loan Documents" means the Affiliated PPM Loan Agreement, and each and every other document now or hereafter delivered in connection with the Affiliated PPM Loan Agreement, as any of them may be amended, modified, or supplemented from time to time. SECTION 1.10. AFFILIATED SMO BORROWERS. "Affiliated SMO Borrower" means the entities listed on SCHEDULE 1.10. SECTION 1.11. AFFILIATED SMO LOAN AGREEMENT. "Affiliated SMO Loan Agreement" means that certain Loan and Security Agreement dated as of even date with this Agreement and made by and among Lender and PhyMatrix and the Affiliated SMO Borrowers, as it may be amended, modified or supplemented from time to time. SECTION 1.12. AFFILIATED SMO LOAN DOCUMENTS. "Affiliated SMO Loan Documents" means the Affiliated SMO Loan Agreement, and each and every other document now or hereafter delivered in connection with the Affiliated SMO Loan Agreement, as any of them may be amended, modified, or supplemented from time to time. SECTION 1.13. AGREEMENT. "Agreement" means this Loan and Security Agreement, as it may be amended or supplemented from time to time. SECTION 1.14. BASE RATE. "Base Rate" means a rate of interest equal to one percent (1%) above the "Prime Rate of Interest." SECTION 1.15. BORROWED MONEY. "Borrowed Money" means any obligation to repay money, any indebtedness evidenced by notes, bonds, debentures or similar obligations, any obligation under a conditional sale or other title retention agreement and the net aggregate rentals under any lease which under GAAP would be capitalized on the books of Borrower. SECTION 1.16. BORROWER. "Borrower" has the meaning set forth in the Preamble. SECTION 1.17. BORROWING BASE. "Borrowing Base" has the meaning set forth in Section 2.1(d). SECTION 1.18. BORROWING BASE CERTIFICATE. "Borrowing Base Certificate" means a certificate substantially in the form of EXHIBIT D. SECTION 1.19. BUSINESS DAY. "Business Day" means any day on which financial institutions are open for business in the State of Maryland, excluding Saturdays and Sundays. SECTION 1.20. BUSINESS PLAN. "Business Plan" means the business plan of PMC as delivered and reviewed by Lender prior to the date of this Agreement. SECTION 1.21. CHANGE OF CONTROL. "Change of Control" means that, during any period, individuals who at the beginning of the period constituted the board of directors of PhyMatrix (together with any new directors whose election by that board of directors or whose nomination for election by the stockholders of PhyMatrix was approved by two-thirds of the directors of PhyMatrix then still in office who were either directors at the beginning of the period or whose election or nomination for election was previously approved) cease for any reason to constitute a majority of the board of directors of PhyMatrix then in office. SECTION 1.22. CHATTEL PAPER. "Chattel Paper" has the meaning set forth in the Uniform Commercial Code. SECTION 1.23. CLOSING; CLOSING DATE. "Closing" and "Closing Date" have the meanings set forth in Section 5.3. SECTION 1.24. COLLATERAL. "Collateral" has the meaning set forth in Section 3.1. SECTION 1.25. COMMITMENT FEE. "Commitment Fee" has the meaning set forth in Section 2.4(a). SECTION 1.26. CONCENTRATION ACCOUNT. "Concentration Account" has the meaning set forth in Section 2.3. SECTION 1.27. CONTROLLED GROUP. "Controlled Group" means a "controlled group" within the meaning of Section 4001(b) of ERISA. SECTION 1.28. COST REPORT SETTLEMENT ACCOUNT. "Cost Report Settlement Account" means an "Account" owed to Borrower by a Medicaid/Medicare Account Debtor pursuant to any cost report, either interim, filed or audited, as the context may require. SECTION 1.29. DEFAULT RATE. "Default Rate" means a rate per annum equal to four percent (4%) above the then applicable Base Rate. SECTION 1.30. ERISA. "ERISA" has the meaning set forth in Section 4.12. SECTION 1.31. EVENT OF DEFAULT. "Event of Default" and "Events of Default" have the meanings set forth in Section 8.1. SECTION 1.32. GAAP. "GAAP" means generally accepted accounting principles applied in a consistent manner. SECTION 1.33. GENERAL INTANGIBLES. "General Intangibles" has the meaning set forth in the Uniform Commercial Code. SECTION 1.34. GOODS. "Goods" has the meaning set forth in the Uniform Commercial Code. SECTION 1.35. GOVERNMENTAL AUTHORITY. "Governmental Authority" means and includes any federal, state, District of Columbia, county, municipal, or other government and any department, commission, board, bureau, agency or instrumentality thereof, whether domestic or foreign. SECTION 1.36. GUARANTY. "Guaranty" means that certain Unconditional Guaranty of Payment and Performance made by Borrower, the Affiliated PPM Borrowers and the Affiliated SMO Borrowers with respect to this Agreement and the Affiliated Loan Agreements in favor of Lender and dated as of even date with this Agreement. SECTION 1.37. HAZARDOUS MATERIAL. "Hazardous Material" means any substances defined or designated as hazardous or toxic waste, hazardous or toxic material, hazardous or toxic substance, or similar term, by any environmental statute, rule or regulation or any Governmental Authority. SECTION 1.38. HIGHEST LAWFUL RATE. "Highest Lawful Rate" has the meaning set forth in Section 2.7. SECTION 1.39. INSTRUMENTS. "Instruments" has the meaning set forth in the Uniform Commercial Code. SECTION 1.40. INSURER. "Insurer" means a Person that insures a Patient against certain of the costs incurred in the receipt by such Patient of Medical Services, or that has an agreement with Borrower to compensate Borrower for providing Medical Services to a Patient. SECTION 1.41. LENDER. "Lender" means HCFP Funding, Inc., a Delaware corporation. SECTION 1.42. LOCKBOX ACCOUNT. "Lockbox Account" means an account maintained by Borrower at the Lockbox Bank into which all collections of Accounts are paid directly. SECTION 1.43. LOAN. "Loan" has the meaning set forth in Section 2.1(a). SECTION 1.44. LOAN DOCUMENTS. "Loan Documents" means and includes this Agreement, the Note, the Lockbox Agreement, the Guaranty and each and every other document now or hereafter delivered in connection therewith, as any of them may be amended, modified, or supplemented from time to time. SECTION 1.45. LOAN MANAGEMENT FEE. "Loan Management Fee" has the meaning set forth in Section 2.4(c). SECTION 1.46. LOCKBOX. "Lockbox" has the meaning set forth in Section 2.3. SECTION 1.47. LOCKBOX AGREEMENT. "Lockbox Agreement" has the meaning set forth in Section 2.3. SECTION 1.48. LOCKBOX BANK. "Lockbox Bank" has the meaning set forth in Section 2.3. SECTION 1.49. MATERIAL ADVERSE EFFECT. "Material Adverse Effect" means (i) a material adverse change in, or a material adverse effect upon, the financial condition, operations, assets, business or properties of PMC, (ii) a material impairment of the ability of Borrower and the Affiliated Borrowers as a whole to perform any of their material obligations under the Loan Documents and the Affiliated Loan Documents, taken as a whole, or (iii) a material adverse effect upon any material portion of the Collateral under this Agreement or the Affiliated Loan Agreements, or upon the legality, validity, binding effect or enforceability of any Loan Document against any Borrower or any other Person (other than Lender) obligated on any Loan Document. SECTION 1.50. MAXIMUM LOAN AMOUNT. "Maximum Loan Amount" has the meaning set forth in Section 2.1(a). SECTION 1.51. MEDICAID/MEDICARE ACCOUNT DEBTOR. "Medicaid/ Medicare Account Debtor" means any Account Debtor which is (i) the United States of America acting under the Medicaid/Medicare program established pursuant to the Social Security Act, (ii) any state or the District of Columbia acting pursuant to a health plan adopted pursuant to Title XIX of the Social Security Act or (iii) any agent, carrier, administrator or intermediary for any of the foregoing. SECTION 1.52. MEDICAL SERVICES. "Medical Services" means Medical and health care services provided to a Patient, including, but not limited to, medical and health care services provided to a Patient and performed by Borrower which are covered by a policy of insurance issued by an Insurer, and includes physician services, nurse and therapist services, dental services, hospital services, skilled nursing facility services, comprehensive outpatient rehabilitation services, home health care services, residential and out-patient behavioral healthcare services, and medicine or health care equipment provided by Borrower to a Patient for a necessary or specifically requested valid and proper medical or health purpose. SECTION 1.53. NOTE. "Note" has the meaning set forth in Section 2.1(c). SECTION 1.54. OBLIGATIONS. "Obligations" has the meaning set forth in Section 3.1. SECTION 1.55. PATIENT. "Patient" means any Person receiving Medical Services from Borrower and all Persons legally liable to pay Borrower for such Medical Services other than Insurers. SECTION 1.56. PERMITTED LIENS. "Permitted Liens" means: (a) liens for taxes not delinquent, or which are being contested in good faith and by appropriate proceedings which suspend the collection of such liens, and in respect of which adequate reserves have been made, if required by GAAP (provided that such proceedings do not, in Lender's reasonable discretion, involve any substantial danger of the sale, loss or forfeiture of such property or assets or any interest therein); (b) deposits or pledges to secure obligations under workmen's compensation, social security or similar laws, or under unemployment insurance; (c) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business; (d) mechanic's, workmen's, materialmen's or other like liens arising in the ordinary course of business with respect to obligations which are not due, or which are being contested in good faith by appropriate proceedings which suspend the collection of such liens and in respect of which adequate reserves have been made, if required by GAAP (provided that such proceedings do not, in Lender's reasonable discretion, involve any substantial danger of the sale, loss or forfeiture of such property or assets or any interest therein); (e) liens and encumbrances in favor of Lender; and (f) liens set forth on SCHEDULE 1.51. SECTION 1.57. PERSON. "Person" means an individual, partnership, corporation, trust, joint venture, joint stock company, limited liability company, association, unincorporated organization, Governmental Authority, or any other entity. SECTION 1.58. PLAN. "Plan" has the meaning set forth in Section 4.12. SECTION 1.59. PMC. "PMC" means PhyMatrix Corp. and its direct and indirect subsidiaries, on a consolidated basis. SECTION 1.60. PREMISES. "Premises" has the meaning set forth in Section 4.14. SECTION 1.61. PRIME RATE OF INTEREST. "Prime Rate of Interest" means that rate of interest designated as such by Fleet National Bank of Connecticut, N.A., or any successor thereto, as the same may from time to time fluctuate. SECTION 1.62. PROHIBITED TRANSACTION. "Prohibited Transaction" means a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975(c)(1) of the Internal Revenue Code. SECTION 1.63. QUALIFIED ACCOUNT. "Qualified Account" means an Account of Borrower generated in the ordinary course of Borrower's business from the sale of goods or rendition of Medical Services which Lender, in its sole credit judgment, deems to be a Qualified Account. Without limiting the generality of the foregoing, no Account shall be a Qualified Account if: (a) the Account or any portion of the Account is payable by an individual beneficiary, recipient or subscriber individually and not directly to Borrower by a Medicaid/Medicare Account Debtor or commercial medical insurance carrier acceptable to Lender in its sole discretion; (b) the Account remains unpaid more than one hundred twenty (120) days past the claim or invoice date (but in no event more than one hundred thirty-five (135) days after the applicable Medical Services have been rendered); (c) the Account is subject to any defense, set-off, counterclaim, deduction, discount, credit, chargeback, freight claim, allowance, or adjustment of any kind; (d) any part of any goods the sale of which has given rise to the Account has been returned, rejected, lost, or damaged; (e) if the Account arises from the sale of goods by Borrower, the sale was not an absolute sale, or the sale was made on consignment or on approval or on a sale-or-return basis, or the sale was made subject to any other repurchase or return agreement, or the goods have not been shipped to the Account Debtor or its designee; (f) if the Account arises from the performance of services, the services have not been actually been performed or the services were undertaken in violation of any law; (g) the Account is subject to a lien other than a Permitted Lien; (h) Borrower knows or should have known of the bankruptcy, receivership, reorganization, or insolvency of the Account Debtor; (i) the Account is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; (j) the Account is an Account of an Account Debtor having its principal place of business or executive office outside the United States; (k) the Account Debtor is an Affiliate or Subsidiary of Borrower; (l) more than ten percent (10%) of the aggregate balance of all Accounts owing from the Account Debtor obligated on the Account are outstanding more than one hundred fifty (150) days past their invoice date; (m) fifty percent (50%) or more of the aggregate unpaid Accounts from any single Account Debtor are not deemed Qualified Accounts under this Agreement; (n) the total unpaid Accounts of the Account Debtor, except for a Medicaid/Medicare Account Debtor, exceed twenty percent (20%) of the net amount of all Qualified Accounts (including Medicaid/Medicare Account Debtors); (o) any covenant, representation or warranty contained in the Loan Documents with respect to such Account has been breached; or (p) the Account fails to meet such other specifications and requirements which may from time to time be established by Lender in its reasonable credit judgment in accordance with its customary lending practices and notice of which shall have been given to Borrower at lease five (5) days prior to the effective date. SECTION 1.64. RECEIVABLES-RELATED COLLATERAL. "Receivables-Related Collateral" means those items of Collateral described in Section 3.1 (a) through (d) and in Section 3.1(h) as related to or proceeding from such items of Collateral. SECTION 1.65. REPORTABLE EVENT. "Reportable Event" means a "reportable event" as defined in Section 4043(b) of ERISA. SECTION 1.66. REVOLVING CREDIT LOAN. "Revolving Credit Loan" has the meaning set forth in Section 2.1(b). SECTION 1.67. TANGIBLE COLLATERAL. "Tangible Collateral" means those items of Collateral described in Section 3.1(e) and (f) and in Section 3.1(h) as related to or proceeding from such items of Collateral. SECTION 1.68. TERM. "Term" has the meaning set forth in Section 2.8. SECTION 1.69. UNIFORM COMMERCIAL CODE. "Uniform Commercial Code" means the Uniform Commercial Code, as amended and in effect in the State of Maryland. SECTION 1.70. USAGE FEE. "Usage Fee" has the meaning set forth in Section 2.4 (b). ARTICLE II LOAN SECTION 2.1. TERMS. (a) The maximum aggregate principal amount of credit extended by Lender to Borrower under this Agreement (the "Loan") that will be outstanding at any time is Fifteen Million and No/100 Dollars ($15,000,000.00) (the "Maximum Loan Amount"). Notwithstanding the foregoing, the maximum aggregate principal amount of Revolving Credit Loans made by Lender to Borrower under this Agreement and to the Affiliated Borrowers under the Affiliated Loan Agreements shall not at any time exceed Thirty Million and No/100 Dollars ($30,000,000.00) (the "Overall Maximum Loan Amount"). (b) The Loan shall be in the nature of a revolving line of credit, and shall include sums advanced and other credit extended by Lender to or for the benefit of Borrower from time to time under this Article II (each a "Revolving Credit Loan") up to the lesser of (i) the Maximum Loan Amount and (ii) the Borrowing Base submitted in connection with such request. The outstanding principal balance of the Loan may fluctuate from time to time, will be reduced by repayments made by Borrower (which may be made without penalty or premium), and will be increased by future Revolving Credit Loans, advances and other extensions of credit to or for the benefit of Borrower, and shall be due and payable in full upon the expiration of the Term. For purposes of this Agreement, any determination as to whether there is ability within the Borrowing Base for advances or extensions of credit shall be made by Lender in the exercise of its reasonable lender's discretion and shall be final and binding upon Borrower. (c) At Closing, Borrower shall execute and deliver to Lender a promissory note evidencing Borrower's unconditional obligation to repay Lender for Revolving Credit Loans, advances, and other extensions of credit made under the Loan, in the form of EXHIBIT A to this Agreement (the "Note"), dated the date of this Agreement, payable to the order of Lender in accordance with the terms of such Note. The Note shall bear interest from the date of such Note until repaid, with interest payable monthly in arrears on the first Business Day of each month, at a rate per annum (on the basis of the actual number of days elapsed over a year of 360 days) equal to the Base Rate, provided that after an Event of Default has occurred and is continuing, such rate shall be equal to the Default Rate. Each Revolving Credit Loan, advance and other extension of credit shall be deemed evidenced by the Note, which is deemed incorporated into and made a part of this Agreement by this reference. (d) Subject to the terms and conditions of this Agreement, advances under the Loan shall be made against a borrowing base equal to eighty percent (80%) of Qualified Accounts due and owing to Borrower from any Account Debtor (the "Borrowing Base"). SECTION 2.2. LOAN ADMINISTRATION. Borrowings under the Loan shall be as follows: (a) A request for a Revolving Credit Loan shall be made, or shall be deemed to be made, in the following manner: (i) Borrower may give Lender notice of its intention to borrow, in which notice Borrower shall specify the amount of the proposed borrowing and the proposed borrowing date, not later than 2:00 p.m. Eastern time one (1) Business Day prior to the proposed borrowing date; PROVIDED, HOWEVER, that no such request may be made at a time when there exists an Event of Default; and (ii) the becoming due of any amount required to be paid under this Agreement, whether as interest or for any other Obligation, shall be deemed irrevocably to be a request for a Revolving Credit Loan on the due date in the amount required to pay such interest or other Obligation. (b) Borrower hereby irrevocably authorizes Lender to disburse the proceeds of each Revolving Credit Loan requested, or deemed to be requested, as follows: (i) the proceeds of each Revolving Credit Loan requested under subsection 2.2(a)(i) shall be disbursed by Lender by wire transfer to such bank account as may be agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to written direction from Borrower; and (ii) the proceeds of each Revolving Credit Loan requested under subsection 2.2(a)(ii) shall be disbursed by Lender by way of direct payment of the relevant interest or other Obligation. (c) All Revolving Credit Loans, advances and other extensions of credit to or for the benefit of Borrower shall constitute one general Obligation of Borrower, and shall be secured by Lender's lien upon all of the Collateral. (d) Lender shall enter all Revolving Credit Loans as debits to a loan account in the name of Borrower and shall also record in said loan account all payments made by Borrower on any Obligations and all proceeds of Collateral which are indefeasibly paid to Lender, and may record therein, in accordance with customary accounting practice, other debits and credits, including interest and all charges and expenses properly chargeable to Borrower under or in connection with this Agreement. All collections into the Concentration Account pursuant to Section 2.3 shall be applied first to fees, costs and expenses due and owing under the Loan Documents, then to interest due and owing under the Loan Documents, and then to principal outstanding with respect to Revolving Credit Loans. (e) Lender will account to Borrower monthly with a statement of Revolving Credit Loans, charges and payments made pursuant to this Agreement, and such accounting rendered by Lender shall be deemed final, binding and conclusive upon Borrower unless Lender is notified by Borrower in writing to the contrary within thirty (30) days of the date each accounting is received by Borrower. Such notice shall be deemed an objection to those items specifically objected to in such accounting. (f) So long as no Event of Default has occurred and is continuing (including, without limitation, the bottom line availability under the Borrowing Base being lower than the outstanding principal balance under this Agreement), proceeds of collections received by Lender on Accounts shall be made immediately available to Borrower as additional extensions of credit under this Agreement without any need for Borrower to request such extension of credit. Borrower's ability to receive such automatic extensions of credit is expressly conditioned on Borrower's submitting to Lender a Borrowing Base Certificate at least weekly during the Term. SECTION 2.3. COLLECTIONS, DISBURSEMENTS, BORROWING AVAILABILITY, AND LOCKBOX. Borrower shall maintain a lockbox account (the "Lockbox") with NationsBank, N.A. (South) or another financial institution mutually acceptable to Borrower and Lender (the "Lockbox Bank"), subject to the provisions of this Agreement, and shall execute with the Lockbox Bank a Lockbox Agreement substantially in the form attached as EXHIBIT B (the "Lockbox Agreement"), and such other agreements related thereto as Lender may reasonably require. Borrower shall ensure that all collections of Accounts from entities that become Account Debtors after the date of this Agreement are paid directly from such Account Debtors into the Lockbox, and that, so long as any Obligations are outstanding, all funds paid into the Lockbox are immediately transferred into a depository account maintained by Lender at Bank One Arizona, N.A. or U.S. Bank N.A., as determined by Lender in its sole discretion and communicated to Borrower (the "Concentration Account"). Lender shall apply, on a daily basis, all funds transferred into the Concentration Account pursuant to this Section 2.3 to reduce the outstanding indebtedness under the Loan (in accordance with Section 2.2(d)). Future Revolving Credit Loans, advances and other extensions of credit shall be made by Lender under the conditions set forth in this Article II. To the extent that any collections of Accounts or proceeds of other Collateral are not sent directly to the Lockbox but are received by Borrower, such collections shall be held in trust for the benefit of Lender and remitted within one (1) Business Day, in the form received, to the Lockbox Bank for transfer to the Concentration Account immediately upon receipt by Borrower. Collections from entities that are Account Debtors on or before the date of this Agreement may continue to be received directly by Borrower but shall be remitted to the Concentration Account within one (1) Business Day after such receipt. Borrower acknowledges and agrees that its compliance with the terms of this Section 2.3 is essential, and that if Lender reasonably determines that Borrower has failed to comply with any such terms, Lender shall give Borrower five (5) days written notice of such noncompliance. If the noncompliance is not cured within such five-day period, Lender shall be entitled to assess a noncompliance fee, which shall operate to increase the Base Rate by up to two percent (2%) per annum during any period of noncompliance. Lender shall be entitled to assess such fee whether or not an Event of Default is declared or otherwise occurs. Notwithstanding the foregoing, the failure by Borrower to transmit or cause to be transmitted to the Lockbox an aggregate of up to $100,000.00 in any calendar quarter shall not be deemed to be noncompliance with this Section. All funds transferred from the Concentration Account for application to Borrower's indebtedness to Lender shall be applied to reduce the Loan balance, but for purposes of calculating interest shall be subject to a five (5) Business Day clearance period. If as the result of collections of Accounts pursuant to the terms and conditions of this Section 2.3 a credit balance exists with respect to the Concentration Account, such credit balance shall not accrue interest in favor of Borrower, but shall be available to Borrower upon written request at any time or times for so long as no Event of Default exists and is continuing. Notwithstanding anything to the contrary elsewhere in this Agreement, with respect to any businesses that are expected to be disposed of pursuant to the Business Plan but that are still owned by PMC on June 11, 1999, Borrower agrees to promptly notify Account Debtors to pay directly to the Lockbox all collections on Accounts generated by such businesses and to execute such documents and take such other actions as may be reasonably necessary to ensure that all such collections are so paid to the Lockbox. SECTION 2.4. FEES. (a) Upon execution of this Agreement, Borrower shall unconditionally pay to Lender the balance owing on a commitment fee equal to one percent (1%) of the Maximum Loan Amount (the "Commitment Fee"), provided that the aggregate Commitment Fees paid under this Agreement and the Affiliated Loan Agreements shall not exceed one percent (1%) of the Overall Maximum Loan Amount. (b) For so long as the Loan is available to Borrower, Borrower shall pay to Lender a minimum usage fee (the "Usage Fee") equal to one-fortieth of one percent (0.025%) of the average amount by which the Maximum Loan Amount exceeds the average amount of the outstanding principal balance of the Revolving Credit Loans during the preceding month. The Usage Fee shall be payable monthly in arrears on the first Business Day of each successive calendar month. (c) For so long as the Loan is available to Borrower, Borrower unconditionally shall pay to Lender a monthly loan management fee (the "Loan Management Fee") equal to one-sixteenth of one percent (0.0625%) of the average amount of the outstanding principal balance of the Revolving Credit Loans during the preceding month. The Loan Management Fee shall be payable monthly in arrears on the first day of each successive calendar month. (d) Borrower shall pay to Lender all reasonable out-of-pocket audit fees in connection with audits of Borrower's books and records and such other matters as Lender shall deem appropriate, which shall be due and payable on the first Business Day of the month following the date of issuance by Lender of a request for payment thereof to Borrower. So long as no Event of Default has occurred and is continuing, such audits shall occur no more than four (4) times in a calendar year. (e) Borrower shall pay to Lender, on demand, any and all fees, costs or expenses which Lender pays to a bank or other similar institution arising out of or in connection with (i) the forwarding to Borrower or any other Person on behalf of Borrower, by Lender, of proceeds of Revolving Credit Loans made by Lender to Borrower pursuant to this Agreement, and (ii) the depositing for collection, by Lender, of any check or item of payment received or delivered to Lender on account of Obligations. SECTION 2.5. PAYMENTS. Principal payable on account of Revolving Credit Loans shall be payable by Borrower to Lender immediately upon the earliest of (i) subject to the provisions of Section 3.7, the receipt by Borrower of any proceeds of any of the Collateral, to the extent of such proceeds, (ii) the occurrence of an Event of Default in consequence of which the Loan and the maturity of the payment of the Obligations are accelerated under Section 8.2, or (iii) the termination of this Agreement pursuant to Section 2.8; PROVIDED, HOWEVER, that if any advance made by Lender in excess of the Borrowing Base shall exist at any time, Borrower shall, immediately upon demand, repay such overadvance. Interest accrued on the Revolving Credit Loans shall be due on the earliest of (i) the first Business Day of each month (for the immediately preceding month), computed on the last calendar day of the preceding month, (ii) the occurrence of an Event of Default in consequence of which the Loan and the maturity of the payment of the Obligations are accelerated under Section 8.2, or (iii) the termination of this Agreement pursuant to Section 2.8 under this Agreement. Except to the extent otherwise set forth in this Agreement, all payments of principal and of interest on the Loan, all other charges and any other obligations of Borrower under this Agreement, shall be made to Lender to the Concentration Account, in immediately available funds. SECTION 2.6. USE OF PROCEEDS. The proceeds of Lender's advances under the Loan shall be used to make funds available to certain physicians that provide services to Borrower on an independent contractor basis, and for other general business purposes. SECTION 2.7. INTEREST RATE LIMITATION. The parties intend to conform strictly to the applicable usury laws in effect from time to time during the term of the Loan. Accordingly, if any transaction contemplated hereby would be usurious under such laws, then notwithstanding any other provision under this Agreement: (i) the aggregate of all interest that is contracted for, charged, or received under this Agreement or under any other Loan Document shall not exceed the maximum amount of interest allowed by applicable law (the "Highest Lawful Rate"), and any excess shall be promptly credited to Borrower by Lender (or, to the extent that such consideration shall have been paid, such excess shall be promptly refunded to Borrower by Lender); (ii) neither Borrower nor any other Person now or hereafter liable under this Agreement shall be obligated to pay the amount of such interest to the extent that it is in excess of the Highest Lawful Rate; and (iii) the effective rate of interest shall be reduced to the Highest Lawful Rate. All sums paid, or agreed to be paid, to Lender for the use, forbearance, and detention of the debt of Borrower to Lender shall, to the extent permitted by applicable law, be allocated throughout the full term of the Note until payment is made in full so that the actual rate of interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. If at any time the rate of interest under the Note exceeds the Highest Lawful Rate, the rate of interest to accrue pursuant to this Agreement shall be limited, notwithstanding anything to the contrary in this Agreement, to the Highest Lawful Rate, but any subsequent reductions in the Base Rate shall not reduce the interest to accrue pursuant to this Agreement below the Highest Lawful Rate until the total amount of interest accrued equals the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect. If the total amount of interest paid or accrued pursuant to this Agreement under the foregoing provisions is less than the total amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had been in effect, then Borrower agrees to pay to Lender an amount equal to the difference between (x) the lesser of (A) the amount of interest that would have accrued if the Highest Lawful Rate had at all times been in effect, or (B) the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect, and (y) the amount of interest accrued in accordance with the other provisions of this Agreement. SECTION 2.8. TERM. (a) Subject to Lender's right to cease making Revolving Credit Loans to Borrower upon or after any Event of Default, this Agreement shall be in effect for a period of three (3) years from the Closing Date, unless terminated as provided in Section 2.8(c) or Section 8.3(a) (the "Term"), and this Agreement may be renewed for one-year periods thereafter upon the mutual written agreement of the parties. (b) Notwithstanding anything in this Agreement to the contrary, Lender may terminate this Agreement upon and during the occurrence of an Event of Default after giving five (5) Business Days' prior written notice to Borrower. (c) Upon at least sixty (60) days prior written notice to Lender (the "Termination Notice Period"), Borrower may terminate this Agreement during the Term, provided that, if the termination is due to an unaffiliated third party paying off the Obligations, then, at the effective date of such termination, Borrower shall pay to Lender (in addition to the then outstanding principal, accrued interest and other Obligations owing under the terms of this Agreement and any other Loan Documents) as liquidated damages for the loss of bargain and not as a penalty, an amount equal to (i) three percent (3%) of the Maximum Loan Amount if the effective date of such termination by Borrower is on or before the first annual anniversary of the Closing Date, (ii) two percent (2%) of the Maximum Loan Amount if the effective date of such termination by Borrower is after the first annual anniversary of the Closing Date and on or before the second annual anniversary of the Closing Date, and (iii) one percent (1%) of the Maximum Loan Amount if the effective date of such termination is after the second annual anniversary of the Closing Date and before the date that is thirty (30) days before the end of the Term. (d) All of the Obligations shall be immediately due and payable at the end of the Term (the "Termination Date"); provided, however, that notwithstanding anything in Section 2.8(c) to the contrary, the Termination Date shall be effective no earlier than the first Business Day of the month following the expiration of the Termination Notice Period. All undertakings, agreements, covenants, warranties, and representations of Borrower contained in the Loan Documents shall survive any such termination, and Lender shall retain its liens in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding any such termination until Borrower has paid the Obligations to Lender, in full, in immediately available funds. Notwithstanding the foregoing, Lender acknowledges that certain items of Tangible Collateral may be released from Lender's liens from time to time in accordance with the provisions of Section 3.7. (e) Notwithstanding any provision of this Agreement which makes reference to the continuance of an Event of Default, nothing in this Agreement shall be construed to permit Borrower to cure an Event of Default following the lapse of the applicable cure period, and Borrower shall have no such right in any instance unless specifically granted in writing by Lender. SECTION 2.9. JOINT AND SEVERAL LIABILITY; BINDING OBLIGATIONS. Each entity comprising Borrower and executing this Agreement on behalf of Borrower shall be jointly and severally liable for all of the Obligations. In addition, each entity comprising Borrower hereby acknowledges and agrees that all of the representations, warranties, covenants, obligations, conditions, agreements and other terms contained in this Agreement shall be applicable to and shall be binding upon each individual entity comprising Borrower, and shall be binding upon all such entities when taken together. ARTICLE III COLLATERAL SECTION 3.1. GENERALLY. As security for the payment of all liabilities of Borrower to Lender pursuant to the Loan Documents, including without limitation: (i) indebtedness evidenced under the Note, repayment of Revolving Credit Loans, advances and other extensions of credit, all fees and charges owing by Borrower, and all other liabilities and obligations of every kind or nature whatsoever of Borrower to Lender pursuant to the Loan Documents, whether now existing or hereafter incurred, joint or several, matured or unmatured, direct or indirect, primary or secondary, related or unrelated, due or to become due, including but not limited to any extensions, modifications, substitutions, increases and renewals thereof, all as may be due under or related to this Agreement and the other Loan Documents, (ii) the payment of all amounts advanced by Lender to preserve, protect, defend, and enforce its rights under this Agreement and in the following property in accordance with the terms of this Agreement, and (iii) the payment of all expenses incurred by Lender in connection therewith (collectively, the "Obligations"), and as further security for the payment and performance of the obligations of Affiliated Borrowers under the Affiliated Loan Agreements, Borrower hereby assigns and grants to Lender a continuing first priority lien on and security interest in, upon, and to the following property (the "Collateral"): (a) All of Borrower's now-owned and hereafter acquired or arising Accounts and all accounts receivable and rights to payment of every kind and description relating to Medical Services, and all of Borrower's contract rights, Chattel Paper, Documents and Instruments with respect thereto, and all of Borrower's rights, remedies, security and liens, in, to and in respect of the Accounts, including, without limitation, all rights and remedies of an unpaid lienor or secured party, guaranties or other contracts of suretyship with respect to the Accounts, deposits or other security for the obligation of any Account Debtor, and credit and other insurance; (b) All moneys, securities and other property and the proceeds thereof, now or hereafter held or received by, in transit to, in possession of, or under the control of Lender or a bailee or Affiliate of Lender, from or for Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all of Borrower's deposits (general or special), balances, sums and credits with Lender at any time existing; (c) All of Borrower's now or hereafter acquired deposit accounts into which proceeds of Accounts are deposited, to the extent of such proceeds, including the Lockbox; (d) All of Borrower's now owned and hereafter acquired or arising General Intangibles and other property of every kind and description with respect to, evidencing or relating to its Accounts, including, but not limited to, all existing and future customer lists, choses in action, claims, books, records, ledger cards, contracts, licenses, formulae, tax and other types of refunds, returned and unearned insurance premiums, rights and claims under insurance policies, and computer programs, information, software, records, and data, but solely as each of the same relate to the Accounts; (e) All of Borrower's other general intangibles (including, without limitation, any proceeds from insurance policies after payment of prior interests), patents, unpatented inventions, trade secrets, copyrights, contract rights, goodwill, literary rights, rights to performance, rights under licenses, choses-in-action, claims, information contained in computer media (such as data bases, source and object codes, and information therein), things in action, trademarks and trademarks applied for (together with the goodwill associated therewith) and derivatives thereof, trade names, including the right to make, use, and vend goods utilizing any of the foregoing, and permits, licenses, certifications, authorizations and approvals, and the rights of Borrower thereunder, issued by any governmental, regulatory, or private authority, agency, or entity whether now owned or hereafter acquired, together with all cash and non-cash proceeds and products thereof; (f) All of Borrower's now owned or hereafter acquired inventory of every description which is held by Borrower for sale or lease or is furnished by Borrower under any contract of service or is held by Borrower as raw materials, work in process or materials used or consumed in a business, wherever located, and as the same may now and hereafter from time to time be constituted, together with all cash and non-cash proceeds and products thereof; (g) All of Borrower's now owned or hereafter acquired machinery, equipment, computer equipment, tools, tooling, furniture, fixtures, goods, supplies, materials, work in process, whether now owned or hereafter acquired, together with all additions, parts, fittings, accessories, special tools, attachments, and accessions now and hereafter affixed thereto and/or used in connection therewith, all replacements thereof and substitutions therefor, and all cash and non-cash proceeds and products thereof; and (h) The proceeds (including, without limitation, insurance proceeds) of all of the foregoing. The Collateral as described above includes both the "Receivables-Related Collateral" and the "Tangible Collateral." The following assets are excluded from the security interest hereby granted: All assets of Oncology Therapies, Inc. relating to, and to be sold to, Oncology and Radiation Associates. P.A. SECTION 3.2. LIEN DOCUMENTS. At Closing and thereafter as Lender deems necessary in its sole discretion, Borrower shall execute and deliver to Lender, or have executed and delivered (all in form and substance satisfactory to Lender in its reasonable discretion): (a) UCC-1 Financing Statements pursuant to the Uniform Commercial Code in effect in the jurisdiction(s) in which Borrower operates, which Lender may file in any jurisdiction where any Collateral is or may be located and in any other jurisdiction that Lender deems appropriate; PROVIDED that a carbon, photographic, or other reproduction or other copy of this Agreement is sufficient as and may be filed in lieu of a financing statement; and (b) Any other agreements, documents, instruments, and writings deemed necessary by Lender or as Lender may otherwise reasonably request from time to time to evidence, perfect, or protect Lender's lien and security interest in the Collateral required under this Agreement. SECTION 3.3. COLLATERAL ADMINISTRATION. (a) All Collateral (except deposit accounts) will at all times be kept by Borrower at its principal office(s) or at such other locations as identified to Lender, all as set forth on SCHEDULE 4.15 and shall not, without at least thirty (30) days notice to Lender, be moved therefrom. (b) Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit to Lender on such periodic basis as Lender shall reasonably request a collections report for the preceding period, in form reasonably satisfactory to Lender. In addition, if Accounts in an aggregate face amount in excess of $50,000.00 become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Qualified Accounts, Borrower shall notify Lender of such occurrence on the first Business Day following the date on which Borrower first becomes aware of such occurrence, and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. After the occurrence and during the continuance of an Event of Default, if requested by Lender, Borrower shall execute and deliver to Lender formal written assignments of all of its Accounts weekly or daily, which shall include all Accounts that have been created since the date of the last assignment, together with copies of claims, invoices or other information related thereto. (c) After an Event of Default has occurred, and while it is continuing, any of Lender's officers, employees or agents shall have the right, at any time or times thereafter, in the name of Lender, any designee of Lender or Borrower, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with Lender in an effort to facilitate and promptly conclude such verification process. (d) To expedite collection, Borrower shall endeavor in the first instance to make collection of its Accounts for Lender. Lender retains the right at all times after the occurrence of an Event of Default, subject to applicable laws regarding Medicaid/Medicare Account Debtors, to notify Account Debtors that Accounts have been assigned to Lender and to collect Accounts directly in its own name and to charge reasonable collection costs and expenses, including reasonable attorneys' fees (including both outside and in-house counsel), to Borrower. SECTION 3.4. OTHER ACTIONS. In addition to the foregoing, Borrower (i) shall provide prompt written notice to each entity that becomes an Account Debtor at any time following the date of this Agreement that payments on Accounts shall thereafter be made directly to the Lockbox, (ii) after an Event of Default has occurred and is continuing, hereby authorizes Lender to provide written notice to each entity that is then an Account Debtor or thereafter becomes an Account Debtor that Lender has been granted a first priority lien and security interest in, upon and to all Accounts applicable to such Account Debtor, and (iii) shall do anything further that may be lawfully required by Lender to secure Lender and effectuate the intentions and objects of this Agreement, including but not limited to the execution and delivery of lockbox agreements, continuation statements, amendments to financing statements, terminations of financing statements, and any other documents required under this Agreement. At Lender's request, Borrower shall also immediately deliver to Lender all items for which Lender must receive possession to obtain a perfected security interest. Borrower shall, on Lender's demand, deliver to Lender all notes, certificates, and documents of title, Chattel Paper, warehouse receipts, Instruments, and any other similar instruments constituting Collateral. SECTION 3.5. SEARCHES. Before Closing, and thereafter (as and when determined by Lender in its reasonable discretion), Lender shall perform the searches set forth in clauses (a) and (b) below against Borrower (the results of which are to be consistent with Borrower's representations and warranties under this Agreement), all at Borrower's expense: (a) Uniform Commercial Code searches with the Secretary of State and local filing offices of each jurisdiction where Borrower maintains its executive offices, a place of business, or assets; and (b) Judgment, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction searched under clause (a) above. So long as no Event of Default has occurred and is continuing, Lender agrees to perform such searches no more frequently than quarterly. Borrower shall obtain and deliver to Lender prior to Closing Good Standing certificates showing Borrower to be in good standing in its state of formation and in each other state in which it is doing and currently intends to do business for which qualification is required. SECTION 3.6. POWER OF ATTORNEY. After an Event of Default and while it is continuing, Borrower hereby makes, constitutes and appoints each of the officers of Lender as the true and lawful attorney for Borrower (without requiring any of them to act as such) with full power of substitution to do the following: (i) endorse the name of Borrower upon any and all checks, drafts, money orders, and other instruments for the payment of money that are payable to Borrower and constitute collections on Borrower's Accounts; (ii) execute in the name of Borrower any financing statements, schedules, assignments, instruments, documents, and statements that Borrower is obligated to give Lender under this Agreement; and (iii) after the occurrence of an Event of Default, do such other and further acts and deeds in the name of Borrower that Lender may deem necessary or reasonable to enforce any Account or other Collateral or perfect Lender's security interest or lien in any Collateral. SECTION 3.7. RELEASE OF SECURITY INTEREST AND LIENS. Lender shall release its security interest and other liens in, on and to the Collateral when all the Obligations have been paid in full, and Lender will reassign and redeliver (or cause to be reassigned and redelivered) to Borrower, or to such Person as Borrower designates, against receipt, such of the Collateral (if any) assigned by Borrower to Lender (or otherwise held by Lender) as has not been sold or otherwise applied by Lender under the terms of this Agreement and the other Loan Documents and is still held by it under this Agreement of the other Loan Documents, together with appropriate instruments of reassignment and release. Notwithstanding the foregoing, upon the disposition for value by Borrower of Tangible Collateral, Lender agrees, so long as no Event of Default has occurred and is continuing, that it will release its lien(s) on such Collateral and execute any necessary or desirable instruments in connection therewith. ARTICLE IV REPRESENTATIONS AND WARRANTIES Each entity comprising Borrower represents and warrants to Lender that: SECTION 4.1. SUBSIDIARIES. Except as set forth in SCHEDULE 4.1, on the Closing Date, Borrower has no subsidiaries. SECTION 4.2. ORGANIZATION AND GOOD STANDING. Each entity comprising Borrower is a corporation or limited liability company duly organized, validly existing, and in good standing under the laws of its state of formation, is in good standing as a foreign corporation or limited liability company in each jurisdiction in which the character of the properties owned or leased by it in such jurisdiction or the nature of its business makes such qualification necessary (other than those jurisdictions where the failure to qualify could not reasonably be likely to have a Material Adverse Effect), has the corporate or limited liability company power and authority to own its assets and transact the business in which it is engaged, and has obtained all certificates, licenses and qualifications required under all laws, regulations, ordinances, or orders of public authorities necessary for the ownership and operation of all of its properties and transaction of all of its business, other than those where the failure to so obtain could not reasonably be likely to have a Material Adverse Effect. SECTION 4.3. AUTHORITY. Borrower has full corporate or limited liability company power and authority to enter into, execute, and deliver this Agreement and to perform its obligations under this Agreement, to borrow the Loan, to execute and deliver the Note, and to incur and perform the obligations provided for in the Loan Documents, all of which have been duly authorized by all necessary corporate or limited liability company action. No consent or approval of shareholders or members of, or lenders to, Borrower and no consent, approval, filing or registration with any Governmental Authority is required as a condition to the validity of the Loan Documents or the performance by Borrower of its obligations under the Loan Documents other than those previously obtained. SECTION 4.4. BINDING AGREEMENT. This Agreement and all other Loan Documents constitute, and the Note, when issued and delivered pursuant hereto for value received, will constitute, the valid and legally binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms other than (i) applicable bankruptcy, insolvency, reorganization, voidable preference, moratorium or similar laws, and related judicial doctrines, affecting creditors' rights and remedies generally, as in effect from time to time, and (ii) general principles of equity, whether such principles are considered in a proceeding at law or in equity. SECTION 4.5. LITIGATION. Except as disclosed in SCHEDULE 4.5, there are no actions, suits, proceedings or investigations pending or, to Borrower's knowledge, threatened against Borrower before any court or arbitrator or before or by any Governmental Authority which, in any one case or in the aggregate, if determined adversely to the interests of Borrower, could have a Material Adverse Effect. Borrower is not in default with respect to any order of any court, arbitrator, or Governmental Authority applicable to Borrower or its properties. SECTION 4.6. NO CONFLICTS. The execution and delivery by Borrower of this Agreement and the other Loan Documents do not, and the performance of its obligations under the Loan Documents will not, violate, conflict with, constitute a default under, or result in the creation of a lien or encumbrance upon the property of Borrower under: (i) any provision of Borrower's charter documents; (ii) any provision of any law, rule, or regulation applicable to Borrower other than those provisions the violation of which could not reasonably be likely to have a Material Adverse Effect, or (iii) any of the following: (A) any indenture or other material agreement or instrument to which Borrower is a party or by which Borrower or its property is bound; or (B) any judgment, order or decree of any court, arbitration tribunal, or Governmental Authority having jurisdiction over Borrower which is applicable to Borrower. SECTION 4.7. FINANCIAL CONDITION. The annual consolidated financial statements of PMC as of January 31, 1998 audited by PricewaterhouseCoopers and the unaudited financial statements of PMC as of October 31, 1998, certified by the chief financial officer of PMC, which have been delivered to Lender, fairly present the financial condition of PMC and the results of its operations and changes in financial condition as of the dates and for the periods referred to, and have been prepared in accordance with GAAP. There are no material unrealized or anticipated liabilities, direct or indirect, fixed or contingent, of PMC as of the dates of such financial statements which are not reflected in such financial statements or in the notes to such financial statements. Except as previously disclosed by Borrower to Lender, there has been no event that could reasonably be likely to have a Material Adverse Effect since October 31, 1998. The federal tax identification number of each entity comprising Borrower is as described on SCHEDULE 4.7. SECTION 4.8. NO DEFAULT. Borrower is not in default under or with respect to any material obligation in any respect which could reasonably be likely to have a Material Adverse Effect. No Event of Default has occurred and is continuing under this Agreement. SECTION 4.9. TITLE TO PROPERTIES. Borrower has good and marketable title to the Collateral, subject to no lien, pledge, encumbrance or charge of any kind, other than Permitted Liens. Borrower has not agreed or consented to cause any of the Collateral, whether owned now or hereafter acquired or created, to be subject in the future (upon the happening of a contingency or otherwise) to any lien, pledge, encumbrance or charge of any kind other than Permitted Liens. SECTION 4.10. TAXES. Borrower has filed, or has obtained extensions for the filing of, all federal, state and other tax returns which are required to be filed, and has paid all taxes shown as due on those returns and all assessments, fees and other amounts due as of the date of this Agreement. All material tax liabilities of Borrower were, as of October 31, 1998 adequately provided for on Borrower's books. No material tax liability has been asserted by the Internal Revenue Service or other taxing authority against Borrower for taxes in excess of those already paid. Notwithstanding the foregoing, Borrower shall not be, and shall not have been required to pay any tax (other than payroll taxes) so long as the validity or amount of the tax shall be contested in good faith and by appropriate proceedings, demonstrated to the reasonable satisfaction of Lender, by Borrower, and Borrower shall have set aside on its books adequate reserve therefor to the extent required by GAAP; PROVIDED, HOWEVER, that such deferment of payment is permissible only so long as Borrower's title to, and its right to use, the Collateral is not adversely affected thereby and Lender's lien and priority on the Collateral are not adversely affected, altered or impaired thereby. SECTION 4.11. SECURITIES AND BANKING LAWS AND REGULATIONS. (a) The use of the proceeds of the Loan and Borrower's issuance of the Note will not directly or indirectly violate or result in a violation of the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including without limitation Regulations U, T, or X of the Board of Governors of the Federal Reserve System. Borrower is not engaged in the business of extending credit for the purpose of the purchasing or carrying "margin stock" within the meaning of those regulations. No part of the proceeds of the Loan under this Agreement will be used to purchase or carry any margin stock or to extend credit to others for such purpose. (b) Borrower is not an investment company within the meaning of the Investment Company Act of 1940, as amended, nor is it, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company within the meaning of that Act. SECTION 4.12. ERISA. No employee benefit plan (a "Plan") subject to the Employee Retirement Income Security Act of 1974 ("ERISA") and regulations issued pursuant thereto that is maintained by Borrower or under which Borrower could have any material liability under ERISA (a) has failed to meet minimum funding standards established in Section 302 of ERISA, (b) has failed to comply with all applicable requirements of ERISA and of the Internal Revenue Code, including all applicable rulings and regulations thereunder, (c) has engaged in or been involved in a prohibited transaction (as defined in ERISA) under ERISA or under the Internal Revenue Code, or (d) has been terminated. Borrower has not assumed, or received notice of a claim asserted against Borrower for, withdrawal liability (as defined in the Multi-Employer Pension Plan Amendments Act of 1980, as amended) with respect to any multi-employer pension plan and is not a member of any Controlled Group (as defined in ERISA). Borrower has timely made when due all contributions with respect to any multi-employer pension plan in which it participates and no event has occurred triggering a claim against Borrower for withdrawal liability with respect to any multi-employer pension plan in which Borrower participates. SECTION 4.13. COMPLIANCE WITH LAW. Except as described in SCHEDULE 4.13, Borrower is not in material violation of any statute, rule or regulation of any Governmental Authority (including, without limitation, any statute, rule or regulation relating to employment practices or to environmental, occupational and health standards and controls) where the failure to comply would have a Material Adverse Effect. Borrower has obtained all licenses, permits, franchises, and other governmental authorizations necessary for the ownership of its properties and the conduct of its business where the failure to so obtain such licenses, permits, franchises, and other governmental authorizations would have a Material Adverse Effect. Borrower is current with all reports and documents required to be filed with any state or federal securities commission or similar Governmental Authority and is in full compliance with all applicable rules and regulations of such commissions to the extent noncompliance therewith could reasonably be likely to have a Material Adverse Effect. SECTION 4.14. ENVIRONMENTAL MATTERS. No use, exposure, release, generation, manufacture, storage, treatment, transportation or disposal of Hazardous Material has occurred or is occurring on or from any real property on which the Collateral is located or which is owned, leased or otherwise occupied by Borrower (the "Premises"), or off the Premises as a result of any action of Borrower other than in material compliance with all laws and except as described in SCHEDULE 4.14. All Hazardous Material used, treated, stored, transported to or from, generated or handled on the Premises, or off the Premises by Borrower, has been disposed of on or off the Premises by or on behalf of Borrower in material compliance with all laws. There are no underground storage tanks present on or under the Premises owned or leased by Borrower. To the best of Borrower's knowledge, no other environmental, public health or safety hazards exist with respect to the Premises. SECTION 4.15. PLACES OF BUSINESS. The only places of business of Borrower, and the places where it keeps and intends to keep the Collateral and records concerning the Collateral, are at the addresses set forth in SCHEDULE 4.15. SECTION 4.16. STOCK OWNERSHIP. The identity of each stockholder of record of each entity comprising Borrower (other than PhyMatrix) at the Closing Date, together with the respective ownership percentages held by each such stockholder as of such date, are as set forth on SCHEDULE 4.16. The identity of each current executive officer or director of PhyMatrix known to own five percent (5%) or more of any outstanding class of stock of PhyMatrix, together with the respective ownership percentages held by each such person as of such date, are as set forth on SCHEDULE 4.16. SECTION 4.17. BUSINESS INTERRUPTIONS. Within five years before the date of this Agreement, neither the business, property or assets, or operations of Borrower has been adversely affected in any way by any casualty, strike, lockout, combination of workers, or order of the United States of America or other Governmental Authority, directed against Borrower. There are no pending or, to Borrower's knowledge, threatened labor disputes, strikes, lockouts, or similar occurrences or grievances against Borrower or its business the effect of which could reasonably be likely to have a Material Adverse Effect. SECTION 4.18. NAMES. Within five years before the date of this Agreement, Borrower has not conducted business under or used any other name (whether corporate, partnership or assumed) other than as shown on SCHEDULE 4.18. Borrower is the sole owner of all names listed on that Schedule and any and all business done and invoices issued in such names are Borrower's sales, business, and invoices. Each trade name of Borrower represents a division or trading style of Borrower and not a separate Person or independent Affiliate. SECTION 4.19 ACCOUNTS. Lender may rely, in determining which Accounts are Qualified Accounts, on all statements and representations made by Borrower with respect to any Account or Accounts. Unless otherwise indicated in writing to Lender, with respect to each Account: (a) It is genuine and in all respects what it purports to be, and is not evidenced by a judgment; (b) It arises out of a completed, BONA FIDE rendition of Medical Services by Borrower in the ordinary course of its business and in accordance with the terms and conditions of all purchase orders, contracts, certification, participation, certificate of need, or other documents relating thereto and forming a part of the contract between Borrower and the Account Debtor; (c) It is for a liquidated amount maturing as stated in a duplicate claim or invoice covering such sale or rendition of Medical Services, a copy of which has been furnished or is available to Lender; (d) Such Account, and Lender's security interest in such Account is not, and will not (by voluntary act or omission by Borrower), be in the future, subject to any offset, lien, deduction, defense, dispute, counterclaim or any other adverse condition, and each such Account is absolutely owing to Borrower and is not contingent in any respect or for any reason; (e) There are no facts, events or occurrences which in any way impair the validity or enforceability of any Accounts or tend to reduce the amount payable under the Accounts from the face amount of the claim or invoice and statements delivered to Lender with respect thereto; (f) To the Borrower's knowledge, (i) the Account Debtor under the Account had the capacity to contract at the time any contract or other document giving rise to the Account was executed and (ii) such Account Debtor is solvent; (g) To the Borrower's knowledge, there are no proceedings or actions which are threatened or pending against any Account Debtor under an Account which might result in any material adverse change in such Account Debtor's financial condition or the collectibility of such Account; (h) It has been billed and forwarded to the Account Debtor for payment in accordance with applicable laws and compliance and conformance with any and requisite procedures, requirements and regulations governing payment by such Account Debtor with respect to such Account, and such Account if due from a Medicaid/Medicare Account Debtor is properly payable directly to Borrower; and (i) Borrower has obtained and currently has all certificates of need, Medicaid and Medicare provider numbers, licenses, permits and authorizations that are necessary in the generation of such Accounts. SECTION 4.20. SOLVENCY. Both before and after giving effect to the transactions contemplated by the terms and provisions of this Agreement, (i) PMC owns property whose fair saleable value is greater than the amount required to pay all of PMC's Indebtedness (including contingent debts), (ii) PMC was and is able to pay all of its Indebtedness as such Indebtedness matures, and (iii) PMC had and has capital sufficient to carry on its business and transactions and all business and transactions in which it about to engage. For purposes of this Section 4.20, the term "Indebtedness" means, without duplication (x) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such PMC as of the date on which Indebtedness is to be determined, (y) all obligations of any other person or entity which such PMC has guaranteed, and (z) the Obligations. SECTION 4.21. COMMISSIONS. The transaction contemplated by this Agreement was brought about by Lender and Borrower acting as principals and without any brokers, agents, or finders being the effective procuring cause. Borrower represents that it has not committed Lender to the payment of any brokerage fee, commission, or charge in connection with this transaction. SECTION 4.22. INTELLECTUAL PROPERTY. Borrower exclusively owns or possesses all the patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, franchises, licenses, and rights with respect to the foregoing necessary for the current and planned future conduct of its business, without any conflict with the rights of others. A list of all such intellectual property (indicating the nature of Borrower's interest), as well as all outstanding franchises and licenses given by or held by Borrower, is attached as SCHEDULE 4.22. Borrower is not in default of any obligation or undertaking with respect to such intellectual property or rights. SECTION 4.23. MATERIAL FACTS. Neither this Agreement nor any other Loan Document nor any other agreement, document, certificate, or statement furnished to Lender by or on behalf of Borrower in connection with the transactions contemplated hereby contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained in this Agreement or other Loan Document not misleading. There is no fact known to Borrower that adversely affects or in the future may adversely affect the business, operations, affairs or financial condition of Borrower, or any of its properties or assets. SECTION 4.24. INVESTMENTS, GUARANTEES, AND CERTAIN CONTRACTS. Borrower does not own or hold any equity or long-term debt investments in, have any outstanding advances to, have any outstanding guarantees for the obligations of, or have any outstanding borrowings from, any Person, except as described on SCHEDULE 4.24. Borrower is not a party to any contract or agreement, or subject to any corporate restriction, which adversely affects its business. SECTION 4.25 JOINT VENTURES. Borrower is not engaged in any joint venture or partnership with any other Person, except as set forth on SCHEDULE 4.25. SECTION 4.26. YEAR 2000 COMPLIANCE. (a) All devices, systems, machinery, information technology, computer software and hardware, and other date sensitive technology (jointly and severally, the "Systems") necessary for Borrower to carry on its business as currently conducted and as contemplated to be conducted in the future are Year 2000 Compliant or will be Year 2000 Compliant within a period of time calculated to result in no material disruption of any of Borrower's business operations. For purposes of these provisions, "Year 2000 Compliant" means that such Systems are designed to be used before, during and after the Gregorian calendar year 2000 A.D. and will operate during each such time period without error related to date data, specifically including any error relating to, or the product of, date data that represents or refers to different centuries or more than one century. (b) Borrower has: (i) undertaken a detailed inventory, review, and assessment of all areas within its business and operations that could be adversely affected by the failure of Borrower to be Year 2000 Compliant on a timely basis; (ii) developed a detailed plan and time line for becoming Year 2000 Compliant on a timely basis; and (iii) to date, implemented that plan in accordance with the timetable in all material respects. ARTICLE V CLOSING AND CONDITIONS OF LENDING SECTION 5.1. CONDITIONS PRECEDENT TO AGREEMENT. The obligation of Lender to enter into and perform this Agreement and to make Revolving Credit Loans is subject to the following conditions precedent: (a) Lender shall have received two (2) originals of this Agreement and all other Loan Documents required to be executed and delivered at or before Closing (other than the Note, as to which Lender shall receive only one original), executed by Borrower and any other required Persons, as applicable. (b) Lender shall have received all searches and good standing certificates required by Section 3.5. (c) Borrower shall then be in compliance with all the terms, covenants and conditions of the Loan Documents. (d) There shall exist no Event of Default and no event which, with the giving of notice or the lapse of time, or both, could constitute such an Event of Default. (e) The representations and warranties contained in Article IV shall be true and correct in all material respects. (f) Lender shall have received copies of all board of directors resolutions of Borrower, and other corporate action taken by Borrower to authorize the execution, delivery and performance of the Loan Documents and the borrowing of the Loan under the Loan Documents, as well as the names and signatures of the officers of Borrower authorized to execute documents on its behalf in connection herewith, all as also certified as of the date of this Agreement by Borrower's chief financial officer, and such other papers as Lender may reasonably require. (g) Lender shall have received a copy of the charter documents of each Borrower, with any amendments to any of the foregoing, certified by the Secretary of State of the state of each such entity's formation, and copies, certified as true, correct and complete by a corporate officer of Borrower, of Borrower's bylaws and all other documents necessary for performance of the obligations of Borrower under this Agreement and the other Loan Documents. (h) Lender shall have received a written opinion of counsel for Borrower, dated the date of this Agreement, substantially in the form of EXHIBIT C. (i) Lender shall have received such financial statements, reports, certifications, and other operational information required to be delivered under this Agreement, including without limitation an initial Borrowing Base Certificate calculating the Borrowing Base. (j) Lender shall have received the remainder of the Commitment Fee. (k) The Lockbox and the Concentration Account shall have been established. (l) Lender shall have received a certificate of Borrower's chief financial officer, dated the Closing Date, certifying that all of the conditions specified in this Section have been fulfilled. SECTION 5.2. CONDITIONS PRECEDENT TO ADVANCES. Notwithstanding any other provision of this Agreement, no Loan proceeds, Revolving Credit Loans, advances or other extensions of credit under the Loan shall be disbursed under this Agreement unless the following conditions have been satisfied or waived immediately prior to such disbursement: (a) The representations and warranties on the part of Borrower contained in Article IV of this Agreement shall be true and correct in all material respects at and as of the date of disbursement or advance, as though made on and as of such date (except to the extent that such representations and warranties expressly relate solely to an earlier date and except that the references in Section 4.7 to financial statements shall be deemed to be a reference to the then most recent annual and interim financial statements of PMC furnished to Lender pursuant to Section 6.1). (b) No Event of Default or event which, with the giving of notice of the lapse of time, or both, could become an Event of Default shall have occurred and be continuing or would result from the making of the disbursement or advance. (c) Except as set forth in the Business Plan, no event shall have occurred and be continuing with respect to PMC since the date of this Agreement that has had or is likely to have a Material Adverse Effect. SECTION 5.3. CLOSING. Subject to the conditions of this Article V, the Loan shall be made available on the date as is mutually agreed by the parties (the "Closing Date") at such time as may be mutually agreeable to the parties upon the execution of this Agreement (the "Closing") at such place as may be requested by Lender. SECTION 5.4. WAIVER OF RIGHTS. By completing the Closing under this Agreement, or by making advances under the Loan, Lender does not waive a breach of any representation or warranty of Borrower under this Agreement or under any other Loan Document, and all of Lender's claims and rights resulting from any breach or misrepresentation by Borrower are specifically reserved by Lender. SECTION 5.5. LENDER'S SATISFACTION. All instruments and legal documents and proceedings in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to Lender and its counsel, and Lender shall have received all documents, including records of corporate proceedings and opinions of counsel, which Lender may have requested in connection therewith. ARTICLE VI AFFIRMATIVE COVENANTS Each entity comprising Borrower covenants and agrees that for so long as Borrower may borrow under this Agreement and until payment in full of the Note and performance of all other obligations of Borrower under the Loan Documents: SECTION 6.1. FINANCIAL STATEMENTS AND COLLATERAL REPORTS. PMC will furnish to Lender (i) a collections report and accounts receivable aging schedule on a form acceptable to Lender within fifteen (15) days after the end of each calendar month, which shall include, but not be limited to, a report of credits issued, and collections received; (ii) accounts payable aging schedules within fifteen (15) days after the end of each calendar month; (iii) internally prepared monthly financial statements for PMC, certified by the chief financial officer of PMC, within forty-five (45) days of the end of each calendar month; (iv) annual audited financial statements for PMC prepared by PricewaterhouseCoopers, or another firm of independent public accountants reasonably satisfactory to Lender, within one hundred thirty-five (135) days after the end of each of PMC's fiscal years; (v) promptly upon receipt thereof, copies of any reports submitted to PMC by the independent accountants in connection with any interim audit of the books of PMC and copies of each management control letter provided to PMC by independent accountants; (vi) as soon as available, copies of all financial statements and notices provided by PMC to all of its stockholders; and (vii) such additional information, reports or statements as Lender may from time to time request. Annual financial statements shall set forth in comparative form figures for the corresponding periods in the prior fiscal year. All financial statements shall include a balance sheet and statement of earnings and shall be prepared in accordance with GAAP (except that unaudited financial statements need not include all necessary notes to financials). SECTION 6.2. PAYMENTS UNDER THIS AGREEMENT. Borrower will make all payments of principal, interest, fees, and all other payments required under this Agreement and under the Loan, as and when due. SECTION 6.3. EXISTENCE, GOOD STANDING, AND COMPLIANCE WITH LAWS. Borrower will do or cause to be done all things necessary (i) to obtain and keep in full force and effect all corporate existence, rights, licenses, privileges, and franchises of Borrower necessary to the ownership of its property or the conduct of its business, and comply in all material respects with all applicable current and future laws, ordinances, rules, regulations, orders and decrees of any Governmental Authority having or claiming jurisdiction over Borrower; and (ii) to maintain and protect the properties used in the conduct of the operations of Borrower, in a prudent manner, including without limitation the maintenance at all times of such insurance upon its insurable property and operations as required by law or by Section 6.6. SECTION 6.4. LEGALITY. The making of the Loan and each disbursement or advance under the Loan shall not be subject to any penalty or special tax, shall not be prohibited by any governmental order or regulation applicable to Borrower, and shall not violate any rule or regulation of any Governmental Authority, and all necessary consents, approvals and authorizations of any Governmental Authority to or of any such disbursement or advance that are obtainable by Borrower shall have been obtained. SECTION 6.5. TAXES AND CHARGES. Borrower will timely file all tax reports and pay and discharge all taxes, assessments and governmental charges or levies imposed upon Borrower, or its income or profits or upon its properties or any part thereof, before the same shall be in default and prior to the date on which penalties attach thereto, as well as all lawful claims for labor, material, supplies or otherwise which, if unpaid, might become a lien or charge upon the properties or any part thereof of Borrower and could reasonably be likely to have a Material Adverse Effect; PROVIDED, HOWEVER, that Borrower shall not be required to pay and discharge or cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith and by appropriate proceedings by Borrower, and Borrower shall have set aside on their books adequate reserve therefor to the extent required by GAAP; and PROVIDED FURTHER, that such deferment of payment is permissible only so long as Borrower's title to, and its right to use, the Collateral is not adversely affected thereby and Lender's lien and priority on the Collateral are not adversely affected, altered or impaired thereby. Notwithstanding the foregoing, Borrower shall timely file all payroll tax reports and timely pay all payroll taxes imposed on Borrower. SECTION 6.6. INSURANCE. Borrower will carry adequate public liability and professional liability insurance with responsible companies reasonably satisfactory to Lender in such amounts and against such risks as is customarily maintained by similar businesses and by owners of similar property in the same general area. SECTION 6.7. GENERAL INFORMATION. Borrower will furnish to Lender such information as Lender may, from time to time, reasonably request with respect to the business or financial affairs of Borrower, and, from time to time, permit any officer, employee or agent of Lender to visit and inspect any of the properties, and to inspect, audit and make extracts from the minute books, books of account and other records, including management letters prepared by Borrower's auditors, of Borrower, and make copies thereof or extracts therefrom, and to discuss its and their assets, liabilities, business prospects, results of operation, business affairs, finances, and accounts with, and be advised as to the same by, the independent accountants and the employees and officers of Borrower, all at such reasonable times and as often as Lender may reasonably require. SECTION 6.8 NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE DEVELOPMENTS. Borrower promptly will notify Lender upon the occurrence of: (i) any Event of Default; (ii) any event which, with the giving of notice or lapse of time, or both, could constitute an Event of Default; (iii) any material adverse event, not reflected or reserved against in the latest set of financial statements that were certified by Borrower's chief financial officer and furnished to Lender; (iv) any judicial, administrative or arbitration proceeding pending against Borrower, and any judicial or administrative proceeding known by Borrower to be threatened against it which, if adversely decided, could reasonably be likely to have a Material Adverse Effect; (v) any material default claimed by any other creditor for Borrowed Money of Borrower other than Lender; in each case describing the nature of such default and (in the case of notification under clauses (i) and (ii)) the action Borrower proposes to take with respect thereto. SECTION 6.9. FINANCIAL RECORDS. Borrower shall keep current and accurate books of records and accounts in which full and correct entries will be made of all of its business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP. SECTION 6.10. COLLECTION OF ACCOUNTS. Borrower shall continue to collect its Accounts in the ordinary course of business, with such changes in collection procedure as are contemplated by this Agreement (e.g., the Lockbox). SECTION 6.11. PLACES OF BUSINESS. Borrower shall give thirty (30) days' prior written notice to Lender of any change in the location of any of its places of business, of the places where its records concerning its Accounts are kept, of the places where the Collateral is kept, or of the establishment of any new, or the discontinuance of any existing, places of business. SECTION 6.12. BUSINESS CONDUCTED. Borrower shall continue in the business presently conducted by it using its best efforts to maintain its customers and goodwill. Without at least thirty (30) days' prior written notice to Lender, Borrower shall not engage, directly or indirectly, in any line of business substantially different from the business conducted by it immediately prior to the Closing Date, or engage in business or lines of business which are not reasonably related thereto. Notwithstanding the foregoing, if PhyMatrix determines to dispose of physician practices or other operating entities pursuant to the terms of the Business Plan (which shall not include the disposition of any entity engaged in the business of providing site management or clinical research services), then, so long as (i) Borrower notifies Lender of such disposition at least five (5) Business Days before the expected closing date of such disposition, and (ii) no Event of Default has occurred and is continuing under this Agreement or the Affiliated Loan Agreements, and (iii) the proceeds of such disposition will be used to pay down the Obligations attributable to the business being disposed of (as reflected on the most recent Borrowing Base), then Lender shall take all reasonable steps necessary to consent to such disposition(s) and to release its liens on any assets being disposed of in connection with such disposition(s), upon receipt of the disposition proceeds. If an Event of Default has occurred and is continuing, then the proceeds of any such disposition, even if related to Tangible Collateral, shall be used to pay down the Obligation. SECTION 6.13. LITIGATION AND OTHER PROCEEDINGS. Borrower shall give prompt notice to Lender of any litigation, arbitration or other proceeding before any Governmental Authority against or affecting Borrower if a judgment, award or decision against Borrower in such proceeding could have a Material Adverse Effect on Borrower's financial condition or operations. SECTION 6.14. SUBMISSION OF COLLATERAL DOCUMENTS. Borrower will, on demand of Lender, make available to Lender copies of documents evidencing the providing of Services giving rise to Accounts, a copy of the claim or invoice for each Account and copies of any written contract or order from which the Account arose. SECTION 6.15. EMPLOYEE BENEFIT PLANS. Borrower will (i) comply in all material respects with the funding requirements of ERISA with respect to the Plans for its employees, or will promptly satisfy any accumulated funding deficiency that arises under Section 302 of ERISA; (ii) furnish Lender, promptly after filing the same, with copies of all reports or other statements filed with the United States Department of Labor, the Pension Benefit Guaranty Corporation, or the Internal Revenue Service with respect to all Plans, or which Borrower, or any member of a Controlled Group, may receive from such Governmental Authority with respect to any such Plans, and (iii) promptly advise Lender of the occurrence of any Reportable Event or Prohibited Transaction with respect to any such Plan and the action which Borrower proposes to take with respect thereto. Borrower will make all contributions when due with respect to any multi-employer pension plan in which it participates and will promptly advise Lender: (i) upon its receipt of notice of the assertion against Borrower of a claim for withdrawal liability; (ii) upon the occurrence of any event which could trigger the assertion of a claim for withdrawal liability against Borrower; and (iii) upon the occurrence of any event which would place Borrower in a Controlled Group as a result of which any member of such Controlled Group (including Borrower) may be subject to a claim for withdrawal liability, whether liquidated or contingent. SECTION 6.16. FINANCING STATEMENTS. Borrower shall provide to Lender evidence satisfactory to Lender as to the due recording of termination statements, releases of collateral, and Forms UCC-3, and shall cause to be recorded financing statements on Form UCC-1, duly executed by Borrower and Lender, in all places necessary to release all existing security interests and other liens in the Collateral (other than as permitted hereby) and to perfect and protect Lender's first priority lien and security interest in the Collateral, as Lender may request. SECTION 6.17. CASH COLLATERAL. At all times during the term of this Agreement and the Affiliated Loan Agreements, PMC shall maintain aggregate minimum cash collateral of Two Million and No/100 Dollars ($2,000,000.00), unless a higher minimum amount is required pursuant to Section 7.7 (the "Minimum Cash Collateral"). The Minimum Cash Collateral shall be held in one or more bank accounts identified to and approved by Lender in the exercise of its reasonable discretion. Borrower agrees to provide to Lender evidence of the maintenance of the Minimum Cash Collateral at least monthly and more frequently upon Lender's reasonable request. The Minimum Cash Collateral shall be the aggregate cash collateral required by this Agreement and the Affiliated Loan Agreements taken as a whole. SECTION 6.18. LICENSURE; MEDICAID/MEDICARE COST REPORTS. Borrower will maintain all certificates of need, provider numbers and licenses necessary to conduct its business as currently conducted, and take any steps required to comply with any such new or additional requirements that may be imposed on providers of medical products and services. If required, all Medicaid/Medicare cost reports will be properly filed. SECTION 6.19. OFFICER'S CERTIFICATES. Together with the monthly financial statements delivered pursuant to clause (iii) of Section 6.1, and together with the audited annual financial statements delivered pursuant to clause (iv) of that Section, Borrower shall deliver to Lender a certificate of its chief financial officer, in form and substance reasonably satisfactory to Lender. The certificate shall state that the signer has reviewed the relevant terms of this Agreement, and has made (or caused to be made under his supervision) a review of the transactions and conditions of Borrower from the beginning of the accounting period covered by the income statements being delivered to the date of the certificate, and that such review has not disclosed the existence during such period of any condition or event which constitutes an Event of Default or which is then, or with the passage of time or giving of notice or both, could become an Event of Default, and if any such condition or event existed during such period or now exists, specifying the nature and period of existence thereof and what action Borrower has taken or proposes to take with respect thereto. ARTICLE VII NEGATIVE COVENANTS Borrower covenants and agrees that so long as Borrower may borrow under this Agreement and until payment in full of the Note and performance of all other obligations of Borrower under the Loan Documents: SECTION 7.1. BORROWING. Borrower will not: (a) create, incur, assume or suffer to exist any liability for accounts payable to trade creditors and current operating expenses (other than for borrowed money) which are aged more than one hundred eighty (180) days from the billing date or more than sixty (60) days from the due date, in each case incurred in the ordinary course of business and paid within such time period, unless the same are being contested in good faith and by appropriate and lawful proceedings, and Borrower shall have set aside such reserves, if any, with respect thereto as are required by GAAP and deemed adequate by Borrower and its independent accountants; (b) create, incur, assume or suffer to exist any liability for Borrowed Money ("Indebtedness") except (i) liabilities created by or pursuant to this Agreement; (ii) existing Indebtedness on the date of this Agreement, as set forth on SCHEDULE 7.1, including any extensions or renewals of the Indebtedness (provided that there is no increase in the amount of such Indebtedness or other significant change in the terms of such Indebtedness); (iii) Indebtedness of (A) any direct or indirect subsidiary of PMC to another subsidiary of PMC, and (B) of PMC to any such subsidiary, in each case where such subsidiary is a Borrower under this Agreement or under one of the Affiliated Loan Agreements; (iv) Indebtedness (A) that is secured by purchase money security interests not exceeding the lesser of $3,000,000.00 or two percent (2%) of PMC's tangible assets on a consolidated basis, (B) that is incurred in connection with interest rate protection agreements, (C) that is incurred as a result of the assumption of liabilities in an acquisition, and (D) that is expressly subordinated to the Obligations pursuant to written terms reasonably acceptable to Lender, but the aggregate of all such Indebtedness described in this subparagraph shall not at any time exceed $25,000,000.00; PROVIDED, HOWEVER, that so long as PMC's cash balance is and continues to be in excess of the Overall Maximum Loan Amount, the $25,000,000.00 limit may be increased as follows: for each one dollar ($1.00) of such excess, the maximum aggregate Indebtedness may increase by fifty cents ($0.50). (c) except as set forth on SCHEDULE 7.1, make prepayments over $1,000,000 on any existing or future indebtedness for Borrowed Money to any Person (other than Lender, to the extent permitted by this Agreement or any subsequent agreement between Borrower and Lender). Any permitted Indebtedness, prepayment or other exception set forth above shall be permitted to be created only so long as no Event of Default has occurred and is continuing under this Agreement at the time of such creation and shall be prohibited after the occurrence and during the continuance of any Event of Default. SECTION 7.2 JOINT VENTURES. Borrower will not invest directly or indirectly in any joint venture in which a Person other than an Affiliate of PMC is a joint venturer for any purpose without compliance with the following conditions: (i) if the amount of a single investment is less than or equal to $2,500,000, then Borrower need not notify or obtain the prior consent of Lender; (ii) if the amount of a single investment is more than $2,500,000 and Lender will receive a first priority lien on all of the assets of the joint venture, then Borrower shall notify Lender of the proposed investment within three (3) Business Days before the effective date of the investment; (iii) if the amount of a single investment is more than $2,500,000 and Lender will not receive a first priority lien on the assets of the joint venture, then Borrower shall obtain the prior written consent of Lender, which consent shall not be unreasonably withheld; and (iv) if Borrower invests more than $5,000,000 in the aggregate in joint ventures during the Term, then in all cases Borrower shall obtain Lender's prior written consent for further investments, which consent shall not be unreasonably withheld. SECTION 7.3. LIENS AND ENCUMBRANCES. Borrower will not create, incur, assume or suffer to exist any pledge, lien or other encumbrance of any kind (including the charge upon property purchased under a conditional sale or other title retention agreement) upon, or any security interest in, any of the Receivables-Related Collateral, whether now owned or hereafter acquired, except for Permitted Liens. SECTION 7.4. FUNDAMENTAL CHANGES. Except as set forth in the Business Plan, Borrower will not: (i) enter into any transaction of merger or consolidation where Borrower is not the surviving entity or the surviving entity does not expressly assume the Note and other Loan Documents; (ii) liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution); or (iii) convey, sell, lease, sublease, transfer or otherwise dispose of, in one transaction or a series of transactions, any of the Receivables-Related Collateral, whether now owned or hereafter acquired, or any other substantial portion of the assets and a business operation, without prior notice to, and the prior written consent of, Lender, which consent shall not be unreasonably withheld. Moreover, Borrower will not acquire by purchase or otherwise all or any substantial part of the business or assets of, or stock or other evidence of beneficial ownership of, any Person unless (x) Lender is granted a first priority lien on such assets, (y) no Event of Default has occurred and is continuing under this Agreement, and (z) (A) for transactions greater than $1,000,000.00, Lender is provided with prior written notice of such transaction, and (B) for transactions aggregating more than $10,000,000 during the Term, Lender is provided with prior notice of such transaction and gives its prior written consent to such transaction, which consent shall not be unreasonably withheld. Borrower further agrees that in addition to all other remedies available to Lender, Lender shall be entitled to specific enforcement of the covenants in this Section 7.4, including injunctive relief. SECTION 7.5 SALE AND LEASEBACK. Borrower will not, directly or indirectly, enter into any arrangement whereby Borrower sells or transfers all or any part of its assets and within one year thereafter rents or leases the assets so sold or transferred without prior written notice to, and the prior written consent of, Lender, which consent shall not be unreasonably withheld. SECTION 7.6. TRANSACTIONS WITH AFFILIATES. Other than as set forth in SCHEDULE 7.6, Borrower will not enter into any material transaction, including without limitation the purchase, sale, or exchange of property, or the loaning or giving of a material amount of funds to any Affiliate or subsidiary, except in the ordinary course of business and pursuant to the reasonable requirements of Borrower's business and upon terms substantially the same and no less favorable to Borrower as it would obtain in a comparable arm's length transaction with any Person not an Affiliate or subsidiary, and so long as the transaction does not impair the Collateral or Lender's interest in the Collateral. For purposes of the foregoing, Lender consents to the transactions described on SCHEDULE 7.6. SECTION 7.7. LOANS. Borrower will not make loans or advances to any Person, other than (i) trade credit extended in the ordinary course of its business, and (ii) advances for business travel and similar temporary advances in the ordinary course of business to officers, stockholders, directors, and employees, (iii) loans or advances to direct or indirect subsidiaries of PhyMatrix, or (iv) without the prior written consent of Lender, which consent shall not be unreasonably withheld, loans or advances (A) which are not otherwise specifically permitted under this Agreement, (B) which have been presented to Lender by Borrower to determine if Lender will fund the loan or advance under this Agreement or the Affiliated Loan Agreements, (C) which Lender determines within ten (10) Business Days of such presentation that it will not fund, and (D) which do not exceed an aggregate of $5,000,000 outstanding at any time. If such a loan or advance is made by Borrower to any such Person, then Borrower shall increase the amount of cash collateral required to be maintained pursuant to the provisions of Section 6.17 by one dollar ($1.00) for each one dollar ($1.00) being loaned or advanced by Borrower. SECTION 7.8. CONTINGENT LIABILITIES. Borrower will not assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any Person, except with respect to (i) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (ii) liabilities of direct or indirect subsidiaries of PhyMatrix, (iii) those items set forth on SCHEDULE 7.8, or (iv) any liability of a Person not otherwise permitted hereunder in the aggregate that when combined, without duplication, with the new Indebtedness to be permitted under Section 7.1 , does not exceed the maximum Indebtedness cap set forth in Section 7.1. SECTION 7.9. COMPLIANCE WITH ERISA. Borrower will not permit with respect to any Plan covered by Title IV of ERISA any Prohibited Transaction or any Reportable Event. SECTION 7.10. USE OF LENDER'S NAME. Borrower will not use Lender's name (or the name of any of Lender's affiliates) in connection with any of its business operations. Borrower may disclose to third parties that Borrower has a borrowing relationship with Lender. Nothing contained in this Agreement is intended to permit or authorize Borrower to make any contract on behalf of Lender. SECTION 7.11. CONTRACTS AND AGREEMENTS. Borrower will not become or be a party to any contract or agreement which would breach this Agreement, or breach in any material manner any other instrument, agreement, or document to which Borrower is a party or by which it is or may be bound. SECTION 7.12. DIVIDENDS AND DISTRIBUTION. PMC will not declare or pay any dividends or other distributions with respect to, purchase, redeem or otherwise acquire for value any of its outstanding stock now or hereafter outstanding, or return any capital of its stockholders, where such payment, purchase, redemption or acquisition would have a Material Adverse Effect, without prior notice to and the prior written consent of Lender, which consent will not be unreasonably withheld; provided, however, that so long as no Event of Default has occurred and is continuing, no such consent shall be required for (i) any stock dividend, or (ii) any repurchase of PMC's stock by PMC that does not use the proceeds of a Loan to pay the purchase price therefor. After an Event of Default has occurred and while it is continuing, Borrower shall make no such declarations, payments, purchases, redemptions or acquisitions for value. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. EVENTS OF DEFAULT. Each of the following (individually, an "Event of Default" and collectively, the "Events of Default") shall constitute an event of default under this Agreement: (a) A default in the payment of any installment of principal of, or interest upon, the Note when due and payable, whether at maturity or otherwise, or any default in the due observation or performance by Borrower of any term, covenant or agreement contained in Section 2.3 of this Agreement, which default or breach, as applicable, shall have continued unremedied for a period of five (5) days after written notice thereof from Lender to Borrower; (b) A default in the payment of any other charges, fees, or other monetary obligations owing to Lender arising out of or incurred in connection with this Agreement when such payment is due and payable, which default shall have continued unremedied for a period of five (5) days after written notice from Lender; (c) A default in the due observance or performance by Borrower of any other term, covenant or agreement contained in any of the Loan Documents, which default shall have continued unremedied for a period of thirty (30) days after written notice from Lender; (d) Any representation or warranty made by Borrower in this Agreement or in any of the other Loan Documents, any financial statement, or any statement or representation made in any other certificate, report or opinion delivered in connection herewith or therewith proves to have been incorrect or misleading in any material respect when made, which default shall have continued unremedied for a period of thirty (30) days after written notice from Lender; (e) Any material obligation of Borrower (other than its Obligations under this Agreement) for the payment of Borrowed Money is not paid when due or within any applicable grace period, or such obligation becomes or is declared to be due and payable prior to the expressed maturity thereof; (f) Borrower makes an assignment for the benefit of creditors, offers a composition or extension to creditors, or makes or sends notice of an intended bulk sale of any business or assets now or hereafter conducted by Borrower; (g) Borrower files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver of or any trustee for itself or any substantial part of its property, commences any proceeding relating to itself under any reorganization, arrangement, readjustment or debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or there is commenced against Borrower any such proceeding which remains undismissed for a period of sixty (60) days, or any Borrower by any act indicates its consent to, approval of, or acquiescence in, any such proceeding or the appointment of any receiver of or any trustee for a Borrower or any substantial part of its property, or suffers any such receivership or trusteeship to continue undischarged for a period of sixty (60) days; (h) One or more final judgments against Borrower or attachments against its property not fully and unconditionally covered by insurance or indemnity shall be rendered by a court of record and shall remain unpaid, unstayed on appeal, undischarged, unbonded and undismissed for a period of thirty (30) days where such judgment may have a Material Adverse Effect; (i) A Reportable Event which might constitute grounds for termination of any Plan covered by Title IV of ERISA or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan or for the entry of a lien or encumbrance to secure any deficiency, has occurred and is continuing thirty (30) days after its occurrence, or any such Plan is terminated, or a trustee is appointed by an appropriate United States District Court to administer any such Plan, or the Pension Benefit Guaranty Corporation institutes proceedings to terminate any such Plan or to appoint a trustee to administer any such Plan, or a lien or encumbrance is entered to secure any deficiency or claim; (j) A Change of Control has occurred; (k) The Collateral is attached, seized, levied upon or subjected to a writ or distress warrant, or comes within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within sixty (60) days thereafter or a notice of lien, levy or assessment is filed of record with respect to the Collateral by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, or if any taxes or debts owing at any time or times hereafter to any one of these becomes a lien or encumbrance upon the Collateral and the same is not released within thirty (30) days after the same becomes a lien or encumbrance; PROVIDED, that Borrower shall have the right to contest in good faith and by appropriate proceedings any such lien, levy or assessment if Borrower provides Lender with a bond or indemnity satisfactory to Lender assuring the payment of such lien, levy or assessment; (l) Lender receives substantial credible evidence that Borrower may have been involved in an activity that has a reasonable likelihood of causing the forfeiture of all or any part of the Collateral to any Governmental Authority, where Lender has notified Borrower in writing of the receipt of such evidence, and Borrower has not provided assurance, satisfactory to Lender in its reasonable discretion, that such activity will not result in such forfeiture; (m) Borrower or any Affiliate of Borrower, shall challenge or contest, in any action, suit or proceeding, the validity or enforceability of this Agreement, or any of the other Loan Documents, the legality or the enforceability of any of the Obligations or the perfection or priority of any Lien granted to Lender; (n) Borrower shall be criminally indicted or convicted under any law where the conviction has a reasonable likelihood of causing a forfeiture of any Collateral; (o) There shall occur an event that Lender has determined in its reasonable discretion has a Material Adverse Effect and such event continues unremedied for a period of thirty (30) days after written notice from Lender; or (p) Borrower ceases any material portion of its business operations as currently conducted except as set forth in the Business Plan. (q) An Event of Default shall have occurred under either of the Affiliated Loan Agreements. SECTION 8.2. ACCELERATION. Upon the occurrence of any of the foregoing Events of Default, the Note shall become and be immediately due and payable upon declaration to that effect delivered by Lender to Borrower; provided that, upon the happening of any event specified in Section 8.1(g), the Note shall be immediately due and payable without declaration or other notice to Borrower. SECTION 8.3. REMEDIES. (a) In addition to all other rights, options, and remedies granted to Lender under this Agreement or at law or in equity, upon the occurrence of an Event of Default, Lender may (i) terminate the Loan, whereupon all outstanding Obligations shall be immediately due and payable, (ii) exercise all other rights and remedies granted to it under this Agreement and all rights under the Uniform Commercial Code in effect in the applicable jurisdiction(s) and under any other applicable law, and (iii) exercise all rights and remedies under all Loan Documents now or hereafter in effect, including but not limited to the following rights and remedies: (i) The right to take possession of, send notices regarding, and collect directly the Collateral, with or without judicial process; and (ii) The right to reduce the Maximum Loan Amount or to use the Collateral and/or funds in the Concentration Account in amounts up to the Maximum Loan Amount for any reason related to the Loan; (b) Borrower agrees that a notice received by it at least thirty (30) days before the time of any intended public sale, or the time after which any private sale or other disposition of the Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. At any sale or disposition of Collateral, Lender may (to the extent permitted by applicable law) purchase all or any part of the Collateral, free from any right of redemption by Borrower, which right is hereby waived and released to the extent permitted by applicable law. Borrower covenants and agrees not to interfere with or impose any obstacle to Lender's exercise of its rights and remedies with respect to the Collateral except to the extent required by applicable law. SECTION 8.4. NATURE OF REMEDIES. Lender shall have the right to proceed against all or any portion of the Collateral to satisfy in any order, (i) the liabilities and Obligations of Borrower to Lender or (ii) upon the occurrence of an Event of Default under either of the Affiliated Loan Agreements, the liabilities and obligations of Affiliated Borrowers under the Affiliated Loan Agreements. To the extent permitted by applicable law, all rights and remedies granted Lender under this Agreement and under any agreement referred to in this Agreement, or otherwise available at law or in equity, shall be deemed concurrent and cumulative, and not alternative remedies, and Lender may proceed with any number of remedies at the same time until the Loans, and all other existing and future liabilities and obligations of Borrower to Lender, are satisfied in full. The exercise of any one right or remedy shall not be deemed a waiver or release of any other right or remedy, and Lender, upon the occurrence of an Event of Default, may proceed against Borrower, and/or the Collateral, at any time, under any agreement, with any available remedy and in any order. SECTION 8.5. LIMITATION ON REMEDIES. Notwithstanding anything to the contrary elsewhere in this Agreement, Lender shall proceed against the Tangible Collateral only upon an Event of Default identified in Section 8.1 (a), (b), (f), (g) or (o). ARTICLE IX MISCELLANEOUS SECTION 9.1. EXPENSES AND TAXES. (a) Borrower agrees to pay, whether or not the Closing occurs, a reasonable documentation preparation fee, together with actual audit fees and all other out-of-pocket charges and expenses incurred by Lender in connection with the negotiation, preparation, legal review and execution of each of the Loan Documents, including but not limited to UCC and judgment lien searches and UCC filings and fees for post-Closing UCC and judgment lien searches. In addition, Borrower shall pay all such fees associated with any amendments to the Loan Documents following Closing. (b) Borrower also agrees to pay all out-of-pocket charges and expenses incurred by Lender (including the fees and expenses of Lender's counsel) in connection with the enforcement, protection or preservation of any right or claim of Lender and the collection of any amounts due under the Loan Documents. If Lender uses in-house counsel for any of these purposes (i.e., for any task in connection with the enforcement, protection or preservation of any right or claim of Lender and the collection of any amounts due under its Loan Documents), Borrower further agrees that its Obligations under the Loan Documents include reasonable charges for such work commensurate with the fees that would otherwise be charged by outside legal counsel selected by Lender for the work performed. (c) Borrower shall pay all taxes (other than taxes based upon or measured by Lender's income or revenues or any personal property tax), if any, in connection with the issuance of the Note and the recording of the security documents therefor. The obligations of Borrower under this clause (c) shall survive the payment of Borrower's indebtedness under this Agreement and the termination of this Agreement. SECTION 9.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other Loan Documents constitute the full and entire understanding and agreement among the parties with regard to their subject matter and supersede all prior written or oral agreements, understandings, representations and warranties made with respect thereto. No amendment, supplement or modification of this Agreement nor any waiver of any provision of this Agreement shall be made except in writing executed by the party against whom enforcement is sought. SECTION 9.3. NO WAIVER; CUMULATIVE RIGHTS. No waiver by any party hereto of any one or more defaults by the other party in the performance of any of the provisions of this Agreement shall operate or be construed as a waiver of any future default or defaults, whether of a like or different nature. No failure or delay on the part of any party in exercising any right, power or remedy under this Agreement shall operate as a waiver of such right, power or remedy, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise of such right, power or remedy or the exercise of any other right, power or remedy. The remedies provided for in this Agreement are cumulative and are not exclusive of any remedies that may be available to any party hereto at law, in equity or otherwise. SECTION 9.4. NOTICES. Any notice or other communication required or permitted under this Agreement shall be in writing and personally delivered, mailed by registered or certified mail (return receipt requested and postage prepaid), sent by telecopier (with a confirming copy sent by regular mail), or sent by prepaid overnight courier service, and addressed to the relevant party at its address set forth below, or at such other address as such party may, by written notice, designate as its address for purposes of notice under this Agreement: If to Lender, at: HCFP Funding, Inc. 2 Wisconsin Circle, 4th floor Chevy Chase, Maryland 20815 Attention: Ethan D. Leder, President Telephone: (301) 961-1640 Telecopier: (301) 664-9860 If to Borrower, at: PhyMatrix Corp. 110 Cedar Street, 1st floor Wellesley, Massachusetts 02481 Attention: Mr. Fred Leathers, Chief Financial Officer Telephone: (781) 416-5100 Telecopier: (781) 416-2776 With a copy to: Nutter, McClennen & Fish, LLP One International Place Boston, Massachusetts 02110-2699 Attention: Paul R. Eklund, Esquire Telephone: (617) 439-2000 Telecopier: (617) 973-9748 If mailed, notice shall be deemed to be given five (5) Business Days after being sent, and if sent by personal delivery, telecopier, or prepaid courier, notice shall be deemed to be given when delivered. SECTION 9.5. SEVERABILITY. If any term, covenant or condition of this Agreement, 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 Agreement and the application of such term, 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, Lender may, but is not obligated to, advance funds to Borrower under this Agreement until the parties shall amend this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner. SECTION 9.6. SUCCESSORS AND ASSIGNS. This Agreement, the Note, and the other Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns. Notwithstanding the foregoing, Borrower may not assign any of its rights or delegate any of its obligations under this Agreement without the prior written consent of Lender, which may be withheld in its sole discretion. Lender may sell, assign or transfer any or all of its rights or obligations under this Agreement without notice to or consent of Borrower, so long as the purchaser, assignee or transferee is a financial institution or an entity engaged wholly or substantially in the business of making commercial loans. SECTION 9.7. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one instrument. SECTION 9.8. INTERPRETATION. No provision of this Agreement or any other Loan Document shall be interpreted or construed against any party because that party or its legal representative drafted that provision. The titles of the paragraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. Any pronoun used in this Agreement shall be deemed to include singular and plural and masculine, feminine and neuter gender as the case may be. The words "herein," "hereof," and "hereunder" shall be deemed to refer to this entire Agreement, except as the context otherwise requires. SECTION 9.9. SURVIVAL OF TERMS. All covenants, agreements, representations and warranties made in this Agreement, any other Loan Document, and in any certificates and other instruments delivered in connection therewith shall be considered to have been relied upon by Lender and shall survive the making by Lender of the Loans contemplated in this Agreement and the execution and delivery to Lender of the Note, and shall continue in full force and effect until all liabilities and obligations of Borrower to Lender are satisfied in full. SECTION 9.10. TIME. Whenever Borrower is required to make any payment or perform any act on a day that is not a Business Day, the payment may be made or the act performed on the next Business Day. Time is of the essence in Borrower's performance under this Agreement and all other Loan Documents. SECTION 9.11. COMMISSIONS. If any claim for commission, brokerage fee or charge is made on Lender by any broker, finder, or agent or other person, Borrower will indemnify, defend, and hold Lender harmless from and against the claim and will defend any action to recover on that claim, at Borrower's cost and expense, including Lender's counsel fees. Borrower further agrees that until any such claim or demand is adjudicated in Lender's favor, the amount demanded will be deemed a liability of Borrower under this Agreement, secured by the Collateral. SECTION 9.12. THIRD PARTIES. No rights are intended to be created under this Agreement or under any other Loan Document for the benefit of any third party donee, creditor, or incidental beneficiary of Borrower. Nothing contained in this Agreement shall be construed as a delegation to Lender of Borrower's duty of performance, including without limitation Borrower's duties under any account or contract in which Lender has a security interest. SECTION 9.13. DISCHARGE OF BORROWER'S OBLIGATIONS. Lender, in its sole discretion, shall have the right at any time, and from time to time, without prior notice to Borrower if Borrower fails to do so, to: (i) obtain insurance covering any of the Collateral as required under this Agreement; (ii) pay for the performance of any of Borrower's obligations under this Agreement; (iii) discharge taxes, liens, security interests, or other encumbrances at any time levied or placed on any of the Collateral in violation of this Agreement unless Borrower is in good faith with due diligence by appropriate proceedings contesting those items. Expenses and advances shall be added to the Loan, until reimbursed to Lender and shall be secured by the Collateral. Any such payments and advances by Lender shall not be construed as a waiver by Lender of an Event of Default. SECTION 9.14. INFORMATION TO PARTICIPANTS. Lender may divulge to any participant it may obtain in the Loan, or any portion of the Loan, all information, and furnish to such participant copies of reports, financial statements, certificates, and documents obtained under any provision of this Agreement or any other Loan Document, subject to Section 9.16. SECTION 9.15. CONFIDENTIALITY. Lender will take reasonable efforts to keep all financial information, and all information acquired as a result of any inspection conducted in accordance with Section 6.7 (and any other information provided to Lender under any Loan Document), confidential, provided that Lender may communicate such information (i) in accordance with Borrower's written authorization, to any Person in accordance with the customary practices of financial institutions or entities engaged wholly or substantially in the business of making commercial loans relating to routine trade inquiries, (ii) to any regulatory authority having jurisdiction over Lender to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iii) to any other Person in connection with Lender's sale of any assignments of the Obligations, provided that the recipient of such Obligations agrees in writing delivered to Borrower to hold such information confidential in accordance with the terms of this Agreement, (iv) to any other Person in connection with the exercise of Lender's rights under this Agreement or any other Loan Document, (v) to any Person to the extent required in any litigation in which Lender is a party; PROVIDED, that to the extent permitted by applicable law, rule or regulation or response to a subpoena, under or other legal process or legislative body or committee or other governmental authority. Notwithstanding the foregoing, information will not be deemed to be confidential to the extent such information (w) was already lawfully in the possession of Lender prior to the Closing Date, (x) is available in the public domain, (y) becomes available in the public domain other than as a result of unauthorized disclosure by Lender, or (z) is acquired from a Person not known by Lender to be in breach of any confidentiality agreement with respect to such information. Notwithstanding anything to the contrary, Borrower hereby consents to Lender's discussions and communications with Borrower's independent public accountants and agrees that such discussion or communication is without liability to either Lender or Borrower's independent certified public accountants. SECTION 9.16. INDEMNITY. Borrower hereby agrees to indemnify and hold harmless Lender, its partners, officers, agents and employees (collectively, "Indemnitee") from and against any liability, loss, cost, expense, claim, damage, suit, action or proceeding ever suffered or incurred by Lender (including reasonable attorneys' fees and expenses) arising from Borrower's failure to observe, perform or discharge any of its covenants, obligations, agreements or duties under this Agreement, or from the breach of any of the representations or warranties contained in Article IV. In addition, Borrower shall defend Indemnitee against and save it harmless from all claims of any Person with respect to the Collateral. Notwithstanding any contrary provision in this Agreement, the obligation of Borrower under this Section 9.17 shall survive the payment in full of the Obligations and the termination of this Agreement. SECTION 9.17. APPOINTMENT OF AGENT UNDER THIS AGREEMENT. (a) Each of the entities comprising Borrower (other than PhyMatrix) hereby irrevocably appoints and constitutes PhyMatrix as its agent to request and receive Revolving Credit Loans (and to otherwise act on behalf of each such entity pursuant to this Agreement and the other Loan Documents) from Lender in the name or on behalf of each such entity. Lender may disburse the Revolving Credit Loans to the bank account of any one or more of such entities without notice to any of the other entities comprising Borrower or any other Person at any time obligated on or in respect of the Obligations. (b) Each of the entities comprising Borrower (other than PhyMatrix) hereby irrevocably appoints and constitutes PhyMatrix as its agent to receive statements of account and all other notices from Lender with respect to the Obligations or otherwise under or in connection with this Agreement and the other Loan Documents. (c) No purported termination of the appointment of PhyMatrix as agent shall be effective without the prior written consent of Lender. SECTION 9.18. FURTHER ASSURANCES. The parties agree that the Maximum Loan Amount on this Agreement and the Affiliated Loan Agreements shall be adjusted as the business needs of PMC change, subject to the exercise of Lender's reasonable credit judgment and discretion. SECTION 9.19. CHOICE OF LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND THE NOTE 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 AGREEMENT OR THE NOTE 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, BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND. ANY PROCESS IN ANY SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS DESCRIBED IN SECTION 9.4. SECTION 9.20. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER HEREBY (A) COVENANT AND AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVE 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 EACH PARTY 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. EACH PARTY IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF EACH PARTY'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. [SIGNATURES FOLLOW] IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first written above. LENDER: HCFP FUNDING, INC. a Delaware corporation By: /s/ Jeffrey P. Hoffman ---------------------- Name: Jeffrey P. Hoffman Title: Vice President BORROWER: PHYMATRIX CORP. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer BREATHCO INCORPORATED a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer CCC - LITHOTRIPSY, INC. a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer CCC INDIANA LITHOTRIPSY, INC. a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer CCC NATIONAL LITHOTRIPSY, INC. a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer CCC REHAB, INC. a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer DASCO DEVELOPMENT CORPORATION a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer DASCO DEVELOPMENT WEST, INC. a California corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer FIRST CHOICE HEALTH CARE SERVICES, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer FIRST CHOICE HEALTH CARE SERVICES OF FORT LAUDERDALE, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer FIRST CHOICE HOME CARE SERVICES, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer FIRST PHYNET, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer FIRST PHYNET, LLC. a Delaware limited liability company By: FIRST PHYNET, INC. Member By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer INFUMATRIX, INC. (F/K/A CCC INFUSION, INC.) a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer LITHOTRIPSY AMERICA, INC. a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer NUTRICHEM, INC. a Maryland corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer ONCOLOGY THERAPIES, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer ONCOLOGY THERAPIES OF AMERICA INC. a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYMATRIX OF BROOKLYN, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYMATRIX OF CENTRAL OF GEORGIA, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYMATRIX DIAGNOSTIC IMAGING, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYMATRIX DIAGNOSTIC IMAGING NORTHEAST, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYMATRIX MANAGEMENT COMPANY, INC. a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYMATRIX OF MANATEE COUNTY, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYMATRIX MID-ATLANTIC MANAGEMENT, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYMATRIX NETWORK MANAGEMENT, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYMATRIX OF NEW JERSEY, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYMATRIX NORTHEAST, INC. (f/k/a PHYSICIANS CHOICE, INC.) a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYMATRIX PHYSICIAN MANAGEMENT, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYMATRIX PULMONARY NETWORK, INC. a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYMATRIX UROLOGY NETWORK, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYSICIANS CONSULTANT AND MANAGEMENT CORPORATION OF NORTH CAROLINA a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYSICIANS CONSULTANT AND MANAGEMENT CORPORATION a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PHYSICIANS CONSULTANT AND MANAGEMENT CORPORATION OF NEW YORK , a New York corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer PINNACLE ASSOCIATES, INC. a Georgia corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer UROLOGY CONSULTANTS OF SOUTH FLORIDA, INC. a Florida corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer ATLANTA RADIATION CARE, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer BILTMORE ADVANCED IMAGING CENTER, INC. an Arizona corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer CHARLOTTE RADIATION CARE, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer CHATTANOOGA RADIATION CARE, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer COLLEGE PARK RADIATION CARE, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer COMPUTERIZED TOMOGRAPHY CENTER, INC. a Georgia corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer FALLS CHURCH RADIATION CARE, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer NORTH ATLANTA RADIATION CARE, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer NORTH FULTON RADIATION CARE, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer ORLANDO RADIATION CARE, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer ROCKVILLE RADIATION CARE, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer VISTA RADIATION CARE, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer WALDORF RADIATION CARE, INC., a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer EX-10.10 3 EXHIBIT 10.10 Exhibit 10.10 $15,000,000.00 LOAN AND SECURITY AGREEMENT by and among PHYMATRIX CORP. PHYMATRIX DIAGNOSTIC IMAGING, INC. PHYMATRIX MANAGEMENT COMPANY, INC. ("Borrower") and HCFP FUNDING, INC. ("Lender") March 12, 1999 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of March 12, 1999 by and between PHYMATRIX CORP., a Delaware corporation ("PhyMatrix"), PHYMATRIX DIAGNOSTIC IMAGING, INC., a Delaware corporation, and PHYMATRIX MANAGEMENT COMPANY, INC., a Delaware corporation (collectively with the preceding entities, "Borrower"), and HCFP FUNDING, INC., a Delaware corporation ("Lender"). RECITALS A. Borrower desires to establish certain financing arrangements with and borrow funds from Lender, and Lender is willing to establish such arrangements for and make loans and extensions of credit to Borrower, on the terms and conditions set forth below. B. The parties desire to define the terms and conditions of their relationship and to reduce their agreements to writing. NOW, THEREFORE, in consideration of the promises and covenants contained in this Agreement, and for other consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, unless otherwise specified, all references to "Sections" shall be deemed to refer to Sections of this Agreement, and the following terms shall have the meanings set forth below: SECTION 1.1. ACCOUNT. "Account" means any right to payment for Medical Services, whether or not evidenced by an Instrument or Chattel Paper, and whether or not earned by performance. SECTION 1.2. ACCOUNT DEBTOR. "Account Debtor" means any Person obligated on any Account of Borrower, including without limitation, any Insurer and any Medicaid/Medicare Account Debtor. SECTION 1.3. AFFILIATE. "Affiliate" means, with respect to a specified Person, any Person directly or indirectly controlling, controlled by, or under common control with the specified Person including without limitation their stockholders and any Affiliates of such stockholders. A Person shall be deemed to control a corporation or other entity if the Person possesses, directly or indirectly, the power to direct or cause the direction of the management and business of the corporation or other entity, whether through the ownership of voting securities, by contract, or otherwise. SECTION 1.4. AFFILIATED BORROWERS. "Affiliated Borrowers" means, collectively, the Affiliated Services Borrowers and the Affiliated SMO Borrowers. SECTION 1.5. AFFILIATED LOAN AGREEMENTS. "Affiliated Loan Agreements" means, collectively, the Affiliated Services Loan Agreement and the Affiliated SMO Loan Agreement. SECTION 1.6. AFFILIATED LOAN DOCUMENTS. "Affiliated Loan Documents" means, collectively, the Affiliated Services Loan Documents and the Affiliated SMO Loan Documents. SECTION 1.7 AFFILIATED SERVICES BORROWERS. "Affiliated Services Borrowers" means the entities listed on SCHEDULE 1.7. SECTION 1.8. AFFILIATED SERVICES LOAN AGREEMENT. "Affiliated Services Loan Agreement" means that certain Loan and Security Agreement dated as of even date with this Agreement and made by and among Lender and PhyMatrix and the Affiliated Services Borrowers, as it may be amended, modified or supplemented from time to time. SECTION 1.9. AFFILIATED SERVICES LOAN DOCUMENTS. "Affiliated Services Loan Documents" means the Affiliated Services Loan Agreement, and each and every other document now or hereafter delivered in connection with the Affiliated Services Loan Agreement, as any of them may be amended, modified, or supplemented from time to time. SECTION 1.10. AFFILIATED SMO BORROWERS. "Affiliated SMO Borrower" means the entities listed on SCHEDULE 1.10. SECTION 1.11. AFFILIATED SMO LOAN AGREEMENT. "Affiliated SMO Loan Agreement" means that certain Loan and Security Agreement dated as of even date with this Agreement and made by and among Lender and PhyMatrix and the Affiliated SMO Borrowers, as it may be amended, modified or supplemented from time to time. SECTION 1.12. AFFILIATED SMO LOAN DOCUMENTS. "Affiliated SMO Loan Documents" means the Affiliated SMO Loan Agreement, and each and every other document now or hereafter delivered in connection with the Affiliated SMO Loan Agreement, as any of them may be amended, modified, or supplemented from time to time. SECTION 1.13. AGREEMENT. "Agreement" means this Loan and Security Agreement, as it may be amended or supplemented from time to time. SECTION 1.14. BASE RATE. "Base Rate" means a rate of interest equal to one percent (1%) above the "Prime Rate of Interest." SECTION 1.15. BORROWED MONEY. "Borrowed Money" means any obligation to repay money, any indebtedness evidenced by notes, bonds, debentures or similar obligations, any obligation under a conditional sale or other title retention agreement and the net aggregate rentals under any lease which under GAAP would be capitalized on the books of Borrower. SECTION 1.16. BORROWER. "Borrower" has the meaning set forth in the Preamble. SECTION 1.17. BORROWING BASE. "Borrowing Base" has the meaning set forth in Section 2.1(d). SECTION 1.18. BORROWING BASE CERTIFICATE. "Borrowing Base Certificate" means a certificate substantially in the form of EXHIBIT D. SECTION 1.19. BUSINESS DAY. "Business Day" means any day on which financial institutions are open for business in the State of Maryland, excluding Saturdays and Sundays. SECTION 1.20. BUSINESS PLAN. "Business Plan" means the business plan of PMC as delivered and reviewed by Lender prior to the date of this Agreement. SECTION 1.21. CHANGE OF CONTROL. "Change of Control" means that, during any period, individuals who at the beginning of the period constituted the board of directors of PhyMatrix (together with any new directors whose election by that board of directors or whose nomination for election by the stockholders of PhyMatrix was approved by two-thirds of the directors of PhyMatrix then still in office who were either directors at the beginning of the period or whose election or nomination for election was previously approved) cease for any reason to constitute a majority of the board of directors of PhyMatrix then in office. SECTION 1.22. CHATTEL PAPER. "Chattel Paper" has the meaning set forth in the Uniform Commercial Code. SECTION 1.23. CLOSING; CLOSING DATE. "Closing" and "Closing Date" have the meanings set forth in Section 5.3. SECTION 1.24. COLLATERAL. "Collateral" has the meaning set forth in Section 3.1. SECTION 1.25. COMMITMENT FEE. "Commitment Fee" has the meaning set forth in Section 2.4(a). SECTION 1.26. CONCENTRATION ACCOUNT. "Concentration Account" has the meaning set forth in Section 2.3. SECTION 1.27. CONTROLLED GROUP. "Controlled Group" means a "controlled group" within the meaning of Section 4001(b) of ERISA. SECTION 1.28. COST REPORT SETTLEMENT ACCOUNT. "Cost Report Settlement Account" means an "Account" owed to Borrower by a Medicaid/Medicare Account Debtor pursuant to any cost report, either interim, filed or audited, as the context may require. SECTION 1.29. DEFAULT RATE. "Default Rate" means a rate per annum equal to four percent (4%) above the then applicable Base Rate. SECTION 1.30. ERISA. "ERISA" has the meaning set forth in Section 4.12. SECTION 1.31. EVENT OF DEFAULT. "Event of Default" and "Events of Default" have the meanings set forth in Section 8.1. SECTION 1.32. GAAP. "GAAP" means generally accepted accounting principles applied in a consistent manner. SECTION 1.33. GENERAL INTANGIBLES. "General Intangibles" has the meaning set forth in the Uniform Commercial Code. SECTION 1.34. GOODS. "Goods" has the meaning set forth in the Uniform Commercial Code. SECTION 1.35. GOVERNMENTAL AUTHORITY. "Governmental Authority" means and includes any federal, state, District of Columbia, county, municipal, or other government and any department, commission, board, bureau, agency or instrumentality thereof, whether domestic or foreign. SECTION 1.36. GUARANTY. "Guaranty" means that certain Unconditional Guaranty of Payment and Performance made by Borrower, the Affiliated Services Borrowers and the Affiliated SMO Borrowers with respect to this Agreement and the Affiliated Loan Agreements in favor of Lender and dated as of even date with this Agreement. SECTION 1.37. HAZARDOUS MATERIAL. "Hazardous Material" means any substances defined or designated as hazardous or toxic waste, hazardous or toxic material, hazardous or toxic substance, or similar term, by any environmental statute, rule or regulation or any Governmental Authority. SECTION 1.38. HIGHEST LAWFUL RATE. "Highest Lawful Rate" has the meaning set forth in Section 2.7. SECTION 1.39. INSTRUMENTS. "Instruments" has the meaning set forth in the Uniform Commercial Code. SECTION 1.40. INSURER. "Insurer" means a Person that insures a Patient against certain of the costs incurred in the receipt by such Patient of Medical Services, or that has an agreement with Borrower to compensate Borrower for providing Medical Services to a Patient. SECTION 1.41. LENDER. "Lender" means HCFP Funding, Inc., a Delaware corporation. SECTION 1.42. LOCKBOX ACCOUNT. "Lockbox Account" means an account maintained by Borrower at the Lockbox Bank into which all collections of Accounts are paid directly. SECTION 1.43. LOAN. "Loan" has the meaning set forth in Section 2.1(a). SECTION 1.44. LOAN DOCUMENTS. "Loan Documents" means and includes this Agreement, the Note, the Lockbox Agreement, the Guaranty and each and every other document now or hereafter delivered in connection therewith, as any of them may be amended, modified, or supplemented from time to time. SECTION 1.45. LOAN MANAGEMENT FEE. "Loan Management Fee" has the meaning set forth in Section 2.4(c). SECTION 1.46. LOCKBOX. "Lockbox" has the meaning set forth in Section 2.3. SECTION 1.47. LOCKBOX AGREEMENT. "Lockbox Agreement" has the meaning set forth in Section 2.3. SECTION 1.48. LOCKBOX BANK. "Lockbox Bank" has the meaning set forth in Section 2.3. SECTION 1.49. MATERIAL ADVERSE EFFECT. "Material Adverse Effect" means (i) a material adverse change in, or a material adverse effect upon, the financial condition, operations, assets, business or properties of PMC, (ii) a material impairment of the ability of Borrower and the Affiliated Borrowers as a whole to perform any of their material obligations under the Loan Documents and the Affiliated Loan Documents, taken as a whole, or (iii) a material adverse effect upon any material portion of the Collateral under this Agreement or the Affiliated Loan Agreements, or upon the legality, validity, binding effect or enforceability of any Loan Document against any Borrower or any other Person (other than Lender) obligated on any Loan Document. SECTION 1.50. MAXIMUM LOAN AMOUNT. "Maximum Loan Amount" has the meaning set forth in Section 2.1(a). SECTION 1.51. MEDICAID/MEDICARE ACCOUNT DEBTOR. "Medicaid/ Medicare Account Debtor" means any Account Debtor which is (i) the United States of America acting under the Medicaid/Medicare program established pursuant to the Social Security Act, (ii) any state or the District of Columbia acting pursuant to a health plan adopted pursuant to Title XIX of the Social Security Act or (iii) any agent, carrier, administrator or intermediary for any of the foregoing. SECTION 1.52. MEDICAL SERVICES. "Medical Services" means Medical and health care services provided to a Patient, including, but not limited to, medical and health care services provided to a Patient and performed by Borrower which are covered by a policy of insurance issued by an Insurer, and includes physician services, nurse and therapist services, dental services, hospital services, skilled nursing facility services, comprehensive outpatient rehabilitation services, home health care services, residential and out-patient behavioral healthcare services, and medicine or health care equipment provided by Borrower to a Patient for a necessary or specifically requested valid and proper medical or health purpose. SECTION 1.53. NOTE. "Note" has the meaning set forth in Section 2.1(c). SECTION 1.54. OBLIGATIONS. "Obligations" has the meaning set forth in Section 3.1. SECTION 1.55. PATIENT. "Patient" means any Person receiving Medical Services from Borrower and all Persons legally liable to pay Borrower for such Medical Services other than Insurers. SECTION 1.56. PERMITTED LIENS. "Permitted Liens" means: (a) liens for taxes not delinquent, or which are being contested in good faith and by appropriate proceedings which suspend the collection of such liens, and in respect of which adequate reserves have been made, if required by GAAP (provided that such proceedings do not, in Lender's reasonable discretion, involve any substantial danger of the sale, loss or forfeiture of such property or assets or any interest therein); (b) deposits or pledges to secure obligations under workmen's compensation, social security or similar laws, or under unemployment insurance; (c) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business; (d) mechanic's, workmen's, materialmen's or other like liens arising in the ordinary course of business with respect to obligations which are not due, or which are being contested in good faith by appropriate proceedings which suspend the collection of such liens and in respect of which adequate reserves have been made, if required by GAAP (provided that such proceedings do not, in Lender's reasonable discretion, involve any substantial danger of the sale, loss or forfeiture of such property or assets or any interest therein); (e) liens and encumbrances in favor of Lender; and (f) liens set forth on SCHEDULE 1.51. SECTION 1.57. PERSON. "Person" means an individual, partnership, corporation, trust, joint venture, joint stock company, limited liability company, association, unincorporated organization, Governmental Authority, or any other entity. SECTION 1.58. PLAN. "Plan" has the meaning set forth in Section 4.12. SECTION 1.59. PMC. "PMC" means PhyMatrix Corp. and its direct and indirect subsidiaries, on a consolidated basis. SECTION 1.60. PREMISES. "Premises" has the meaning set forth in Section 4.14. SECTION 1.61. PRIME RATE OF INTEREST. "Prime Rate of Interest" means that rate of interest designated as such by Fleet National Bank of Connecticut, N.A., or any successor thereto, as the same may from time to time fluctuate. SECTION 1.62. PROHIBITED TRANSACTION. "Prohibited Transaction" means a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975(c)(1) of the Internal Revenue Code. SECTION 1.63. QUALIFIED ACCOUNT. "Qualified Account" means an Account of Borrower generated in the ordinary course of Borrower's business from the sale of goods or rendition of Medical Services which Lender, in its sole credit judgment, deems to be a Qualified Account. Without limiting the generality of the foregoing, no Account shall be a Qualified Account if: (a) the Account or any portion of the Account is payable by an individual beneficiary, recipient or subscriber individually and not directly to Borrower by a Medicaid/Medicare Account Debtor or commercial medical insurance carrier acceptable to Lender in its sole discretion; (b) the Account remains unpaid more than one hundred twenty (120) days past the claim or invoice date (but in no event more than one hundred thirty-five (135) days after the applicable Medical Services have been rendered); (c) the Account is subject to any defense, set-off, counterclaim, deduction, discount, credit, chargeback, freight claim, allowance, or adjustment of any kind; (d) any part of any goods the sale of which has given rise to the Account has been returned, rejected, lost, or damaged; (e) if the Account arises from the sale of goods by Borrower, the sale was not an absolute sale, or the sale was made on consignment or on approval or on a sale-or-return basis, or the sale was made subject to any other repurchase or return agreement, or the goods have not been shipped to the Account Debtor or its designee; (f) if the Account arises from the performance of services, the services have not been actually been performed or the services were undertaken in violation of any law; (g) the Account is subject to a lien other than a Permitted Lien; (h) Borrower knows or should have known of the bankruptcy, receivership, reorganization, or insolvency of the Account Debtor; (i) the Account is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; (j) the Account is an Account of an Account Debtor having its principal place of business or executive office outside the United States; (k) the Account Debtor is an Affiliate or Subsidiary of Borrower; (l) more than ten percent (10%) of the aggregate balance of all Accounts owing from the Account Debtor obligated on the Account are outstanding more than one hundred fifty (150) days past their invoice date; (m) fifty percent (50%) or more of the aggregate unpaid Accounts from any single Account Debtor are not deemed Qualified Accounts under this Agreement; (n) the total unpaid Accounts of the Account Debtor, except for a Medicaid/Medicare Account Debtor, exceed twenty percent (20%) of the net amount of all Qualified Accounts (including Medicaid/Medicare Account Debtors); (o) any covenant, representation or warranty contained in the Loan Documents with respect to such Account has been breached; or (p) the Account fails to meet such other specifications and requirements which may from time to time be established by Lender in its reasonable credit judgment in accordance with its customary lending practices and notice of which shall have been given to Borrower at lease five (5) days prior to the effective date. SECTION 1.64. RECEIVABLES-RELATED COLLATERAL. "Receivables-Related Collateral" means those items of Collateral described in Section 3.1 (a) through (d) and in Section 3.1(h) as related to or proceeding from such items of Collateral. SECTION 1.65. REPORTABLE EVENT. "Reportable Event" means a "reportable event" as defined in Section 4043(b) of ERISA. SECTION 1.66. REVOLVING CREDIT LOAN. "Revolving Credit Loan" has the meaning set forth in Section 2.1(b). SECTION 1.67. TANGIBLE COLLATERAL. "Tangible Collateral" means those items of Collateral described in Section 3.1(e) and (f) and in Section 3.1(h) as related to or proceeding from such items of Collateral. SECTION 1.68. TERM. "Term" has the meaning set forth in Section 2.8. SECTION 1.69. UNIFORM COMMERCIAL CODE. "Uniform Commercial Code" means the Uniform Commercial Code, as amended and in effect in the State of Maryland. SECTION 1.70. USAGE FEE. "Usage Fee" has the meaning set forth in Section 2.4 (b). ARTICLE II LOAN SECTION 2.1. TERMS. (a) The maximum aggregate principal amount of credit extended by Lender to Borrower under this Agreement (the "Loan") that will be outstanding at any time is Fifteen Million and No/100 Dollars ($15,000,000.00) (the "Maximum Loan Amount"). Notwithstanding the foregoing, the maximum aggregate principal amount of Revolving Credit Loans made by Lender to Borrower under this Agreement and to the Affiliated Borrowers under the Affiliated Loan Agreements shall not at any time exceed Thirty Million and No/100 Dollars ($30,000,000.00) (the "Overall Maximum Loan Amount"). (b) The Loan shall be in the nature of a revolving line of credit, and shall include sums advanced and other credit extended by Lender to or for the benefit of Borrower from time to time under this Article II (each a "Revolving Credit Loan") up to the lesser of (i) the Maximum Loan Amount and (ii) the Borrowing Base submitted in connection with such request. The outstanding principal balance of the Loan may fluctuate from time to time, will be reduced by repayments made by Borrower (which may be made without penalty or premium), and will be increased by future Revolving Credit Loans, advances and other extensions of credit to or for the benefit of Borrower, and shall be due and payable in full upon the expiration of the Term. For purposes of this Agreement, any determination as to whether there is ability within the Borrowing Base for advances or extensions of credit shall be made by Lender in the exercise of its reasonable lender's discretion and shall be final and binding upon Borrower. (c) At Closing, Borrower shall execute and deliver to Lender a promissory note evidencing Borrower's unconditional obligation to repay Lender for Revolving Credit Loans, advances, and other extensions of credit made under the Loan, in the form of EXHIBIT A to this Agreement (the "Note"), dated the date of this Agreement, payable to the order of Lender in accordance with the terms of such Note. The Note shall bear interest from the date of such Note until repaid, with interest payable monthly in arrears on the first Business Day of each month, at a rate per annum (on the basis of the actual number of days elapsed over a year of 360 days) equal to the Base Rate, provided that after an Event of Default has occurred and is continuing, such rate shall be equal to the Default Rate. Each Revolving Credit Loan, advance and other extension of credit shall be deemed evidenced by the Note, which is deemed incorporated into and made a part of this Agreement by this reference. (d) Subject to the terms and conditions of this Agreement, advances under the Loan shall be made against a borrowing base equal to eighty percent (80%) of Qualified Accounts due and owing to Borrower from any Account Debtor (the "Borrowing Base"). SECTION 2.2. LOAN ADMINISTRATION. Borrowings under the Loan shall be as follows: (a) A request for a Revolving Credit Loan shall be made, or shall be deemed to be made, in the following manner: (i) Borrower may give Lender notice of its intention to borrow, in which notice Borrower shall specify the amount of the proposed borrowing and the proposed borrowing date, not later than 2:00 p.m. Eastern time one (1) Business Day prior to the proposed borrowing date; PROVIDED, HOWEVER, that no such request may be made at a time when there exists an Event of Default; and (ii) the becoming due of any amount required to be paid under this Agreement, whether as interest or for any other Obligation, shall be deemed irrevocably to be a request for a Revolving Credit Loan on the due date in the amount required to pay such interest or other Obligation. (b) Borrower hereby irrevocably authorizes Lender to disburse the proceeds of each Revolving Credit Loan requested, or deemed to be requested, as follows: (i) the proceeds of each Revolving Credit Loan requested under subsection 2.2(a)(i) shall be disbursed by Lender by wire transfer to such bank account as may be agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to written direction from Borrower; and (ii) the proceeds of each Revolving Credit Loan requested under subsection 2.2(a)(ii) shall be disbursed by Lender by way of direct payment of the relevant interest or other Obligation. (c) All Revolving Credit Loans, advances and other extensions of credit to or for the benefit of Borrower shall constitute one general Obligation of Borrower, and shall be secured by Lender's lien upon all of the Collateral. (d) Lender shall enter all Revolving Credit Loans as debits to a loan account in the name of Borrower and shall also record in said loan account all payments made by Borrower on any Obligations and all proceeds of Collateral which are indefeasibly paid to Lender, and may record therein, in accordance with customary accounting practice, other debits and credits, including interest and all charges and expenses properly chargeable to Borrower under or in connection with this Agreement. All collections into the Concentration Account pursuant to Section 2.3 shall be applied first to fees, costs and expenses due and owing under the Loan Documents, then to interest due and owing under the Loan Documents, and then to principal outstanding with respect to Revolving Credit Loans. (e) Lender will account to Borrower monthly with a statement of Revolving Credit Loans, charges and payments made pursuant to this Agreement, and such accounting rendered by Lender shall be deemed final, binding and conclusive upon Borrower unless Lender is notified by Borrower in writing to the contrary within thirty (30) days of the date each accounting is received by Borrower. Such notice shall be deemed an objection to those items specifically objected to in such accounting. (f) So long as no Event of Default has occurred and is continuing (including, without limitation, the bottom line availability under the Borrowing Base being lower than the outstanding principal balance under this Agreement), proceeds of collections received by Lender on Accounts shall be made immediately available to Borrower as additional extensions of credit under this Agreement without any need for Borrower to request such extension of credit. Borrower's ability to receive such automatic extensions of credit is expressly conditioned on Borrower's submitting to Lender a Borrowing Base Certificate at least weekly during the Term. SECTION 2.3. COLLECTIONS, DISBURSEMENTS, BORROWING AVAILABILITY, AND LOCKBOX. Borrower shall maintain a lockbox account (the "Lockbox") with NationsBank, N.A. (South) or another financial institution mutually acceptable to Borrower and Lender (the "Lockbox Bank"), subject to the provisions of this Agreement, and shall execute with the Lockbox Bank a Lockbox Agreement substantially in the form attached as EXHIBIT B (the "Lockbox Agreement"), and such other agreements related thereto as Lender may reasonably require. Borrower shall ensure that all collections of Accounts from entities that become Account Debtors after the date of this Agreement are paid directly from such Account Debtors into the Lockbox, and that, so long as any Obligations are outstanding, all funds paid into the Lockbox are immediately transferred into a depository account maintained by Lender at Bank One Arizona, N.A. or U.S. Bank N.A., as determined by Lender in its sole discretion and communicated to Borrower (the "Concentration Account"). Lender shall apply, on a daily basis, all funds transferred into the Concentration Account pursuant to this Section 2.3 to reduce the outstanding indebtedness under the Loan (in accordance with Section 2.2(d)). Future Revolving Credit Loans, advances and other extensions of credit shall be made by Lender under the conditions set forth in this Article II. To the extent that any collections of Accounts or proceeds of other Collateral are not sent directly to the Lockbox but are received by Borrower, such collections shall be held in trust for the benefit of Lender and remitted within one (1) Business Day, in the form received, to the Lockbox Bank for transfer to the Concentration Account immediately upon receipt by Borrower. Collections from entities that are Account Debtors on or before the date of this Agreement may continue to be received directly by Borrower but shall be remitted to the Concentration Account within one (1) Business Day after such receipt. Borrower acknowledges and agrees that its compliance with the terms of this Section 2.3 is essential, and that if Lender reasonably determines that Borrower has failed to comply with any such terms, Lender shall give Borrower five (5) days written notice of such noncompliance. If the noncompliance is not cured within such five-day period, Lender shall be entitled to assess a noncompliance fee, which shall operate to increase the Base Rate by up to two percent (2%) per annum during any period of noncompliance. Lender shall be entitled to assess such fee whether or not an Event of Default is declared or otherwise occurs. Notwithstanding the foregoing, the failure by Borrower to transmit or cause to be transmitted to the Lockbox an aggregate of up to $100,000.00 in any calendar quarter shall not be deemed to be noncompliance with this Section. All funds transferred from the Concentration Account for application to Borrower's indebtedness to Lender shall be applied to reduce the Loan balance, but for purposes of calculating interest shall be subject to a five (5) Business Day clearance period. If as the result of collections of Accounts pursuant to the terms and conditions of this Section 2.3 a credit balance exists with respect to the Concentration Account, such credit balance shall not accrue interest in favor of Borrower, but shall be available to Borrower upon written request at any time or times for so long as no Event of Default exists and is continuing. Notwithstanding anything to the contrary elsewhere in this Agreement, with respect to any physician practices that are still owned by PMC on June 11, 1999, Borrower agrees to promptly notify Account Debtors to pay directly to the Lockbox all collections on Accounts generated by such practices and to execute such documents and take such other actions as may be reasonably necessary to ensure that all such collections are so paid to the Lockbox. SECTION 2.4. FEES. (a) Upon execution of this Agreement, Borrower shall unconditionally pay to Lender the balance owing on a commitment fee equal to one percent (1%) of the Maximum Loan Amount (the "Commitment Fee"), provided that the aggregate Commitment Fees paid under this Agreement and the Affiliated Loan Agreements shall not exceed one percent (1%) of the Overall Maximum Loan Amount. (b) For so long as the Loan is available to Borrower, Borrower shall pay to Lender a minimum usage fee (the "Usage Fee") equal to one-fortieth of one percent (0.025%) of the average amount by which the Maximum Loan Amount exceeds the average amount of the outstanding principal balance of the Revolving Credit Loans during the preceding month. The Usage Fee shall be payable monthly in arrears on the first Business Day of each successive calendar month. (c) For so long as the Loan is available to Borrower, Borrower unconditionally shall pay to Lender a monthly loan management fee (the "Loan Management Fee") equal to one-sixteenth of one percent (0.0625%) of the average amount of the outstanding principal balance of the Revolving Credit Loans during the preceding month. The Loan Management Fee shall be payable monthly in arrears on the first day of each successive calendar month. (d) Borrower shall pay to Lender all reasonable out-of-pocket audit fees in connection with audits of Borrower's books and records and such other matters as Lender shall deem appropriate, which shall be due and payable on the first Business Day of the month following the date of issuance by Lender of a request for payment thereof to Borrower. So long as no Event of Default has occurred and is continuing, such audits shall occur no more than four (4) times in a calendar year. (e) Borrower shall pay to Lender, on demand, any and all fees, costs or expenses which Lender pays to a bank or other similar institution arising out of or in connection with (i) the forwarding to Borrower or any other Person on behalf of Borrower, by Lender, of proceeds of Revolving Credit Loans made by Lender to Borrower pursuant to this Agreement, and (ii) the depositing for collection, by Lender, of any check or item of payment received or delivered to Lender on account of Obligations. SECTION 2.5. PAYMENTS. Principal payable on account of Revolving Credit Loans shall be payable by Borrower to Lender immediately upon the earliest of (i) subject to the provisions of Section 3.7, the receipt by Borrower of any proceeds of any of the Collateral, to the extent of such proceeds, (ii) the occurrence of an Event of Default in consequence of which the Loan and the maturity of the payment of the Obligations are accelerated under Section 8.2, or (iii) the termination of this Agreement pursuant to Section 2.8; PROVIDED, HOWEVER, that if any advance made by Lender in excess of the Borrowing Base shall exist at any time, Borrower shall, immediately upon demand, repay such overadvance. Interest accrued on the Revolving Credit Loans shall be due on the earliest of (i) the first Business Day of each month (for the immediately preceding month), computed on the last calendar day of the preceding month, (ii) the occurrence of an Event of Default in consequence of which the Loan and the maturity of the payment of the Obligations are accelerated under Section 8.2, or (iii) the termination of this Agreement pursuant to Section 2.8 under this Agreement. Except to the extent otherwise set forth in this Agreement, all payments of principal and of interest on the Loan, all other charges and any other obligations of Borrower under this Agreement, shall be made to Lender to the Concentration Account, in immediately available funds. SECTION 2.6. USE OF PROCEEDS. The proceeds of Lender's advances under the Loan shall be used to make funds available to certain physicians that provide services to Borrower on an independent contractor basis, and for other general business purposes. SECTION 2.7. INTEREST RATE LIMITATION. The parties intend to conform strictly to the applicable usury laws in effect from time to time during the term of the Loan. Accordingly, if any transaction contemplated hereby would be usurious under such laws, then notwithstanding any other provision under this Agreement: (i) the aggregate of all interest that is contracted for, charged, or received under this Agreement or under any other Loan Document shall not exceed the maximum amount of interest allowed by applicable law (the "Highest Lawful Rate"), and any excess shall be promptly credited to Borrower by Lender (or, to the extent that such consideration shall have been paid, such excess shall be promptly refunded to Borrower by Lender); (ii) neither Borrower nor any other Person now or hereafter liable under this Agreement shall be obligated to pay the amount of such interest to the extent that it is in excess of the Highest Lawful Rate; and (iii) the effective rate of interest shall be reduced to the Highest Lawful Rate. All sums paid, or agreed to be paid, to Lender for the use, forbearance, and detention of the debt of Borrower to Lender shall, to the extent permitted by applicable law, be allocated throughout the full term of the Note until payment is made in full so that the actual rate of interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. If at any time the rate of interest under the Note exceeds the Highest Lawful Rate, the rate of interest to accrue pursuant to this Agreement shall be limited, notwithstanding anything to the contrary in this Agreement, to the Highest Lawful Rate, but any subsequent reductions in the Base Rate shall not reduce the interest to accrue pursuant to this Agreement below the Highest Lawful Rate until the total amount of interest accrued equals the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect. If the total amount of interest paid or accrued pursuant to this Agreement under the foregoing provisions is less than the total amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had been in effect, then Borrower agrees to pay to Lender an amount equal to the difference between (x) the lesser of (A) the amount of interest that would have accrued if the Highest Lawful Rate had at all times been in effect, or (B) the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect, and (y) the amount of interest accrued in accordance with the other provisions of this Agreement. SECTION 2.8. TERM. (a) Subject to Lender's right to cease making Revolving Credit Loans to Borrower upon or after any Event of Default, this Agreement shall be in effect for a period of three (3) years from the Closing Date, unless terminated as provided in Section 2.8(c) or Section 8.3(a) (the "Term"), and this Agreement may be renewed for one-year periods thereafter upon the mutual written agreement of the parties. Notwithstanding the foregoing, the parties acknowledge their expectation that this Agreement will be terminated prior to the end of the Term as a result of the disposition by Borrower of physician practices and other business operations in accordance with the Business Plan. (b) Notwithstanding anything in this Agreement to the contrary, Lender may terminate this Agreement upon and during the occurrence of an Event of Default after giving five (5) Business Days' prior written notice to Borrower. (c) Upon at least sixty (60) days prior written notice to Lender (the "Termination Notice Period"), Borrower may terminate this Agreement during the Term, provided that, if the termination is due to an unaffiliated third party paying off the Obligations, then, at the effective date of such termination, Borrower shall pay to Lender (in addition to the then outstanding principal, accrued interest and other Obligations owing under the terms of this Agreement and any other Loan Documents) as liquidated damages for the loss of bargain and not as a penalty, an amount equal to (i) three percent (3%) of the Maximum Loan Amount if the effective date of such termination by Borrower is on or before the first annual anniversary of the Closing Date, (ii) two percent (2%) of the Maximum Loan Amount if the effective date of such termination by Borrower is after the first annual anniversary of the Closing Date and on or before the second annual anniversary of the Closing Date, and (iii) one percent (1%) of the Maximum Loan Amount if the effective date of such termination is after the second annual anniversary of the Closing Date and before the date that is thirty (30) days before the end of the Term. (d) All of the Obligations shall be immediately due and payable at the end of the Term (the "Termination Date"); provided, however, that notwithstanding anything in Section 2.8(c) to the contrary, the Termination Date shall be effective no earlier than the first Business Day of the month following the expiration of the Termination Notice Period. All undertakings, agreements, covenants, warranties, and representations of Borrower contained in the Loan Documents shall survive any such termination, and Lender shall retain its liens in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding any such termination until Borrower has paid the Obligations to Lender, in full, in immediately available funds. Notwithstanding the foregoing, Lender acknowledges that certain items of Tangible Collateral may be released from Lender's liens from time to time in accordance with the provisions of Section 3.7. (e) Notwithstanding any provision of this Agreement which makes reference to the continuance of an Event of Default, nothing in this Agreement shall be construed to permit Borrower to cure an Event of Default following the lapse of the applicable cure period, and Borrower shall have no such right in any instance unless specifically granted in writing by Lender. SECTION 2.9. JOINT AND SEVERAL LIABILITY; BINDING OBLIGATIONS. Each entity comprising Borrower and executing this Agreement on behalf of Borrower shall be jointly and severally liable for all of the Obligations. In addition, each entity comprising Borrower hereby acknowledges and agrees that all of the representations, warranties, covenants, obligations, conditions, agreements and other terms contained in this Agreement shall be applicable to and shall be binding upon each individual entity comprising Borrower, and shall be binding upon all such entities when taken together. ARTICLE III COLLATERAL SECTION 3.1. GENERALLY. As security for the payment of all liabilities of Borrower to Lender pursuant to the Loan Documents, including without limitation: (i) indebtedness evidenced under the Note, repayment of Revolving Credit Loans, advances and other extensions of credit, all fees and charges owing by Borrower, and all other liabilities and obligations of every kind or nature whatsoever of Borrower to Lender pursuant to the Loan Documents, whether now existing or hereafter incurred, joint or several, matured or unmatured, direct or indirect, primary or secondary, related or unrelated, due or to become due, including but not limited to any extensions, modifications, substitutions, increases and renewals thereof, all as may be due under or related to this Agreement and the other Loan Documents, (ii) the payment of all amounts advanced by Lender to preserve, protect, defend, and enforce its rights under this Agreement and in the following property in accordance with the terms of this Agreement, and (iii) the payment of all expenses incurred by Lender in connection therewith (collectively, the "Obligations"), and as further security for the payment and performance of the obligations of Affiliated Borrowers under the Affiliated Loan Agreements, Borrower hereby assigns and grants to Lender a continuing first priority lien on and security interest in, upon, and to the following property (the "Collateral"): (a) All of Borrower's now-owned and hereafter acquired or arising Accounts and all accounts receivable and rights to payment of every kind and description relating to Medical Services, and all of Borrower's contract rights, Chattel Paper, Documents and Instruments with respect thereto, and all of Borrower's rights, remedies, security and liens, in, to and in respect of the Accounts, including, without limitation, all rights and remedies of an unpaid lienor or secured party, guaranties or other contracts of suretyship with respect to the Accounts, deposits or other security for the obligation of any Account Debtor, and credit and other insurance; (b) All moneys, securities and other property and the proceeds thereof, now or hereafter held or received by, in transit to, in possession of, or under the control of Lender or a bailee or Affiliate of Lender, from or for Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all of Borrower's deposits (general or special), balances, sums and credits with Lender at any time existing; (c) All of Borrower's now or hereafter acquired deposit accounts into which proceeds of Accounts are deposited, to the extent of such proceeds, including the Lockbox; (d) All of Borrower's now owned and hereafter acquired or arising General Intangibles and other property of every kind and description with respect to, evidencing or relating to its Accounts, including, but not limited to, all existing and future customer lists, choses in action, claims, books, records, ledger cards, contracts, licenses, formulae, tax and other types of refunds, returned and unearned insurance premiums, rights and claims under insurance policies, and computer programs, information, software, records, and data, but solely as each of the same relate to the Accounts; (e) All of Borrower's other general intangibles (including, without limitation, any proceeds from insurance policies after payment of prior interests), patents, unpatented inventions, trade secrets, copyrights, contract rights, goodwill, literary rights, rights to performance, rights under licenses, choses-in-action, claims, information contained in computer media (such as data bases, source and object codes, and information therein), things in action, trademarks and trademarks applied for (together with the goodwill associated therewith) and derivatives thereof, trade names, including the right to make, use, and vend goods utilizing any of the foregoing, and permits, licenses, certifications, authorizations and approvals, and the rights of Borrower thereunder, issued by any governmental, regulatory, or private authority, agency, or entity whether now owned or hereafter acquired, together with all cash and non-cash proceeds and products thereof; (f) All of Borrower's now owned or hereafter acquired inventory of every description which is held by Borrower for sale or lease or is furnished by Borrower under any contract of service or is held by Borrower as raw materials, work in process or materials used or consumed in a business, wherever located, and as the same may now and hereafter from time to time be constituted, together with all cash and non-cash proceeds and products thereof; (g) All of Borrower's now owned or hereafter acquired machinery, equipment, computer equipment, tools, tooling, furniture, fixtures, goods, supplies, materials, work in process, whether now owned or hereafter acquired, together with all additions, parts, fittings, accessories, special tools, attachments, and accessions now and hereafter affixed thereto and/or used in connection therewith, all replacements thereof and substitutions therefor, and all cash and non-cash proceeds and products thereof; and (h) The proceeds (including, without limitation, insurance proceeds) of all of the foregoing. The Collateral as described above includes both the "Receivables-Related Collateral" and the "Tangible Collateral." SECTION 3.2. LIEN DOCUMENTS. At Closing and thereafter as Lender deems necessary in its sole discretion, Borrower shall execute and deliver to Lender, or have executed and delivered (all in form and substance satisfactory to Lender in its reasonable discretion): (a) UCC-1 Financing Statements pursuant to the Uniform Commercial Code in effect in the jurisdiction(s) in which Borrower operates, which Lender may file in any jurisdiction where any Collateral is or may be located and in any other jurisdiction that Lender deems appropriate; PROVIDED that a carbon, photographic, or other reproduction or other copy of this Agreement is sufficient as and may be filed in lieu of a financing statement; and (b) Any other agreements, documents, instruments, and writings deemed necessary by Lender or as Lender may otherwise reasonably request from time to time to evidence, perfect, or protect Lender's lien and security interest in the Collateral required under this Agreement. SECTION 3.3. COLLATERAL ADMINISTRATION. (a) All Collateral (except deposit accounts) will at all times be kept by Borrower at its principal office(s) or at such other locations as identified to Lender, all as set forth on SCHEDULE 4.15 and shall not, without at least thirty (30) days notice to Lender, be moved therefrom. (b) Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit to Lender on such periodic basis as Lender shall reasonably request a collections report for the preceding period, in form reasonably satisfactory to Lender. In addition, if Accounts in an aggregate face amount in excess of $50,000.00 become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Qualified Accounts, Borrower shall notify Lender of such occurrence on the first Business Day following the date on which Borrower first becomes aware of such occurrence, and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. After the occurrence and during the continuance of an Event of Default, if requested by Lender, Borrower shall execute and deliver to Lender formal written assignments of all of its Accounts weekly or daily, which shall include all Accounts that have been created since the date of the last assignment, together with copies of claims, invoices or other information related thereto. (c) After an Event of Default has occurred, and while it is continuing, any of Lender's officers, employees or agents shall have the right, at any time or times thereafter, in the name of Lender, any designee of Lender or Borrower, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with Lender in an effort to facilitate and promptly conclude such verification process. (d) To expedite collection, Borrower shall endeavor in the first instance to make collection of its Accounts for Lender. Lender retains the right at all times after the occurrence of an Event of Default, subject to applicable laws regarding Medicaid/Medicare Account Debtors, to notify Account Debtors that Accounts have been assigned to Lender and to collect Accounts directly in its own name and to charge reasonable collection costs and expenses, including reasonable attorneys' fees (including both outside and in-house counsel), to Borrower. SECTION 3.4. OTHER ACTIONS. In addition to the foregoing, Borrower (i) shall provide prompt written notice to each entity that becomes an Account Debtor at any time following the date of this Agreement that payments on Accounts shall thereafter be made directly to the Lockbox, (ii) after an Event of Default has occurred and is continuing, hereby authorizes Lender to provide written notice to each entity that is then an Account Debtor or thereafter becomes an Account Debtor that Lender has been granted a first priority lien and security interest in, upon and to all Accounts applicable to such Account Debtor, and (iii) shall do anything further that may be lawfully required by Lender to secure Lender and effectuate the intentions and objects of this Agreement, including but not limited to the execution and delivery of lockbox agreements, continuation statements, amendments to financing statements, terminations of financing statements, and any other documents required under this Agreement. At Lender's request, Borrower shall also immediately deliver to Lender all items for which Lender must receive possession to obtain a perfected security interest. Borrower shall, on Lender's demand, deliver to Lender all notes, certificates, and documents of title, Chattel Paper, warehouse receipts, Instruments, and any other similar instruments constituting Collateral. SECTION 3.5. SEARCHES. Before Closing, and thereafter (as and when determined by Lender in its reasonable discretion), Lender shall perform the searches set forth in clauses (a) and (b) below against Borrower (the results of which are to be consistent with Borrower's representations and warranties under this Agreement), all at Borrower's expense: (a) Uniform Commercial Code searches with the Secretary of State and local filing offices of each jurisdiction where Borrower maintains its executive offices, a place of business, or assets; and (b) Judgment, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction searched under clause (a) above. So long as no Event of Default has occurred and is continuing, Lender agrees to perform such searches no more frequently than quarterly. Borrower shall obtain and deliver to Lender prior to Closing Good Standing certificates showing Borrower to be in good standing in its state of formation and in each other state in which it is doing and currently intends to do business for which qualification is required. SECTION 3.6. POWER OF ATTORNEY. After an Event of Default and while it is continuing, Borrower hereby makes, constitutes and appoints each of the officers of Lender as the true and lawful attorney for Borrower (without requiring any of them to act as such) with full power of substitution to do the following: (i) endorse the name of Borrower upon any and all checks, drafts, money orders, and other instruments for the payment of money that are payable to Borrower and constitute collections on Borrower's Accounts; (ii) execute in the name of Borrower any financing statements, schedules, assignments, instruments, documents, and statements that Borrower is obligated to give Lender under this Agreement; and (iii) after the occurrence of an Event of Default, do such other and further acts and deeds in the name of Borrower that Lender may deem necessary or reasonable to enforce any Account or other Collateral or perfect Lender's security interest or lien in any Collateral. SECTION 3.7. RELEASE OF SECURITY INTEREST AND LIENS. Lender shall release its security interest and other liens in, on and to the Collateral when all the Obligations have been paid in full, and Lender will reassign and redeliver (or cause to be reassigned and redelivered) to Borrower, or to such Person as Borrower designates, against receipt, such of the Collateral (if any) assigned by Borrower to Lender (or otherwise held by Lender) as has not been sold or otherwise applied by Lender under the terms of this Agreement and the other Loan Documents and is still held by it under this Agreement of the other Loan Documents, together with appropriate instruments of reassignment and release. Notwithstanding the foregoing, upon the disposition for value by Borrower of Tangible Collateral, Lender agrees, so long as no Event of Default has occurred and is continuing, that it will release its lien(s) on such Collateral and execute any necessary or desirable instruments in connection therewith. ARTICLE IV REPRESENTATIONS AND WARRANTIES Each entity comprising Borrower represents and warrants to Lender that: SECTION 4.1. SUBSIDIARIES. Except as set forth in SCHEDULE 4.1, on the Closing Date, Borrower has no subsidiaries. SECTION 4.2. ORGANIZATION AND GOOD STANDING. Each entity comprising Borrower is a corporation or limited liability company duly organized, validly existing, and in good standing under the laws of its state of formation, is in good standing as a foreign corporation or limited liability company in each jurisdiction in which the character of the properties owned or leased by it in such jurisdiction or the nature of its business makes such qualification necessary (other than those jurisdictions where the failure to qualify could not reasonably be likely to have a Material Adverse Effect), has the corporate or limited liability company power and authority to own its assets and transact the business in which it is engaged, and has obtained all certificates, licenses and qualifications required under all laws, regulations, ordinances, or orders of public authorities necessary for the ownership and operation of all of its properties and transaction of all of its business, other than those where the failure to so obtain could not reasonably be likely to have a Material Adverse Effect. SECTION 4.3. AUTHORITY. Borrower has full corporate or limited liability company power and authority to enter into, execute, and deliver this Agreement and to perform its obligations under this Agreement, to borrow the Loan, to execute and deliver the Note, and to incur and perform the obligations provided for in the Loan Documents, all of which have been duly authorized by all necessary corporate or limited liability company action. No consent or approval of shareholders or members of, or lenders to, Borrower and no consent, approval, filing or registration with any Governmental Authority is required as a condition to the validity of the Loan Documents or the performance by Borrower of its obligations under the Loan Documents other than those previously obtained. SECTION 4.4. BINDING AGREEMENT. This Agreement and all other Loan Documents constitute, and the Note, when issued and delivered pursuant hereto for value received, will constitute, the valid and legally binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms other than (i) applicable bankruptcy, insolvency, reorganization, voidable preference, moratorium or similar laws, and related judicial doctrines, affecting creditors' rights and remedies generally, as in effect from time to time, and (ii) general principles of equity, whether such principles are considered in a proceeding at law or in equity. SECTION 4.5. LITIGATION. Except as disclosed in SCHEDULE 4.5, there are no actions, suits, proceedings or investigations pending or, to Borrower's knowledge, threatened against Borrower before any court or arbitrator or before or by any Governmental Authority which, in any one case or in the aggregate, if determined adversely to the interests of Borrower, could have a Material Adverse Effect. Borrower is not in default with respect to any order of any court, arbitrator, or Governmental Authority applicable to Borrower or its properties. SECTION 4.6. NO CONFLICTS. The execution and delivery by Borrower of this Agreement and the other Loan Documents do not, and the performance of its obligations under the Loan Documents will not, violate, conflict with, constitute a default under, or result in the creation of a lien or encumbrance upon the property of Borrower under: (i) any provision of Borrower's charter documents; (ii) any provision of any law, rule, or regulation applicable to Borrower other than those provisions the violation of which could not reasonably be likely to have a Material Adverse Effect, or (iii) any of the following: (A) any indenture or other material agreement or instrument to which Borrower is a party or by which Borrower or its property is bound; or (B) any judgment, order or decree of any court, arbitration tribunal, or Governmental Authority having jurisdiction over Borrower which is applicable to Borrower. SECTION 4.7. FINANCIAL CONDITION. The annual consolidated financial statements of PMC as of January 31, 1998 audited by PricewaterhouseCoopers and the unaudited financial statements of PMC as of October 31, 1998, certified by the chief financial officer of PMC, which have been delivered to Lender, fairly present the financial condition of PMC and the results of its operations and changes in financial condition as of the dates and for the periods referred to, and have been prepared in accordance with GAAP. There are no material unrealized or anticipated liabilities, direct or indirect, fixed or contingent, of PMC as of the dates of such financial statements which are not reflected in such financial statements or in the notes to such financial statements. Except as previously disclosed by Borrower to Lender, there has been no event that could reasonably be likely to have a Material Adverse Effect since October 31, 1998. The federal tax identification number of each entity comprising Borrower is as described on SCHEDULE 4.7. SECTION 4.8. NO DEFAULT. Borrower is not in default under or with respect to any material obligation in any respect which could reasonably be likely to have a Material Adverse Effect. No Event of Default has occurred and is continuing under this Agreement. SECTION 4.9. TITLE TO PROPERTIES. Borrower has good and marketable title to the Collateral, subject to no lien, pledge, encumbrance or charge of any kind, other than Permitted Liens. Borrower has not agreed or consented to cause any of the Collateral, whether owned now or hereafter acquired or created, to be subject in the future (upon the happening of a contingency or otherwise) to any lien, pledge, encumbrance or charge of any kind other than Permitted Liens. SECTION 4.10. TAXES. Borrower has filed, or has obtained extensions for the filing of, all federal, state and other tax returns which are required to be filed, and has paid all taxes shown as due on those returns and all assessments, fees and other amounts due as of the date of this Agreement. All material tax liabilities of Borrower were, as of October 31, 1998 adequately provided for on Borrower's books. No material tax liability has been asserted by the Internal Revenue Service or other taxing authority against Borrower for taxes in excess of those already paid. Notwithstanding the foregoing, Borrower shall not be, and shall not have been required to pay any tax (other than payroll taxes) so long as the validity or amount of the tax shall be contested in good faith and by appropriate proceedings, demonstrated to the reasonable satisfaction of Lender, by Borrower, and Borrower shall have set aside on its books adequate reserve therefor to the extent required by GAAP; PROVIDED, HOWEVER, that such deferment of payment is permissible only so long as Borrower's title to, and its right to use, the Collateral is not adversely affected thereby and Lender's lien and priority on the Collateral are not adversely affected, altered or impaired thereby. SECTION 4.11. SECURITIES AND BANKING LAWS AND REGULATIONS. (a) The use of the proceeds of the Loan and Borrower's issuance of the Note will not directly or indirectly violate or result in a violation of the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including without limitation Regulations U, T, or X of the Board of Governors of the Federal Reserve System. Borrower is not engaged in the business of extending credit for the purpose of the purchasing or carrying "margin stock" within the meaning of those regulations. No part of the proceeds of the Loan under this Agreement will be used to purchase or carry any margin stock or to extend credit to others for such purpose. (b) Borrower is not an investment company within the meaning of the Investment Company Act of 1940, as amended, nor is it, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company within the meaning of that Act. SECTION 4.12. ERISA. No employee benefit plan (a "Plan") subject to the Employee Retirement Income Security Act of 1974 ("ERISA") and regulations issued pursuant thereto that is maintained by Borrower or under which Borrower could have any material liability under ERISA (a) has failed to meet minimum funding standards established in Section 302 of ERISA, (b) has failed to comply with all applicable requirements of ERISA and of the Internal Revenue Code, including all applicable rulings and regulations thereunder, (c) has engaged in or been involved in a prohibited transaction (as defined in ERISA) under ERISA or under the Internal Revenue Code, or (d) has been terminated. Borrower has not assumed, or received notice of a claim asserted against Borrower for, withdrawal liability (as defined in the Multi-Employer Pension Plan Amendments Act of 1980, as amended) with respect to any multi-employer pension plan and is not a member of any Controlled Group (as defined in ERISA). Borrower has timely made when due all contributions with respect to any multi-employer pension plan in which it participates and no event has occurred triggering a claim against Borrower for withdrawal liability with respect to any multi-employer pension plan in which Borrower participates. SECTION 4.13. COMPLIANCE WITH LAW. Except as described in SCHEDULE 4.13, Borrower is not in material violation of any statute, rule or regulation of any Governmental Authority (including, without limitation, any statute, rule or regulation relating to employment practices or to environmental, occupational and health standards and controls) where the failure to comply would have a Material Adverse Effect. Borrower has obtained all licenses, permits, franchises, and other governmental authorizations necessary for the ownership of its properties and the conduct of its business where the failure to so obtain such licenses, permits, franchises, and other governmental authorizations would have a Material Adverse Effect. Borrower is current with all reports and documents required to be filed with any state or federal securities commission or similar Governmental Authority and is in full compliance with all applicable rules and regulations of such commissions to the extent noncompliance therewith could reasonably be likely to have a Material Adverse Effect. SECTION 4.14. ENVIRONMENTAL MATTERS. No use, exposure, release, generation, manufacture, storage, treatment, transportation or disposal of Hazardous Material has occurred or is occurring on or from any real property on which the Collateral is located or which is owned, leased or otherwise occupied by Borrower (the "Premises"), or off the Premises as a result of any action of Borrower other than in material compliance with all laws and except as described in SCHEDULE 4.14. All Hazardous Material used, treated, stored, transported to or from, generated or handled on the Premises, or off the Premises by Borrower, has been disposed of on or off the Premises by or on behalf of Borrower in material compliance with all laws. There are no underground storage tanks present on or under the Premises owned or leased by Borrower. To the best of Borrower's knowledge, no other environmental, public health or safety hazards exist with respect to the Premises. SECTION 4.15. PLACES OF BUSINESS. The only places of business of Borrower, and the places where it keeps and intends to keep the Collateral and records concerning the Collateral, are at the addresses set forth in SCHEDULE 4.15. SECTION 4.16. STOCK OWNERSHIP. The identity of each stockholder of record of each entity comprising Borrower (other than PhyMatrix) at the Closing Date, together with the respective ownership percentages held by each such stockholder as of such date, are as set forth on SCHEDULE 4.16. The identity of each current executive officer or director of PhyMatrix known to own five percent (5%) or more of any outstanding class of stock of PhyMatrix, together with the respective ownership percentages held by each such person as of such date, are as set forth on SCHEDULE 4.16. SECTION 4.17. BUSINESS INTERRUPTIONS. Within five years before the date of this Agreement, neither the business, property or assets, or operations of Borrower has been adversely affected in any way by any casualty, strike, lockout, combination of workers, or order of the United States of America or other Governmental Authority, directed against Borrower. There are no pending or, to Borrower's knowledge, threatened labor disputes, strikes, lockouts, or similar occurrences or grievances against Borrower or its business the effect of which could reasonably be likely to have a Material Adverse Effect. SECTION 4.18. NAMES. Within five years before the date of this Agreement, Borrower has not conducted business under or used any other name (whether corporate, partnership or assumed) other than as shown on SCHEDULE 4.18. Borrower is the sole owner of all names listed on that Schedule and any and all business done and invoices issued in such names are Borrower's sales, business, and invoices. Each trade name of Borrower represents a division or trading style of Borrower and not a separate Person or independent Affiliate. SECTION 4.19 ACCOUNTS. Lender may rely, in determining which Accounts are Qualified Accounts, on all statements and representations made by Borrower with respect to any Account or Accounts. Unless otherwise indicated in writing to Lender, with respect to each Account: (a) It is genuine and in all respects what it purports to be, and is not evidenced by a judgment; (b) It arises out of a completed, BONA FIDE rendition of Medical Services by Borrower in the ordinary course of its business and in accordance with the terms and conditions of all purchase orders, contracts, certification, participation, certificate of need, or other documents relating thereto and forming a part of the contract between Borrower and the Account Debtor; (c) It is for a liquidated amount maturing as stated in a duplicate claim or invoice covering such sale or rendition of Medical Services, a copy of which has been furnished or is available to Lender; (d) Such Account, and Lender's security interest in such Account is not, and will not (by voluntary act or omission by Borrower), be in the future, subject to any offset, lien, deduction, defense, dispute, counterclaim or any other adverse condition, and each such Account is absolutely owing to Borrower and is not contingent in any respect or for any reason; (e) There are no facts, events or occurrences which in any way impair the validity or enforceability of any Accounts or tend to reduce the amount payable under the Accounts from the face amount of the claim or invoice and statements delivered to Lender with respect thereto; (f) To the Borrower's knowledge, (i) the Account Debtor under the Account had the capacity to contract at the time any contract or other document giving rise to the Account was executed and (ii) such Account Debtor is solvent; (g) To the Borrower's knowledge, there are no proceedings or actions which are threatened or pending against any Account Debtor under an Account which might result in any material adverse change in such Account Debtor's financial condition or the collectibility of such Account; (h) It has been billed and forwarded to the Account Debtor for payment in accordance with applicable laws and compliance and conformance with any and requisite procedures, requirements and regulations governing payment by such Account Debtor with respect to such Account, and such Account if due from a Medicaid/Medicare Account Debtor is properly payable directly to Borrower; and (i) Borrower has obtained and currently has all certificates of need, Medicaid and Medicare provider numbers, licenses, permits and authorizations that are necessary in the generation of such Accounts. SECTION 4.20. SOLVENCY. Both before and after giving effect to the transactions contemplated by the terms and provisions of this Agreement, (i) PMC owns property whose fair saleable value is greater than the amount required to pay all of PMC's Indebtedness (including contingent debts), (ii) PMC was and is able to pay all of its Indebtedness as such Indebtedness matures, and (iii) PMC had and has capital sufficient to carry on its business and transactions and all business and transactions in which it about to engage. For purposes of this Section 4.20, the term "Indebtedness" means, without duplication (x) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such PMC as of the date on which Indebtedness is to be determined, (y) all obligations of any other person or entity which such PMC has guaranteed, and (z) the Obligations. SECTION 4.21. COMMISSIONS. The transaction contemplated by this Agreement was brought about by Lender and Borrower acting as principals and without any brokers, agents, or finders being the effective procuring cause. Borrower represents that it has not committed Lender to the payment of any brokerage fee, commission, or charge in connection with this transaction. SECTION 4.22. INTELLECTUAL PROPERTY. Borrower exclusively owns or possesses all the patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, franchises, licenses, and rights with respect to the foregoing necessary for the current and planned future conduct of its business, without any conflict with the rights of others. A list of all such intellectual property (indicating the nature of Borrower's interest), as well as all outstanding franchises and licenses given by or held by Borrower, is attached as SCHEDULE 4.22. Borrower is not in default of any obligation or undertaking with respect to such intellectual property or rights. SECTION 4.23. MATERIAL FACTS. Neither this Agreement nor any other Loan Document nor any other agreement, document, certificate, or statement furnished to Lender by or on behalf of Borrower in connection with the transactions contemplated hereby contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained in this Agreement or other Loan Document not misleading. There is no fact known to Borrower that adversely affects or in the future may adversely affect the business, operations, affairs or financial condition of Borrower, or any of its properties or assets. SECTION 4.24. INVESTMENTS, GUARANTEES, AND CERTAIN CONTRACTS. Borrower does not own or hold any equity or long-term debt investments in, have any outstanding advances to, have any outstanding guarantees for the obligations of, or have any outstanding borrowings from, any Person, except as described on SCHEDULE 4.24. Borrower is not a party to any contract or agreement, or subject to any corporate restriction, which adversely affects its business. SECTION 4.25 JOINT VENTURES. Borrower is not engaged in any joint venture or partnership with any other Person, except as set forth on SCHEDULE 4.25. SECTION 4.26. YEAR 2000 COMPLIANCE. (a) All devices, systems, machinery, information technology, computer software and hardware, and other date sensitive technology (jointly and severally, the "Systems") necessary for Borrower to carry on its business as currently conducted and as contemplated to be conducted in the future are Year 2000 Compliant or will be Year 2000 Compliant within a period of time calculated to result in no material disruption of any of Borrower's business operations. For purposes of these provisions, "Year 2000 Compliant" means that such Systems are designed to be used before, during and after the Gregorian calendar year 2000 A.D. and will operate during each such time period without error related to date data, specifically including any error relating to, or the product of, date data that represents or refers to different centuries or more than one century. (b) Borrower has: (i) undertaken a detailed inventory, review, and assessment of all areas within its business and operations that could be adversely affected by the failure of Borrower to be Year 2000 Compliant on a timely basis; (ii) developed a detailed plan and time line for becoming Year 2000 Compliant on a timely basis; and (iii) to date, implemented that plan in accordance with the timetable in all material respects. ARTICLE V CLOSING AND CONDITIONS OF LENDING SECTION 5.1. CONDITIONS PRECEDENT TO AGREEMENT. The obligation of Lender to enter into and perform this Agreement and to make Revolving Credit Loans is subject to the following conditions precedent: (a) Lender shall have received two (2) originals of this Agreement and all other Loan Documents required to be executed and delivered at or before Closing (other than the Note, as to which Lender shall receive only one original), executed by Borrower and any other required Persons, as applicable. (b) Lender shall have received all searches and good standing certificates required by Section 3.5. (c) Borrower shall then be in compliance with all the terms, covenants and conditions of the Loan Documents. (d) There shall exist no Event of Default and no event which, with the giving of notice or the lapse of time, or both, could constitute such an Event of Default. (e) The representations and warranties contained in Article IV shall be true and correct in all material respects. (f) Lender shall have received copies of all board of directors resolutions of Borrower, and other corporate action taken by Borrower to authorize the execution, delivery and performance of the Loan Documents and the borrowing of the Loan under the Loan Documents, as well as the names and signatures of the officers of Borrower authorized to execute documents on its behalf in connection herewith, all as also certified as of the date of this Agreement by Borrower's chief financial officer, and such other papers as Lender may reasonably require. (g) Lender shall have received a copy of the charter documents of each Borrower, with any amendments to any of the foregoing, certified by the Secretary of State of the state of each such entity's formation, and copies, certified as true, correct and complete by a corporate officer of Borrower, of Borrower's bylaws and all other documents necessary for performance of the obligations of Borrower under this Agreement and the other Loan Documents. (h) Lender shall have received a written opinion of counsel for Borrower, dated the date of this Agreement, substantially in the form of EXHIBIT C. (i) Lender shall have received such financial statements, reports, certifications, and other operational information required to be delivered under this Agreement, including without limitation an initial Borrowing Base Certificate calculating the Borrowing Base. (j) Lender shall have received the remainder of the Commitment Fee. (k) The Lockbox and the Concentration Account shall have been established. (l) Lender shall have received a certificate of Borrower's chief financial officer, dated the Closing Date, certifying that all of the conditions specified in this Section have been fulfilled. SECTION 5.2. CONDITIONS PRECEDENT TO ADVANCES. Notwithstanding any other provision of this Agreement, no Loan proceeds, Revolving Credit Loans, advances or other extensions of credit under the Loan shall be disbursed under this Agreement unless the following conditions have been satisfied or waived immediately prior to such disbursement: (a) The representations and warranties on the part of Borrower contained in Article IV of this Agreement shall be true and correct in all material respects at and as of the date of disbursement or advance, as though made on and as of such date (except to the extent that such representations and warranties expressly relate solely to an earlier date and except that the references in Section 4.7 to financial statements shall be deemed to be a reference to the then most recent annual and interim financial statements of PMC furnished to Lender pursuant to Section 6.1). (b) No Event of Default or event which, with the giving of notice of the lapse of time, or both, could become an Event of Default shall have occurred and be continuing or would result from the making of the disbursement or advance. (c) Except as set forth in the Business Plan, no event shall have occurred and be continuing with respect to PMC since the date of this Agreement that has had or is likely to have a Material Adverse Effect. SECTION 5.3. CLOSING. Subject to the conditions of this Article V, the Loan shall be made available on the date as is mutually agreed by the parties (the "Closing Date") at such time as may be mutually agreeable to the parties upon the execution of this Agreement (the "Closing") at such place as may be requested by Lender. SECTION 5.4. WAIVER OF RIGHTS. By completing the Closing under this Agreement, or by making advances under the Loan, Lender does not waive a breach of any representation or warranty of Borrower under this Agreement or under any other Loan Document, and all of Lender's claims and rights resulting from any breach or misrepresentation by Borrower are specifically reserved by Lender. SECTION 5.5. LENDER'S SATISFACTION. All instruments and legal documents and proceedings in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to Lender and its counsel, and Lender shall have received all documents, including records of corporate proceedings and opinions of counsel, which Lender may have requested in connection therewith. ARTICLE VI AFFIRMATIVE COVENANTS Each entity comprising Borrower covenants and agrees that for so long as Borrower may borrow under this Agreement and until payment in full of the Note and performance of all other obligations of Borrower under the Loan Documents: SECTION 6.1. FINANCIAL STATEMENTS AND COLLATERAL REPORTS. PMC will furnish to Lender (i) a collections report and accounts receivable aging schedule on a form acceptable to Lender within fifteen (15) days after the end of each calendar month, which shall include, but not be limited to, a report of credits issued, and collections received; (ii) accounts payable aging schedules within fifteen (15) days after the end of each calendar month; (iii) internally prepared monthly financial statements for PMC, certified by the chief financial officer of PMC, within forty-five (45) days of the end of each calendar month; (iv) annual audited financial statements for PMC prepared by PricewaterhouseCoopers, or another firm of independent public accountants reasonably satisfactory to Lender, within one hundred thirty-five (135) days after the end of each of PMC's fiscal years; (v) promptly upon receipt thereof, copies of any reports submitted to PMC by the independent accountants in connection with any interim audit of the books of PMC and copies of each management control letter provided to PMC by independent accountants; (vi) as soon as available, copies of all financial statements and notices provided by PMC to all of its stockholders; and (vii) such additional information, reports or statements as Lender may from time to time request. Annual financial statements shall set forth in comparative form figures for the corresponding periods in the prior fiscal year. All financial statements shall include a balance sheet and statement of earnings and shall be prepared in accordance with GAAP (except that unaudited financial statements need not include all necessary notes to financials). SECTION 6.2. PAYMENTS UNDER THIS AGREEMENT. Borrower will make all payments of principal, interest, fees, and all other payments required under this Agreement and under the Loan, as and when due. SECTION 6.3. EXISTENCE, GOOD STANDING, AND COMPLIANCE WITH LAWS. Borrower will do or cause to be done all things necessary (i) to obtain and keep in full force and effect all corporate existence, rights, licenses, privileges, and franchises of Borrower necessary to the ownership of its property or the conduct of its business, and comply in all material respects with all applicable current and future laws, ordinances, rules, regulations, orders and decrees of any Governmental Authority having or claiming jurisdiction over Borrower; and (ii) to maintain and protect the properties used in the conduct of the operations of Borrower, in a prudent manner, including without limitation the maintenance at all times of such insurance upon its insurable property and operations as required by law or by Section 6.6. SECTION 6.4. LEGALITY. The making of the Loan and each disbursement or advance under the Loan shall not be subject to any penalty or special tax, shall not be prohibited by any governmental order or regulation applicable to Borrower, and shall not violate any rule or regulation of any Governmental Authority, and all necessary consents, approvals and authorizations of any Governmental Authority to or of any such disbursement or advance that are obtainable by Borrower shall have been obtained. SECTION 6.5. TAXES AND CHARGES. Borrower will timely file all tax reports and pay and discharge all taxes, assessments and governmental charges or levies imposed upon Borrower, or its income or profits or upon its properties or any part thereof, before the same shall be in default and prior to the date on which penalties attach thereto, as well as all lawful claims for labor, material, supplies or otherwise which, if unpaid, might become a lien or charge upon the properties or any part thereof of Borrower and could reasonably be likely to have a Material Adverse Effect; PROVIDED, HOWEVER, that Borrower shall not be required to pay and discharge or cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith and by appropriate proceedings by Borrower, and Borrower shall have set aside on their books adequate reserve therefor to the extent required by GAAP; and PROVIDED FURTHER, that such deferment of payment is permissible only so long as Borrower's title to, and its right to use, the Collateral is not adversely affected thereby and Lender's lien and priority on the Collateral are not adversely affected, altered or impaired thereby. Notwithstanding the foregoing, Borrower shall timely file all payroll tax reports and timely pay all payroll taxes imposed on Borrower. SECTION 6.6. INSURANCE. Borrower will carry adequate public liability and professional liability insurance with responsible companies reasonably satisfactory to Lender in such amounts and against such risks as is customarily maintained by similar businesses and by owners of similar property in the same general area. SECTION 6.7. GENERAL INFORMATION. Borrower will furnish to Lender such information as Lender may, from time to time, reasonably request with respect to the business or financial affairs of Borrower, and, from time to time, permit any officer, employee or agent of Lender to visit and inspect any of the properties, and to inspect, audit and make extracts from the minute books, books of account and other records, including management letters prepared by Borrower's auditors, of Borrower, and make copies thereof or extracts therefrom, and to discuss its and their assets, liabilities, business prospects, results of operation, business affairs, finances, and accounts with, and be advised as to the same by, the independent accountants and the employees and officers of Borrower, all at such reasonable times and as often as Lender may reasonably require. SECTION 6.8 NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE DEVELOPMENTS. Borrower promptly will notify Lender upon the occurrence of: (i) any Event of Default; (ii) any event which, with the giving of notice or lapse of time, or both, could constitute an Event of Default; (iii) any material adverse event, not reflected or reserved against in the latest set of financial statements that were certified by Borrower's chief financial officer and furnished to Lender; (iv) any judicial, administrative or arbitration proceeding pending against Borrower, and any judicial or administrative proceeding known by Borrower to be threatened against it which, if adversely decided, could reasonably be likely to have a Material Adverse Effect; (v) any material default claimed by any other creditor for Borrowed Money of Borrower other than Lender; in each case describing the nature of such default and (in the case of notification under clauses (i) and (ii)) the action Borrower proposes to take with respect thereto. SECTION 6.9. FINANCIAL RECORDS. Borrower shall keep current and accurate books of records and accounts in which full and correct entries will be made of all of its business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP. SECTION 6.10. COLLECTION OF ACCOUNTS. Borrower shall continue to collect its Accounts in the ordinary course of business, with such changes in collection procedure as are contemplated by this Agreement (e.g., the Lockbox). SECTION 6.11. PLACES OF BUSINESS. Borrower shall give thirty (30) days' prior written notice to Lender of any change in the location of any of its places of business, of the places where its records concerning its Accounts are kept, of the places where the Collateral is kept, or of the establishment of any new, or the discontinuance of any existing, places of business. SECTION 6.12. BUSINESS CONDUCTED. Borrower shall continue in the business presently conducted by it using its best efforts to maintain its customers and goodwill. Without at least thirty (30) days' prior written notice to Lender, Borrower shall not engage, directly or indirectly, in any line of business substantially different from the business conducted by it immediately prior to the Closing Date, or engage in business or lines of business which are not reasonably related thereto. Notwithstanding the foregoing, if PhyMatrix determines to dispose of physician practices or other operating entities pursuant to the terms of the Business Plan (which shall not include the disposition of any entity engaged in the business of providing site management or clinical research services), then, so long as (i) Borrower notifies Lender of such disposition at least five (5) Business Days before the expected closing date of such disposition, and (ii) no Event of Default has occurred and is continuing under this Agreement or the Affiliated Loan Agreements, and (iii) the proceeds of such disposition will be used to pay down the Obligations attributable to the business being disposed of (as reflected on the most recent Borrowing Base), then Lender shall take all reasonable steps necessary to consent to such disposition(s) and to release its liens on any assets being disposed of in connection with such disposition(s), upon receipt of the disposition proceeds. If an Event of Default has occurred and is continuing, then the proceeds of any such disposition, even if related to Tangible Collateral, shall be used to pay down the Obligation. SECTION 6.13. LITIGATION AND OTHER PROCEEDINGS. Borrower shall give prompt notice to Lender of any litigation, arbitration or other proceeding before any Governmental Authority against or affecting Borrower if a judgment, award or decision against Borrower in such proceeding could have a Material Adverse Effect on Borrower's financial condition or operations. SECTION 6.14. SUBMISSION OF COLLATERAL DOCUMENTS. Borrower will, on demand of Lender, make available to Lender copies of documents evidencing the providing of Services giving rise to Accounts, a copy of the claim or invoice for each Account and copies of any written contract or order from which the Account arose. SECTION 6.15. EMPLOYEE BENEFIT PLANS. Borrower will (i) comply in all material respects with the funding requirements of ERISA with respect to the Plans for its employees, or will promptly satisfy any accumulated funding deficiency that arises under Section 302 of ERISA; (ii) furnish Lender, promptly after filing the same, with copies of all reports or other statements filed with the United States Department of Labor, the Pension Benefit Guaranty Corporation, or the Internal Revenue Service with respect to all Plans, or which Borrower, or any member of a Controlled Group, may receive from such Governmental Authority with respect to any such Plans, and (iii) promptly advise Lender of the occurrence of any Reportable Event or Prohibited Transaction with respect to any such Plan and the action which Borrower proposes to take with respect thereto. Borrower will make all contributions when due with respect to any multi-employer pension plan in which it participates and will promptly advise Lender: (i) upon its receipt of notice of the assertion against Borrower of a claim for withdrawal liability; (ii) upon the occurrence of any event which could trigger the assertion of a claim for withdrawal liability against Borrower; and (iii) upon the occurrence of any event which would place Borrower in a Controlled Group as a result of which any member of such Controlled Group (including Borrower) may be subject to a claim for withdrawal liability, whether liquidated or contingent. SECTION 6.16. FINANCING STATEMENTS. Borrower shall provide to Lender evidence satisfactory to Lender as to the due recording of termination statements, releases of collateral, and Forms UCC-3, and shall cause to be recorded financing statements on Form UCC-1, duly executed by Borrower and Lender, in all places necessary to release all existing security interests and other liens in the Collateral (other than as permitted hereby) and to perfect and protect Lender's first priority lien and security interest in the Collateral, as Lender may request. SECTION 6.17. CASH COLLATERAL. At all times during the term of this Agreement and the Affiliated Loan Agreements, PMC shall maintain aggregate minimum cash collateral of Two Million and No/100 Dollars ($2,000,000.00), unless a higher minimum amount is required pursuant to Section 7.7 (the "Minimum Cash Collateral"). The Minimum Cash Collateral shall be held in one or more bank accounts identified to and approved by Lender in the exercise of its reasonable discretion. Borrower agrees to provide to Lender evidence of the maintenance of the Minimum Cash Collateral at least monthly and more frequently upon Lender's reasonable request. The Minimum Cash Collateral shall be the aggregate cash collateral required by this Agreement and the Affiliated Loan Agreements taken as a whole. SECTION 6.18. LICENSURE; MEDICAID/MEDICARE COST REPORTS. Borrower will maintain all certificates of need, provider numbers and licenses necessary to conduct its business as currently conducted, and take any steps required to comply with any such new or additional requirements that may be imposed on providers of medical products and services. If required, all Medicaid/Medicare cost reports will be properly filed. SECTION 6.19. OFFICER'S CERTIFICATES. Together with the monthly financial statements delivered pursuant to clause (iii) of Section 6.1, and together with the audited annual financial statements delivered pursuant to clause (iv) of that Section, Borrower shall deliver to Lender a certificate of its chief financial officer, in form and substance reasonably satisfactory to Lender. The certificate shall state that the signer has reviewed the relevant terms of this Agreement, and has made (or caused to be made under his supervision) a review of the transactions and conditions of Borrower from the beginning of the accounting period covered by the income statements being delivered to the date of the certificate, and that such review has not disclosed the existence during such period of any condition or event which constitutes an Event of Default or which is then, or with the passage of time or giving of notice or both, could become an Event of Default, and if any such condition or event existed during such period or now exists, specifying the nature and period of existence thereof and what action Borrower has taken or proposes to take with respect thereto. ARTICLE VII NEGATIVE COVENANTS Borrower covenants and agrees that so long as Borrower may borrow under this Agreement and until payment in full of the Note and performance of all other obligations of Borrower under the Loan Documents: SECTION 7.1. BORROWING. Borrower will not: (a) create, incur, assume or suffer to exist any liability for accounts payable to trade creditors and current operating expenses (other than for borrowed money) which are aged more than one hundred eighty (180) days from the billing date or more than sixty (60) days from the due date, in each case incurred in the ordinary course of business and paid within such time period, unless the same are being contested in good faith and by appropriate and lawful proceedings, and Borrower shall have set aside such reserves, if any, with respect thereto as are required by GAAP and deemed adequate by Borrower and its independent accountants; (b) create, incur, assume or suffer to exist any liability for Borrowed Money ("Indebtedness") except (i) liabilities created by or pursuant to this Agreement; (ii) existing Indebtedness on the date of this Agreement, as set forth on SCHEDULE 7.1, including any extensions or renewals of the Indebtedness (provided that there is no increase in the amount of such Indebtedness or other significant change in the terms of such Indebtedness); (iii) Indebtedness of (A) any direct or indirect subsidiary of PMC to another subsidiary of PMC, and (B) of PMC to any such subsidiary, in each case where such subsidiary is a Borrower under this Agreement or under one of the Affiliated Loan Agreements; (iv) Indebtedness (A) that is secured by purchase money security interests not exceeding the lesser of $3,000,000.00 or two percent (2%) of PMC's tangible assets on a consolidated basis, (B) that is incurred in connection with interest rate protection agreements, (C) that is incurred as a result of the assumption of liabilities in an acquisition, and (D) that is expressly subordinated to the Obligations pursuant to written terms reasonably acceptable to Lender, but the aggregate of all such Indebtedness described in this subparagraph shall not at any time exceed $25,000,000.00; PROVIDED, HOWEVER, that so long as PMC's cash balance is and continues to be in excess of the Overall Maximum Loan Amount, the $25,000,000.00 limit may be increased as follows: for each one dollar ($1.00) of such excess, the maximum aggregate Indebtedness may increase by fifty cents ($0.50). (c) except as set forth on SCHEDULE 7.1, make prepayments over $1,000,000 on any existing or future indebtedness for Borrowed Money to any Person (other than Lender, to the extent permitted by this Agreement or any subsequent agreement between Borrower and Lender). Any permitted Indebtedness, prepayment or other exception set forth above shall be permitted to be created only so long as no Event of Default has occurred and is continuing under this Agreement at the time of such creation and shall be prohibited after the occurrence and during the continuance of any Event of Default. SECTION 7.2 JOINT VENTURES. Borrower will not invest directly or indirectly in any joint venture in which a Person other than an Affiliate of PMC is a joint venturer for any purpose without compliance with the following conditions: (i) if the amount of a single investment is less than or equal to $2,500,000, then Borrower need not notify or obtain the prior consent of Lender; (ii) if the amount of a single investment is more than $2,500,000 and Lender will receive a first priority lien on all of the assets of the joint venture, then Borrower shall notify Lender of the proposed investment within three (3) Business Days before the effective date of the investment; (iii) if the amount of a single investment is more than $2,500,000 and Lender will not receive a first priority lien on the assets of the joint venture, then Borrower shall obtain the prior written consent of Lender, which consent shall not be unreasonably withheld; and (iv) if Borrower invests more than $5,000,000 in the aggregate in joint ventures during the Term, then in all cases Borrower shall obtain Lender's prior written consent for further investments, which consent shall not be unreasonably withheld. SECTION 7.3. LIENS AND ENCUMBRANCES. Borrower will not create, incur, assume or suffer to exist any pledge, lien or other encumbrance of any kind (including the charge upon property purchased under a conditional sale or other title retention agreement) upon, or any security interest in, any of the Receivables-Related Collateral, whether now owned or hereafter acquired, except for Permitted Liens. SECTION 7.4. FUNDAMENTAL CHANGES. Except as set forth in the Business Plan, Borrower will not: (i) enter into any transaction of merger or consolidation where Borrower is not the surviving entity or the surviving entity does not expressly assume the Note and other Loan Documents; (ii) liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution); or (iii) convey, sell, lease, sublease, transfer or otherwise dispose of, in one transaction or a series of transactions, any of the Receivables-Related Collateral, whether now owned or hereafter acquired, or any other substantial portion of the assets and a business operation, without prior notice to, and the prior written consent of, Lender, which consent shall not be unreasonably withheld. Moreover, Borrower will not acquire by purchase or otherwise all or any substantial part of the business or assets of, or stock or other evidence of beneficial ownership of, any Person unless (x) Lender is granted a first priority lien on such assets, (y) no Event of Default has occurred and is continuing under this Agreement, and (z) (A) for transactions greater than $1,000,000.00, Lender is provided with prior written notice of such transaction, and (B) for transactions aggregating more than $10,000,000 during the Term, Lender is provided with prior notice of such transaction and gives its prior written consent to such transaction, which consent shall not be unreasonably withheld. Borrower further agrees that in addition to all other remedies available to Lender, Lender shall be entitled to specific enforcement of the covenants in this Section 7.4, including injunctive relief. SECTION 7.5 SALE AND LEASEBACK. Borrower will not, directly or indirectly, enter into any arrangement whereby Borrower sells or transfers all or any part of its assets and within one year thereafter rents or leases the assets so sold or transferred without prior written notice to, and the prior written consent of, Lender, which consent shall not be unreasonably withheld. SECTION 7.6. TRANSACTIONS WITH AFFILIATES. Other than as set forth in SCHEDULE 7.6, Borrower will not enter into any material transaction, including without limitation the purchase, sale, or exchange of property, or the loaning or giving of a material amount of funds to any Affiliate or subsidiary, except in the ordinary course of business and pursuant to the reasonable requirements of Borrower's business and upon terms substantially the same and no less favorable to Borrower as it would obtain in a comparable arm's length transaction with any Person not an Affiliate or subsidiary, and so long as the transaction does not impair the Collateral or Lender's interest in the Collateral. For purposes of the foregoing, Lender consents to the transactions described on SCHEDULE 7.6. SECTION 7.7. LOANS. Borrower will not make loans or advances to any Person, other than (i) trade credit extended in the ordinary course of its business, and (ii) advances for business travel and similar temporary advances in the ordinary course of business to officers, stockholders, directors, and employees, (iii) loans or advances to direct or indirect subsidiaries of PhyMatrix, or (iv) without the prior written consent of Lender, which consent shall not be unreasonably withheld, loans or advances (A) which are not otherwise specifically permitted under this Agreement, (B) which have been presented to Lender by Borrower to determine if Lender will fund the loan or advance under this Agreement or the Affiliated Loan Agreements, (C) which Lender determines within ten (10) Business Days of such presentation that it will not fund, and (D) which do not exceed an aggregate of $5,000,000 outstanding at any time. If such a loan or advance is made by Borrower to any such Person, then Borrower shall increase the amount of cash collateral required to be maintained pursuant to the provisions of Section 6.17 by one dollar ($1.00) for each one dollar ($1.00) being loaned or advanced by Borrower. SECTION 7.8. CONTINGENT LIABILITIES. Borrower will not assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any Person, except with respect to (i) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (ii) liabilities of direct or indirect subsidiaries of PhyMatrix, (iii) those items set forth on SCHEDULE 7.8, or (iv) any liability of a Person not otherwise permitted hereunder in the aggregate that when combined, without duplication, with the new Indebtedness to be permitted under Section 7.1 , does not exceed the maximum Indebtedness cap set forth in Section 7.1. SECTION 7.9. COMPLIANCE WITH ERISA. Borrower will not permit with respect to any Plan covered by Title IV of ERISA any Prohibited Transaction or any Reportable Event. SECTION 7.10. USE OF LENDER'S NAME. Borrower will not use Lender's name (or the name of any of Lender's affiliates) in connection with any of its business operations. Borrower may disclose to third parties that Borrower has a borrowing relationship with Lender. Nothing contained in this Agreement is intended to permit or authorize Borrower to make any contract on behalf of Lender. SECTION 7.11. CONTRACTS AND AGREEMENTS. Borrower will not become or be a party to any contract or agreement which would breach this Agreement, or breach in any material manner any other instrument, agreement, or document to which Borrower is a party or by which it is or may be bound. SECTION 7.12. DIVIDENDS AND DISTRIBUTION. PMC will not declare or pay any dividends or other distributions with respect to, purchase, redeem or otherwise acquire for value any of its outstanding stock now or hereafter outstanding, or return any capital of its stockholders, where such payment, purchase, redemption or acquisition would have a Material Adverse Effect, without prior notice to and the prior written consent of Lender, which consent will not be unreasonably withheld; provided, however, that so long as no Event of Default has occurred and is continuing, no such consent shall be required for (i) any stock dividend, or (ii) any repurchase of PMC's stock by PMC that does not use the proceeds of a Loan to pay the purchase price therefor. After an Event of Default has occurred and while it is continuing, Borrower shall make no such declarations, payments, purchases, redemptions or acquisitions for value. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. EVENTS OF DEFAULT. Each of the following (individually, an "Event of Default" and collectively, the "Events of Default") shall constitute an event of default under this Agreement: (a) A default in the payment of any installment of principal of, or interest upon, the Note when due and payable, whether at maturity or otherwise, or any default in the due observation or performance by Borrower of any term, covenant or agreement contained in Section 2.3 of this Agreement, which default or breach, as applicable, shall have continued unremedied for a period of five (5) days after written notice thereof from Lender to Borrower; (b) A default in the payment of any other charges, fees, or other monetary obligations owing to Lender arising out of or incurred in connection with this Agreement when such payment is due and payable, which default shall have continued unremedied for a period of five (5) days after written notice from Lender; (c) A default in the due observance or performance by Borrower of any other term, covenant or agreement contained in any of the Loan Documents, which default shall have continued unremedied for a period of thirty (30) days after written notice from Lender; (d) Any representation or warranty made by Borrower in this Agreement or in any of the other Loan Documents, any financial statement, or any statement or representation made in any other certificate, report or opinion delivered in connection herewith or therewith proves to have been incorrect or misleading in any material respect when made, which default shall have continued unremedied for a period of thirty (30) days after written notice from Lender; (e) Any material obligation of Borrower (other than its Obligations under this Agreement) for the payment of Borrowed Money is not paid when due or within any applicable grace period, or such obligation becomes or is declared to be due and payable prior to the expressed maturity thereof; (f) Borrower makes an assignment for the benefit of creditors, offers a composition or extension to creditors, or makes or sends notice of an intended bulk sale of any business or assets now or hereafter conducted by Borrower; (g) Borrower files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver of or any trustee for itself or any substantial part of its property, commences any proceeding relating to itself under any reorganization, arrangement, readjustment or debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or there is commenced against Borrower any such proceeding which remains undismissed for a period of sixty (60) days, or any Borrower by any act indicates its consent to, approval of, or acquiescence in, any such proceeding or the appointment of any receiver of or any trustee for a Borrower or any substantial part of its property, or suffers any such receivership or trusteeship to continue undischarged for a period of sixty (60) days; (h) One or more final judgments against Borrower or attachments against its property not fully and unconditionally covered by insurance or indemnity shall be rendered by a court of record and shall remain unpaid, unstayed on appeal, undischarged, unbonded and undismissed for a period of thirty (30) days where such judgment may have a Material Adverse Effect; (i) A Reportable Event which might constitute grounds for termination of any Plan covered by Title IV of ERISA or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan or for the entry of a lien or encumbrance to secure any deficiency, has occurred and is continuing thirty (30) days after its occurrence, or any such Plan is terminated, or a trustee is appointed by an appropriate United States District Court to administer any such Plan, or the Pension Benefit Guaranty Corporation institutes proceedings to terminate any such Plan or to appoint a trustee to administer any such Plan, or a lien or encumbrance is entered to secure any deficiency or claim; (j) A Change of Control has occurred; (k) The Collateral is attached, seized, levied upon or subjected to a writ or distress warrant, or comes within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within sixty (60) days thereafter or a notice of lien, levy or assessment is filed of record with respect to the Collateral by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, or if any taxes or debts owing at any time or times hereafter to any one of these becomes a lien or encumbrance upon the Collateral and the same is not released within thirty (30) days after the same becomes a lien or encumbrance; PROVIDED, that Borrower shall have the right to contest in good faith and by appropriate proceedings any such lien, levy or assessment if Borrower provides Lender with a bond or indemnity satisfactory to Lender assuring the payment of such lien, levy or assessment; (l) Lender receives substantial credible evidence that Borrower may have been involved in an activity that has a reasonable likelihood of causing the forfeiture of all or any part of the Collateral to any Governmental Authority, where Lender has notified Borrower in writing of the receipt of such evidence, and Borrower has not provided assurance, satisfactory to Lender in its reasonable discretion, that such activity will not result in such forfeiture; (m) Borrower or any Affiliate of Borrower, shall challenge or contest, in any action, suit or proceeding, the validity or enforceability of this Agreement, or any of the other Loan Documents, the legality or the enforceability of any of the Obligations or the perfection or priority of any Lien granted to Lender; (n) Borrower shall be criminally indicted or convicted under any law where the conviction has a reasonable likelihood of causing a forfeiture of any Collateral; (o) There shall occur an event that Lender has determined in its reasonable discretion has a Material Adverse Effect and such event continues unremedied for a period of thirty (30) days after written notice from Lender; or (p) Borrower ceases any material portion of its business operations as currently conducted except as set forth in the Business Plan. (q) An Event of Default shall have occurred under either of the Affiliated Loan Agreements. SECTION 8.2. ACCELERATION. Upon the occurrence of any of the foregoing Events of Default, the Note shall become and be immediately due and payable upon declaration to that effect delivered by Lender to Borrower; provided that, upon the happening of any event specified in Section 8.1(g), the Note shall be immediately due and payable without declaration or other notice to Borrower. SECTION 8.3. REMEDIES. (a) In addition to all other rights, options, and remedies granted to Lender under this Agreement or at law or in equity, upon the occurrence of an Event of Default, Lender may (i) terminate the Loan, whereupon all outstanding Obligations shall be immediately due and payable, (ii) exercise all other rights and remedies granted to it under this Agreement and all rights under the Uniform Commercial Code in effect in the applicable jurisdiction(s) and under any other applicable law, and (iii) exercise all rights and remedies under all Loan Documents now or hereafter in effect, including but not limited to the following rights and remedies: (i) The right to take possession of, send notices regarding, and collect directly the Collateral, with or without judicial process; and (ii) The right to reduce the Maximum Loan Amount or to use the Collateral and/or funds in the Concentration Account in amounts up to the Maximum Loan Amount for any reason related to the Loan; (b) Borrower agrees that a notice received by it at least thirty (30) days before the time of any intended public sale, or the time after which any private sale or other disposition of the Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. At any sale or disposition of Collateral, Lender may (to the extent permitted by applicable law) purchase all or any part of the Collateral, free from any right of redemption by Borrower, which right is hereby waived and released to the extent permitted by applicable law. Borrower covenants and agrees not to interfere with or impose any obstacle to Lender's exercise of its rights and remedies with respect to the Collateral except to the extent required by applicable law. SECTION 8.4. NATURE OF REMEDIES. Lender shall have the right to proceed against all or any portion of the Collateral to satisfy in any order, (i) the liabilities and Obligations of Borrower to Lender or (ii) upon the occurrence of an Event of Default under either of the Affiliated Loan Agreements, the liabilities and obligations of Affiliated Borrowers under the Affiliated Loan Agreements. To the extent permitted by applicable law, all rights and remedies granted Lender under this Agreement and under any agreement referred to in this Agreement, or otherwise available at law or in equity, shall be deemed concurrent and cumulative, and not alternative remedies, and Lender may proceed with any number of remedies at the same time until the Loans, and all other existing and future liabilities and obligations of Borrower to Lender, are satisfied in full. The exercise of any one right or remedy shall not be deemed a waiver or release of any other right or remedy, and Lender, upon the occurrence of an Event of Default, may proceed against Borrower, and/or the Collateral, at any time, under any agreement, with any available remedy and in any order. SECTION 8.5. LIMITATION ON REMEDIES. Notwithstanding anything to the contrary elsewhere in this Agreement, Lender shall proceed against the Tangible Collateral only upon an Event of Default identified in Section 8.1 (a), (b), (f), (g) or (o). ARTICLE IX MISCELLANEOUS SECTION 9.1. EXPENSES AND TAXES. (a) Borrower agrees to pay, whether or not the Closing occurs, a reasonable documentation preparation fee, together with actual audit fees and all other out-of-pocket charges and expenses incurred by Lender in connection with the negotiation, preparation, legal review and execution of each of the Loan Documents, including but not limited to UCC and judgment lien searches and UCC filings and fees for post-Closing UCC and judgment lien searches. In addition, Borrower shall pay all such fees associated with any amendments to the Loan Documents following Closing. (b) Borrower also agrees to pay all out-of-pocket charges and expenses incurred by Lender (including the fees and expenses of Lender's counsel) in connection with the enforcement, protection or preservation of any right or claim of Lender and the collection of any amounts due under the Loan Documents. If Lender uses in-house counsel for any of these purposes (i.e., for any task in connection with the enforcement, protection or preservation of any right or claim of Lender and the collection of any amounts due under its Loan Documents), Borrower further agrees that its Obligations under the Loan Documents include reasonable charges for such work commensurate with the fees that would otherwise be charged by outside legal counsel selected by Lender for the work performed. (c) Borrower shall pay all taxes (other than taxes based upon or measured by Lender's income or revenues or any personal property tax), if any, in connection with the issuance of the Note and the recording of the security documents therefor. The obligations of Borrower under this clause (c) shall survive the payment of Borrower's indebtedness under this Agreement and the termination of this Agreement. SECTION 9.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other Loan Documents constitute the full and entire understanding and agreement among the parties with regard to their subject matter and supersede all prior written or oral agreements, understandings, representations and warranties made with respect thereto. No amendment, supplement or modification of this Agreement nor any waiver of any provision of this Agreement shall be made except in writing executed by the party against whom enforcement is sought. SECTION 9.3. NO WAIVER; CUMULATIVE RIGHTS. No waiver by any party hereto of any one or more defaults by the other party in the performance of any of the provisions of this Agreement shall operate or be construed as a waiver of any future default or defaults, whether of a like or different nature. No failure or delay on the part of any party in exercising any right, power or remedy under this Agreement shall operate as a waiver of such right, power or remedy, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise of such right, power or remedy or the exercise of any other right, power or remedy. The remedies provided for in this Agreement are cumulative and are not exclusive of any remedies that may be available to any party hereto at law, in equity or otherwise. SECTION 9.4. NOTICES. Any notice or other communication required or permitted under this Agreement shall be in writing and personally delivered, mailed by registered or certified mail (return receipt requested and postage prepaid), sent by telecopier (with a confirming copy sent by regular mail), or sent by prepaid overnight courier service, and addressed to the relevant party at its address set forth below, or at such other address as such party may, by written notice, designate as its address for purposes of notice under this Agreement: If to Lender, at: HCFP Funding, Inc. 2 Wisconsin Circle, 4th floor Chevy Chase, Maryland 20815 Attention: Ethan D. Leder, President Telephone: (301) 961-1640 Telecopier: (301) 664-9860 If to Borrower, at: PhyMatrix Corp. 110 Cedar Street, 1st floor Wellesley, Massachusetts 02481 Attention: Mr. Fred Leathers, Chief Financial Officer Telephone: (781) 416-5100 Telecopier: (781) 416-2776 With a copy to: Nutter, McClennen & Fish, LLP One International Place Boston, Massachusetts 02110-2699 Attention: Paul R. Eklund, Esquire Telephone: (617) 439-2000 Telecopier: (617) 973-9748 If mailed, notice shall be deemed to be given five (5) Business Days after being sent, and if sent by personal delivery, telecopier, or prepaid courier, notice shall be deemed to be given when delivered. SECTION 9.5. SEVERABILITY. If any term, covenant or condition of this Agreement, 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 Agreement and the application of such term, 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, Lender may, but is not obligated to, advance funds to Borrower under this Agreement until the parties shall amend this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner. SECTION 9.6. SUCCESSORS AND ASSIGNS. This Agreement, the Note, and the other Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns. Notwithstanding the foregoing, Borrower may not assign any of its rights or delegate any of its obligations under this Agreement without the prior written consent of Lender, which may be withheld in its sole discretion. Lender may sell, assign or transfer any or all of its rights or obligations under this Agreement without notice to or consent of Borrower, so long as the purchaser, assignee or transferee is a financial institution or an entity engaged wholly or substantially in the business of making commercial loans. SECTION 9.7. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one instrument. SECTION 9.8. INTERPRETATION. No provision of this Agreement or any other Loan Document shall be interpreted or construed against any party because that party or its legal representative drafted that provision. The titles of the paragraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. Any pronoun used in this Agreement shall be deemed to include singular and plural and masculine, feminine and neuter gender as the case may be. The words "herein," "hereof," and "hereunder" shall be deemed to refer to this entire Agreement, except as the context otherwise requires. SECTION 9.9. SURVIVAL OF TERMS. All covenants, agreements, representations and warranties made in this Agreement, any other Loan Document, and in any certificates and other instruments delivered in connection therewith shall be considered to have been relied upon by Lender and shall survive the making by Lender of the Loans contemplated in this Agreement and the execution and delivery to Lender of the Note, and shall continue in full force and effect until all liabilities and obligations of Borrower to Lender are satisfied in full. SECTION 9.10. TIME. Whenever Borrower is required to make any payment or perform any act on a day that is not a Business Day, the payment may be made or the act performed on the next Business Day. Time is of the essence in Borrower's performance under this Agreement and all other Loan Documents. SECTION 9.11. COMMISSIONS. If any claim for commission, brokerage fee or charge is made on Lender by any broker, finder, or agent or other person, Borrower will indemnify, defend, and hold Lender harmless from and against the claim and will defend any action to recover on that claim, at Borrower's cost and expense, including Lender's counsel fees. Borrower further agrees that until any such claim or demand is adjudicated in Lender's favor, the amount demanded will be deemed a liability of Borrower under this Agreement, secured by the Collateral. SECTION 9.12. THIRD PARTIES. No rights are intended to be created under this Agreement or under any other Loan Document for the benefit of any third party donee, creditor, or incidental beneficiary of Borrower. Nothing contained in this Agreement shall be construed as a delegation to Lender of Borrower's duty of performance, including without limitation Borrower's duties under any account or contract in which Lender has a security interest. SECTION 9.13. DISCHARGE OF BORROWER'S OBLIGATIONS. Lender, in its sole discretion, shall have the right at any time, and from time to time, without prior notice to Borrower if Borrower fails to do so, to: (i) obtain insurance covering any of the Collateral as required under this Agreement; (ii) pay for the performance of any of Borrower's obligations under this Agreement; (iii) discharge taxes, liens, security interests, or other encumbrances at any time levied or placed on any of the Collateral in violation of this Agreement unless Borrower is in good faith with due diligence by appropriate proceedings contesting those items. Expenses and advances shall be added to the Loan, until reimbursed to Lender and shall be secured by the Collateral. Any such payments and advances by Lender shall not be construed as a waiver by Lender of an Event of Default. SECTION 9.14. INFORMATION TO PARTICIPANTS. Lender may divulge to any participant it may obtain in the Loan, or any portion of the Loan, all information, and furnish to such participant copies of reports, financial statements, certificates, and documents obtained under any provision of this Agreement or any other Loan Document, subject to Section 9.16. SECTION 9.15. CONFIDENTIALITY. Lender will take reasonable efforts to keep all financial information, and all information acquired as a result of any inspection conducted in accordance with Section 6.7 (and any other information provided to Lender under any Loan Document), confidential, provided that Lender may communicate such information (i) in accordance with Borrower's written authorization, to any Person in accordance with the customary practices of financial institutions or entities engaged wholly or substantially in the business of making commercial loans relating to routine trade inquiries, (ii) to any regulatory authority having jurisdiction over Lender to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iii) to any other Person in connection with Lender's sale of any assignments of the Obligations, provided that the recipient of such Obligations agrees in writing delivered to Borrower to hold such information confidential in accordance with the terms of this Agreement, (iv) to any other Person in connection with the exercise of Lender's rights under this Agreement or any other Loan Document, (v) to any Person to the extent required in any litigation in which Lender is a party; PROVIDED, that to the extent permitted by applicable law, rule or regulation or response to a subpoena, under or other legal process or legislative body or committee or other governmental authority. Notwithstanding the foregoing, information will not be deemed to be confidential to the extent such information (w) was already lawfully in the possession of Lender prior to the Closing Date, (x) is available in the public domain, (y) becomes available in the public domain other than as a result of unauthorized disclosure by Lender, or (z) is acquired from a Person not known by Lender to be in breach of any confidentiality agreement with respect to such information. Notwithstanding anything to the contrary, Borrower hereby consents to Lender's discussions and communications with Borrower's independent public accountants and agrees that such discussion or communication is without liability to either Lender or Borrower's independent certified public accountants. SECTION 9.16. INDEMNITY. Borrower hereby agrees to indemnify and hold harmless Lender, its partners, officers, agents and employees (collectively, "Indemnitee") from and against any liability, loss, cost, expense, claim, damage, suit, action or proceeding ever suffered or incurred by Lender (including reasonable attorneys' fees and expenses) arising from Borrower's failure to observe, perform or discharge any of its covenants, obligations, agreements or duties under this Agreement, or from the breach of any of the representations or warranties contained in Article IV. In addition, Borrower shall defend Indemnitee against and save it harmless from all claims of any Person with respect to the Collateral. Notwithstanding any contrary provision in this Agreement, the obligation of Borrower under this Section 9.17 shall survive the payment in full of the Obligations and the termination of this Agreement. SECTION 9.17. APPOINTMENT OF AGENT UNDER THIS AGREEMENT. (a) Each of the entities comprising Borrower (other than PhyMatrix) hereby irrevocably appoints and constitutes PhyMatrix as its agent to request and receive Revolving Credit Loans (and to otherwise act on behalf of each such entity pursuant to this Agreement and the other Loan Documents) from Lender in the name or on behalf of each such entity. Lender may disburse the Revolving Credit Loans to the bank account of any one or more of such entities without notice to any of the other entities comprising Borrower or any other Person at any time obligated on or in respect of the Obligations. (b) Each of the entities comprising Borrower (other than PhyMatrix) hereby irrevocably appoints and constitutes PhyMatrix as its agent to receive statements of account and all other notices from Lender with respect to the Obligations or otherwise under or in connection with this Agreement and the other Loan Documents. (c) No purported termination of the appointment of PhyMatrix as agent shall be effective without the prior written consent of Lender. SECTION 9.18. FURTHER ASSURANCES. The parties agree as follows: (a) The Maximum Loan Amount on this Agreement shall be reduced from time to time at Borrower's request, subject to Lender's reasonable credit judgment and discretion, as Borrower disposes of physician practices and other businesses in accordance with the Business Plan. (b) The Maximum Loan Amounts on the Affiliated Loan Agreements shall be adjusted as the business needs of PMC change, subject to the exercise of Lender's reasonable credit judgment and discretion. (c) Borrower will obtain from any physician practices still owned or managed by PMC on June 12, 1999, such financing statements, letter agreements and other documents deemed by Lender in its reasonable discretion to be necessary or desirable in protecting Lender's lien on the Collateral or in effectuating the purposes of this Agreement. SECTION 9.19. CHOICE OF LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND THE NOTE 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 AGREEMENT OR THE NOTE 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, BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND. ANY PROCESS IN ANY SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS DESCRIBED IN SECTION 9.4. SECTION 9.20. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER HEREBY (A) COVENANT AND AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVE 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 EACH PARTY 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. EACH PARTY IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF EACH PARTY'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. [SIGNATURES FOLLOW] IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first written above. LENDER: HCFP FUNDING, INC. a Delaware corporation By: /s/ Jeffrey P. Hoffman ---------------------- Name: Jeffrey P. Hoffman Title: Vice President BORROWER: PHYMATRIX CORP. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Frederick R. Leathers Chief Financial Officer PHYMATRIX DIAGNOSTIC IMAGING, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Frederick R. Leathers Chief Financial Officer PHYMATRIX MANAGEMENT COMPANY, INC. a Delaware corporation By: /s/ Frederick R. Leathers ------------------------- Frederick R. Leathers Chief Financial Officer EX-10.11 4 EXHIBIT 10.11 Exhibit 10.11 $15,000,000.00 LOAN AND SECURITY AGREEMENT by and between PHYMATRIX CORP. CLINICAL STUDIES, LTD. CLINICAL MARKETING, LTD. ("Borrower") and HCFP FUNDING, INC. ("Lender") March 12, 1999 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of March 12, 1999 by and between PHYMATRIX CORP., a Delaware corporation ("PhyMatrix"), CLINICAL STUDIES, LTD, a Delaware corporation, and CLINICAL MARKETING, LTD., a Delaware corporation (collectively with the preceding entities, "Borrower"), and HCFP FUNDING, INC., a Delaware corporation ("Lender"). RECITALS A. Borrower desires to establish certain financing arrangements with and borrow funds from Lender, and Lender is willing to establish such arrangements for and make loans and extensions of credit to Borrower, on the terms and conditions set forth below. B. The parties desire to define the terms and conditions of their relationship and to reduce their agreements to writing. NOW, THEREFORE, in consideration of the promises and covenants contained in this Agreement, and for other consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, unless otherwise specified, all references to "Sections" shall be deemed to refer to Sections of this Agreement, and the following terms shall have the meanings set forth below: SECTION 1.1. ACCOUNT. "Account" means any right to payment for Services, whether or not evidenced by an Instrument or Chattel Paper, and whether or not earned by performance. SECTION 1.2. ACCOUNT DEBTOR. "Account Debtor" means any Person obligated on any Account of Borrower. SECTION 1.3. AFFILIATE. "Affiliate" means, with respect to a specified Person, any Person directly or indirectly controlling, controlled by, or under common control with the specified Person including without limitation their stockholders and any Affiliates of such stockholders. A Person shall be deemed to control a corporation or other entity if the Person possesses, directly or indirectly, the power to direct or cause the direction of the management and business of the corporation or other entity, whether through the ownership of voting securities, by contract, or otherwise. SECTION 1.4. AFFILIATED BORROWERS. "Affiliated Borrowers" means, collectively, the Affiliated PPM Borrowers and the Affiliated Services Borrowers. SECTION 1.5. AFFILIATED LOAN AGREEMENTS. "Affiliated Loan Agreements" means, collectively, the Affiliated PPM Loan Agreement and the Affiliated Services Loan Agreement. SECTION 1.6. AFFILIATED LOAN DOCUMENTS. "Affiliated Loan Documents" means, collectively, the Affiliated PPM Loan Documents and the Affiliated Services Loan Documents. SECTION 1.7 AFFILIATED PPM BORROWERS. "Affiliated PPM Borrowers" means the entities listed on SCHEDULE 1.7. SECTION 1.8. AFFILIATED PPM LOAN AGREEMENT. "Affiliated PPM Loan Agreement" means that certain Loan and Security Agreement dated as of even date with this Agreement and made by and among Lender and PhyMatrix and the Affiliated PPM Borrowers, as it may be amended, modified or supplemented from time to time. SECTION 1.9. AFFILIATED PPM LOAN DOCUMENTS. "Affiliated PPM Loan Documents" means the Affiliated PPM Loan Agreement, and each and every other document now or hereafter delivered in connection with the Affiliated PPM Loan Agreement, as any of them may be amended, modified, or supplemented from time to time. SECTION 1.10. AFFILIATED SERVICES BORROWERS. "Affiliated Services Borrower" means the entities listed on SCHEDULE 1.10. SECTION 1.11. AFFILIATED SERVICES LOAN AGREEMENT. "Affiliated Services Loan Agreement" means that certain Loan and Security Agreement dated as of even date with this Agreement and made by and among Lender and PhyMatrix and the Affiliated Services Borrowers, as it may be amended, modified or supplemented from time to time. SECTION 1.12. AFFILIATED SERVICES LOAN DOCUMENTS. "Affiliated Services Loan Documents" means the Affiliated Services Loan Agreement, and each and every other document now or hereafter delivered in connection with the Affiliated Services Loan Agreement, as any of them may be amended, modified, or supplemented from time to time. SECTION 1.13. AGREEMENT. "Agreement" means this Loan and Security Agreement, as it may be amended or supplemented from time to time. SECTION 1.14. BASE RATE. "Base Rate" means a rate of interest equal to one percent (1%) above the "Prime Rate of Interest." SECTION 1.15. BORROWED MONEY. "Borrowed Money" means any obligation to repay money, any indebtedness evidenced by notes, bonds, debentures or similar obligations, any obligation under a conditional sale or other title retention agreement and the net aggregate rentals under any lease which under GAAP would be capitalized on the books of Borrower. SECTION 1.16. BORROWER. "Borrower" has the meaning set forth in the Preamble. SECTION 1.17. BORROWING BASE. "Borrowing Base" has the meaning set forth in Section 2.1(d). SECTION 1.18. BORROWING BASE CERTIFICATE. "Borrowing Base Certificate" means a certificate substantially in the form of EXHIBIT D. SECTION 1.19. BUSINESS DAY. "Business Day" means any day on which financial institutions are open for business in the State of Maryland, excluding Saturdays and Sundays. SECTION 1.20. BUSINESS PLAN. "Business Plan" means the business plan of PMC as delivered and reviewed by Lender prior to the date of this Agreement. SECTION 1.21. CHANGE OF CONTROL. "Change of Control" means that, during any period, individuals who at the beginning of the period constituted the board of directors of PhyMatrix (together with any new directors whose election by that board of directors or whose nomination for election by the stockholders of PhyMatrix was approved by two-thirds of the directors of PhyMatrix then still in office who were either directors at the beginning of the period or whose election or nomination for election was previously approved) cease for any reason to constitute a majority of the board of directors of PhyMatrix then in office. SECTION 1.22. CHATTEL PAPER. "Chattel Paper" has the meaning set forth in the Uniform Commercial Code. SECTION 1.23. CLOSING; CLOSING DATE. "Closing" and "Closing Date" have the meanings set forth in Section 5.3. SECTION 1.24. COLLATERAL. "Collateral" has the meaning set forth in Section 3.1. SECTION 1.25. COMMITMENT FEE. "Commitment Fee" has the meaning set forth in Section 2.4(a). SECTION 1.26. CONCENTRATION ACCOUNT. "Concentration Account" has the meaning set forth in Section 2.3. SECTION 1.27. CONTROLLED GROUP. "Controlled Group" means a "controlled group" within the meaning of Section 4001(b) of ERISA. SECTION 1.28. DEFAULT RATE. "Default Rate" means a rate per annum equal to four percent (4%) above the then applicable Base Rate. SECTION 1.29. ERISA. "ERISA" has the meaning set forth in Section 4.12. SECTION 1.30. EVENT OF DEFAULT. "Event of Default" and "Events of Default" have the meanings set forth in Section 8.1. SECTION 1.31. GAAP. "GAAP" means generally accepted accounting principles applied in a consistent manner. SECTION 1.32. GENERAL INTANGIBLES. "General Intangibles" has the meaning set forth in the Uniform Commercial Code. SECTION 1.33. GOODS. "Goods" has the meaning set forth in the Uniform Commercial Code. SECTION 1.34. GOVERNMENTAL AUTHORITY. "Governmental Authority" means and includes any federal, state, District of Columbia, county, municipal, or other government and any department, commission, board, bureau, agency or instrumentality thereof, whether domestic or foreign. SECTION 1.35. GUARANTY. "Guaranty" means that certain Unconditional Guaranty of Payment and Performance made by Borrower, the Affiliated PPM Borrowers and the Affiliated Services Borrowers with respect to this Agreement and the Affiliated Loan Agreements in favor of Lender and dated as of even date with this Agreement. SECTION 1.36. HAZARDOUS MATERIAL. "Hazardous Material" means any substances defined or designated as hazardous or toxic waste, hazardous or toxic material, hazardous or toxic substance, or similar term, by any environmental statute, rule or regulation or any Governmental Authority. SECTION 1.37. HIGHEST LAWFUL RATE. "Highest Lawful Rate" has the meaning set forth in Section 2.7. SECTION 1.38. INSTRUMENTS. "Instruments" has the meaning set forth in the Uniform Commercial Code. SECTION 1.39. LENDER. "Lender" means HCFP Funding, Inc., a Delaware corporation. SECTION 1.40. LOCKBOX ACCOUNT. "Lockbox Account" means an account maintained by Borrower at the Lockbox Bank into which all collections of Accounts are paid directly. SECTION 1.41. LOAN. "Loan" has the meaning set forth in Section 2.1(a). SECTION 1.42. LOAN DOCUMENTS. "Loan Documents" means and includes this Agreement, the Note, the Lockbox Agreement, the Guaranty and each and every other document now or hereafter delivered in connection therewith, as any of them may be amended, modified, or supplemented from time to time. SECTION 1.43. LOAN MANAGEMENT FEE. "Loan Management Fee" has the meaning set forth in Section 2.4(c). SECTION 1.44. LOCKBOX. "Lockbox" has the meaning set forth in Section 2.3. SECTION 1.45. LOCKBOX AGREEMENT. "Lockbox Agreement" has the meaning set forth in Section 2.3. SECTION 1.46. LOCKBOX BANK. "Lockbox Bank" has the meaning set forth in Section 2.3. SECTION 1.47. MATERIAL ADVERSE EFFECT. "Material Adverse Effect" means (i) a material adverse change in, or a material adverse effect upon, the financial condition, operations, assets, business or properties of PMC, (ii) a material impairment of the ability of Borrower and the Affiliated Borrowers as a whole to perform any of their material obligations under the Loan Documents and the Affiliated Loan Documents, taken as a whole, or (iii) a material adverse effect upon any material portion of the Collateral under this Agreement or the Affiliated Loan Agreements, or upon the legality, validity, binding effect or enforceability of any Loan Document against any Borrower or any other Person (other than Lender) obligated on any Loan Document. SECTION 1.48. MAXIMUM LOAN AMOUNT. "Maximum Loan Amount" has the meaning set forth in Section 2.1(a). SECTION 1.49. NOTE. "Note" has the meaning set forth in Section 2.1(c). SECTION 1.50. OBLIGATIONS. "Obligations" has the meaning set forth in Section 3.1. SECTION 1.51. PERMITTED LIENS. "Permitted Liens" means: (a) liens for taxes not delinquent, or which are being contested in good faith and by appropriate proceedings which suspend the collection of such liens, and in respect of which adequate reserves have been made, if required by GAAP (provided that such proceedings do not, in Lender's reasonable discretion, involve any substantial danger of the sale, loss or forfeiture of such property or assets or any interest therein); (b) deposits or pledges to secure obligations under workmen's compensation, social security or similar laws, or under unemployment insurance; (c) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business; (d) mechanic's, workmen's, materialmen's or other like liens arising in the ordinary course of business with respect to obligations which are not due, or which are being contested in good faith by appropriate proceedings which suspend the collection of such liens and in respect of which adequate reserves have been made, if required by GAAP (provided that such proceedings do not, in Lender's reasonable discretion, involve any substantial danger of the sale, loss or forfeiture of such property or assets or any interest therein); (e) liens and encumbrances in favor of Lender; and (f) liens set forth on SCHEDULE 1.51. SECTION 1.52. PERSON. "Person" means an individual, partnership, corporation, trust, joint venture, joint stock company, limited liability company, association, unincorporated organization, Governmental Authority, or any other entity. SECTION 1.53. PLAN. "Plan" has the meaning set forth in Section 4.12. SECTION 1.54. PMC. "PMC" means PhyMatrix Corp. and its direct and indirect subsidiaries, on a consolidated basis. SECTION 1.55. PREMISES. "Premises" has the meaning set forth in Section 4.14. SECTION 1.56. PRIME RATE OF INTEREST. "Prime Rate of Interest" means that rate of interest designated as such by Fleet National Bank of Connecticut, N.A., or any successor thereto, as the same may from time to time fluctuate. SECTION 1.57. PROHIBITED TRANSACTION. "Prohibited Transaction" means a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975(c)(1) of the Internal Revenue Code. SECTION 1.58. QUALIFIED ACCOUNT. "Qualified Account" means an Account of Borrower generated in the ordinary course of Borrower's business from rendition of Services by Borrower to pharmaceutical companies and contract research organizations which Lender, in its reasonable credit judgment, deems to be a Qualified Account. A "Qualified Account" is an Account of Borrower that satisfies the criteria set forth on the Borrowing Base Certificate and does not become unqualified for any of the reasons set forth below. Without limiting the generality of the foregoing, no Account shall be a Qualified Account if: (a) the Account remains unpaid more than 365 days past the date on which the applicable Services were rendered; (b) the Account is subject to any defense, set-off, counterclaim, deduction, discount, credit, chargeback, freight claim, allowance, or adjustment of any kind; (c) the Services giving rise to the Account have not actually been performed or were undertaken in violation of any law; (d) the Account is subject to a lien other than a Permitted Lien; (e) Borrower knows of the bankruptcy, receivership, reorganization, or insolvency of the Account Debtor; (f) the Account is evidenced by Chattel Paper or an Instrument of any kind, or has been reduced to judgment; (g) the Account is an Account of an Account Debtor having its principal place of business or executive office outside the United States; (h) the Account Debtor is an Affiliate or Subsidiary of Borrower; (i) the total unpaid Accounts of any individual Account Debtor obligated on the Account exceed twenty percent (20%) of the net amount of all Qualified Accounts; (j) any covenant, representation or warranty contained in the Loan Documents with respect to such Account has been breached in any material respect; or (k) the Account fails to meet such other specifications and requirements which may from time to time be established by Lender in its reasonable credit judgment in accordance with its customary lending practices and notice of which shall have been given to Borrower at least five (5) days prior to the effective date. SECTION 1.59. RECEIVABLES-RELATED COLLATERAL. "Receivables-Related Collateral" means those items of Collateral described in Section 3.1 (a) through (d) and in Section 3.1(h) as related to or proceeding from such items of Collateral. SECTION 1.60. REPORTABLE EVENT. "Reportable Event" means a "reportable event" as defined in Section 4043(b) of ERISA. SECTION 1.61. REVOLVING CREDIT LOAN. "Revolving Credit Loan" has the meaning set forth in Section 2.1(b). SECTION 1.62. SERVICES. "Services" means the site management services provided by Borrower to pharmaceutical companies and clinical research organizations. SECTION 1.63. TANGIBLE COLLATERAL. "Tangible Collateral" means those items of Collateral described in Section 3.1(e) and (f) and in Section 3.1(h) as related to or proceeding from such items of Collateral. SECTION 1.64. TERM. "Term" has the meaning set forth in Section 2.8. SECTION 1.65. UNIFORM COMMERCIAL CODE. "Uniform Commercial Code" means the Uniform Commercial Code, as amended and in effect in the State of Maryland. SECTION 1.66. USAGE FEE. "Usage Fee" has the meaning set forth in Section 2.4 (b). ARTICLE II LOAN SECTION 2.1. TERMS. (a) The maximum aggregate principal amount of credit extended by Lender to Borrower under this Agreement (the "Loan") that will be outstanding at any time is Fifteen Million and No/100 Dollars ($15,000,000.00) (the "Maximum Loan Amount"). Notwithstanding the foregoing, the maximum aggregate principal amount of Revolving Credit Loans made by Lender to Borrower under this Agreement and to the Affiliated Borrowers under the Affiliated Loan Agreements shall not at any time exceed Thirty Million and No/100 Dollars ($30,000,000.00) (the "Overall Maximum Loan Amount"). (b) The Loan shall be in the nature of a revolving line of credit, and shall include sums advanced and other credit extended by Lender to or for the benefit of Borrower from time to time under this Article II (each a "Revolving Credit Loan") up to the lesser of (i) the Maximum Loan Amount and (ii) the Borrowing Base submitted in connection with such request. The outstanding principal balance of the Loan may fluctuate from time to time, will be reduced by repayments made by Borrower (which may be made without penalty or premium), and will be increased by future Revolving Credit Loans, advances and other extensions of credit to or for the benefit of Borrower, and shall be due and payable in full upon the expiration of the Term. For purposes of this Agreement, any determination as to whether there is ability within the Borrowing Base for advances or extensions of credit shall be made by Lender in the exercise of its reasonable lender's discretion and shall be final and binding upon Borrower. (c) At Closing, Borrower shall execute and deliver to Lender a promissory note evidencing Borrower's unconditional obligation to repay Lender for Revolving Credit Loans, advances, and other extensions of credit made under the Loan, in the form of EXHIBIT A to this Agreement (the "Note"), dated the date of this Agreement, payable to the order of Lender in accordance with the terms of such Note. The Note shall bear interest from the date of such Note until repaid, with interest payable monthly in arrears on the first Business Day of each month, at a rate per annum (on the basis of the actual number of days elapsed over a year of 360 days) equal to the Base Rate, provided that after an Event of Default has occurred and is continuing, such rate shall be equal to the Default Rate. Each Revolving Credit Loan, advance and other extension of credit shall be deemed evidenced by the Note, which is deemed incorporated into and made a part of this Agreement by this reference. (d) Subject to the terms and conditions of this Agreement, advances under the Loan shall be made against a borrowing base equal to eighty percent (80%) of Qualified Accounts due and owing to Borrower from any Account Debtor (the "Borrowing Base"). SECTION 2.2. LOAN ADMINISTRATION. Borrowings under the Loan shall be as follows: (a) A request for a Revolving Credit Loan shall be made, or shall be deemed to be made, in the following manner: (i) Borrower may give Lender notice of its intention to borrow, in which notice Borrower shall specify the amount of the proposed borrowing and the proposed borrowing date, not later than 2:00 p.m. Eastern time one (1) Business Day prior to the proposed borrowing date; PROVIDED, HOWEVER, that no such request may be made at a time when there exists an Event of Default; and (ii) the becoming due of any amount required to be paid under this Agreement, whether as interest or for any other Obligation, shall be deemed irrevocably to be a request for a Revolving Credit Loan on the due date in the amount required to pay such interest or other Obligation. (b) Borrower hereby irrevocably authorizes Lender to disburse the proceeds of each Revolving Credit Loan requested, or deemed to be requested, as follows: (i) the proceeds of each Revolving Credit Loan requested under subsection 2.2(a)(i) shall be disbursed by Lender by wire transfer to such bank account as may be agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to written direction from Borrower; and (ii) the proceeds of each Revolving Credit Loan requested under subsection 2.2(a)(ii) shall be disbursed by Lender by way of direct payment of the relevant interest or other Obligation. (c) All Revolving Credit Loans, advances and other extensions of credit to or for the benefit of Borrower shall constitute one general Obligation of Borrower, and shall be secured by Lender's lien upon all of the Collateral. (d) Lender shall enter all Revolving Credit Loans as debits to a loan account in the name of Borrower and shall also record in said loan account all payments made by Borrower on any Obligations and all proceeds of Collateral which are indefeasibly paid to Lender, and may record therein, in accordance with customary accounting practice, other debits and credits, including interest and all charges and expenses properly chargeable to Borrower under or in connection with this Agreement. All collections into the Concentration Account pursuant to Section 2.3 shall be applied first to fees, costs and expenses due and owing under the Loan Documents, then to interest due and owing under the Loan Documents, and then to principal outstanding with respect to Revolving Credit Loans. (e) Lender will account to Borrower monthly with a statement of Revolving Credit Loans, charges and payments made pursuant to this Agreement, and such accounting rendered by Lender shall be deemed final, binding and conclusive upon Borrower unless Lender is notified by Borrower in writing to the contrary within thirty (30) days of the date each accounting is received by Borrower. Such notice shall be deemed an objection to those items specifically objected to in such accounting. (f) So long as no Event of Default has occurred and is continuing (including, without limitation, the bottom line availability under the Borrowing Base being lower than the outstanding principal balance under the Agreement) proceeds of collections received by Lender on Accounts shall be made immediately available to Borrower as additional extensions of credit under this Agreement without any need for Borrower to request such extension of credit. Borrower's ability to receive such automatic extensions of credit is expressly conditioned on Borrower's submitting to Lender a Borrowing Base Certificate at least weekly during the Term. SECTION 2.3. COLLECTIONS, DISBURSEMENTS, BORROWING AVAILABILITY, AND LOCKBOX. Borrower shall maintain a lockbox account (the "Lockbox") with NationsBank, N.A. (South) or another financial institution mutually acceptable to Borrower and Lender (the "Lockbox Bank"), subject to the provisions of this Agreement, and shall execute with the Lockbox Bank a Lockbox Agreement substantially in the form attached as EXHIBIT B (the "Lockbox Agreement"), and such other agreements related thereto as Lender may reasonably require. Borrower shall ensure that all collections of Accounts from entities that become Account Debtors after the date of this Agreement are paid directly from such Account Debtors into the Lockbox, and that, so long as any Obligations are outstanding, all funds paid into the Lockbox are immediately transferred into a depository account maintained by Lender at Bank One Arizona, N.A. or U.S. Bank N.A., as determined by Lender in its sole discretion and communicated to Borrower (the "Concentration Account"). Lender shall apply, on a daily basis, all funds transferred into the Concentration Account pursuant to this Section 2.3 to reduce the outstanding indebtedness under the Loan (in accordance with Section 2.2(d)). Future Revolving Credit Loans, advances and other extensions of credit shall be made by Lender under the conditions set forth in this Article II. To the extent that any collections of Accounts or proceeds of other Collateral are not sent directly to the Lockbox but are received by Borrower, such collections shall be held in trust for the benefit of Lender and remitted within one (1) Business Day, in the form received, to the Lockbox Bank for transfer to the Concentration Account immediately upon receipt by Borrower. Collections from entities that are Account Debtors on or before the date of this Agreement may continue to be received directly by Borrower but shall be remitted to the Concentration Account within one (1) Business Day after such receipt. Borrower acknowledges and agrees that its compliance with the terms of this Section 2.3 is essential, and that if Lender reasonably determines that Borrower has failed to comply with any such terms, Lender shall give Borrower five (5) days written notice of such noncompliance. If the noncompliance is not cured within such five-day period, Lender shall be entitled to assess a noncompliance fee, which shall operate to increase the Base Rate by up to two percent (2%) per annum during any period of noncompliance. Lender shall be entitled to assess such fee whether or not an Event of Default is declared or otherwise occurs. Notwithstanding the foregoing, the failure by Borrower to transmit or cause to be transmitted to the Lockbox an aggregate of up to $100,000.00 in any calendar quarter shall not be deemed to be noncompliance with this Section. All funds transferred from the Concentration Account for application to Borrower's indebtedness to Lender shall be applied to reduce the Loan balance, but for purposes of calculating interest shall be subject to a five (5) Business Day clearance period. If as the result of collections of Accounts pursuant to the terms and conditions of this Section 2.3 a credit balance exists with respect to the Concentration Account, such credit balance shall not accrue interest in favor of Borrower, but shall be available to Borrower upon written request at any time or times for so long as no Event of Default exists and is continuing. SECTION 2.4. FEES. (a) Upon execution of this Agreement, Borrower shall unconditionally pay to Lender the balance owing on a commitment fee equal to one percent (1%) of the Maximum Loan Amount (the "Commitment Fee"), provided that the aggregate Commitment Fees paid under this Agreement and the Affiliated Loan Agreements shall not exceed one percent (1%) of the Overall Maximum Loan Amount. (b) For so long as the Loan is available to Borrower, Borrower shall pay to Lender a minimum usage fee (the "Usage Fee") equal to one-fortieth of one percent (0.025%) of the average amount by which the Maximum Loan Amount exceeds the average amount of the outstanding principal balance of the Revolving Credit Loans during the preceding month. The Usage Fee shall be payable monthly in arrears on the first Business Day of each successive calendar month. (c) For so long as the Loan is available to Borrower, Borrower unconditionally shall pay to Lender a monthly loan management fee (the "Loan Management Fee") equal to one-sixteenth of one percent (0.0625%) of the average amount of the outstanding principal balance of the Revolving Credit Loans during the preceding month. The Loan Management Fee shall be payable monthly in arrears on the first day of each successive calendar month. (d) Borrower shall pay to Lender all reasonable out-of-pocket audit fees in connection with audits of Borrower's books and records and such other matters as Lender shall deem appropriate, which shall be due and payable on the first Business Day of the month following the date of issuance by Lender of a request for payment thereof to Borrower. So long as no Event of Default has occurred and is continuing, such audits shall occur no more than four (4) times in a calendar year. (e) Borrower shall pay to Lender, on demand, any and all fees, costs or expenses which Lender pays to a bank or other similar institution arising out of or in connection with (i) the forwarding to Borrower or any other Person on behalf of Borrower, by Lender, of proceeds of Revolving Credit Loans made by Lender to Borrower pursuant to this Agreement, and (ii) the depositing for collection, by Lender, of any check or item of payment received or delivered to Lender on account of Obligations. SECTION 2.5. PAYMENTS. Principal payable on account of Revolving Credit Loans shall be payable by Borrower to Lender immediately upon the earliest of (i) subject to the provisions of Section 3.7, the receipt by Borrower of any proceeds of any of the Collateral, to the extent of such proceeds, (ii) the occurrence of an Event of Default in consequence of which the Loan and the maturity of the payment of the Obligations are accelerated under Section 8.2, or (iii) the termination of this Agreement pursuant to Section 2.8; PROVIDED, HOWEVER, that if any advance made by Lender in excess of the Borrowing Base shall exist at any time, Borrower shall, immediately upon demand, repay such overadvance. Interest accrued on the Revolving Credit Loans shall be due on the earliest of (i) the first Business Day of each month (for the immediately preceding month), computed on the last calendar day of the preceding month, (ii) the occurrence of an Event of Default in consequence of which the Loan and the maturity of the payment of the Obligations are accelerated under Section 8.2, or (iii) the termination of this Agreement pursuant to Section 2.8 under this Agreement. Except to the extent otherwise set forth in this Agreement, all payments of principal and of interest on the Loan, all other charges and any other obligations of Borrower under this Agreement, shall be made to Lender to the Concentration Account, in immediately available funds. SECTION 2.6. USE OF PROCEEDS. The proceeds of Lender's advances under the Loan shall be used to make funds available to certain physicians that provide services to Borrower on an independent contractor basis, and for other general business purposes. SECTION 2.7. INTEREST RATE LIMITATION. The parties intend to conform strictly to the applicable usury laws in effect from time to time during the term of the Loan. Accordingly, if any transaction contemplated hereby would be usurious under such laws, then notwithstanding any other provision under this Agreement: (i) the aggregate of all interest that is contracted for, charged, or received under this Agreement or under any other Loan Document shall not exceed the maximum amount of interest allowed by applicable law (the "Highest Lawful Rate"), and any excess shall be promptly credited to Borrower by Lender (or, to the extent that such consideration shall have been paid, such excess shall be promptly refunded to Borrower by Lender); (ii) neither Borrower nor any other Person now or hereafter liable under this Agreement shall be obligated to pay the amount of such interest to the extent that it is in excess of the Highest Lawful Rate; and (iii) the effective rate of interest shall be reduced to the Highest Lawful Rate. All sums paid, or agreed to be paid, to Lender for the use, forbearance, and detention of the debt of Borrower to Lender shall, to the extent permitted by applicable law, be allocated throughout the full term of the Note until payment is made in full so that the actual rate of interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. If at any time the rate of interest under the Note exceeds the Highest Lawful Rate, the rate of interest to accrue pursuant to this Agreement shall be limited, notwithstanding anything to the contrary in this Agreement, to the Highest Lawful Rate, but any subsequent reductions in the Base Rate shall not reduce the interest to accrue pursuant to this Agreement below the Highest Lawful Rate until the total amount of interest accrued equals the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect. If the total amount of interest paid or accrued pursuant to this Agreement under the foregoing provisions is less than the total amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had been in effect, then Borrower agrees to pay to Lender an amount equal to the difference between (x) the lesser of (A) the amount of interest that would have accrued if the Highest Lawful Rate had at all times been in effect, or (B) the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect, and (y) the amount of interest accrued in accordance with the other provisions of this Agreement. SECTION 2.8. TERM. (a) Subject to Lender's right to cease making Revolving Credit Loans to Borrower upon or after any Event of Default, this Agreement shall be in effect for a period of three (3) years from the Closing Date, unless terminated as provided in Section 2.8(c) or Section 8.3(a) (the "Term"), and this Agreement may be renewed for one-year periods thereafter upon the mutual written agreement of the parties. (b) Notwithstanding anything in this Agreement to the contrary, Lender may terminate this Agreement upon and during the occurrence of an Event of Default after giving five (5) Business Days' prior written notice to Borrower. (c) Upon at least sixty (60) days prior written notice to Lender (the "Termination Notice Period"), Borrower may terminate this Agreement during the Term, provided that, if the termination is due to an unaffiliated third-party paying off the Obligations, then, at the effective date of such termination, Borrower shall pay to Lender (in addition to the then outstanding principal, accrued interest and other Obligations owing under the terms of this Agreement and any other Loan Documents) as liquidated damages for the loss of bargain and not as a penalty, an amount equal to (i) three percent (3%) of the Maximum Loan Amount if the effective date of such termination by Borrower is on or before the first annual anniversary of the Closing Date, (ii) two percent (2%) of the Maximum Loan Amount if the effective date of such termination by Borrower is after the first annual anniversary of the Closing Date and on or before the second annual anniversary of the Closing Date, and (iii) one percent (1%) of the Maximum Loan Amount if the effective date of such termination is after the second annual anniversary of the Closing Date and before the date that is thirty (30) days before the end of the Term. (d) All of the Obligations shall be immediately due and payable at the end of the Term (the "Termination Date"); provided, however, that notwithstanding anything in Section 2.8(c) to the contrary, the Termination Date shall be effective no earlier than the first Business Day of the month following the expiration of the Termination Notice Period. All undertakings, agreements, covenants, warranties, and representations of Borrower contained in the Loan Documents shall survive any such termination, and Lender shall retain its liens in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding any such termination until Borrower has paid the Obligations to Lender, in full, in immediately available funds. Notwithstanding the foregoing, Lender acknowledges that certain items of Tangible Collateral may be released from Lender's liens from time to time in accordance with the provisions of Section 3.7. (e) Notwithstanding any provision of this Agreement which makes reference to the continuance of an Event of Default, nothing in this Agreement shall be construed to permit Borrower to cure an Event of Default following the lapse of the applicable cure period, and Borrower shall have no such right in any instance unless specifically granted in writing by Lender. SECTION 2.9. JOINT AND SEVERAL LIABILITY; BINDING OBLIGATIONS. Each entity comprising Borrower and executing this Agreement on behalf of Borrower shall be jointly and severally liable for all of the Obligations. In addition, each entity comprising Borrower hereby acknowledges and agrees that all of the representations, warranties, covenants, obligations, conditions, agreements and other terms contained in this Agreement shall be applicable to and shall be binding upon each individual entity comprising Borrower, and shall be binding upon all such entities when taken together. ARTICLE III COLLATERAL SECTION 3.1. GENERALLY. As security for the payment of all liabilities of Borrower to Lender pursuant to the Loan Documents, including without limitation: (i) indebtedness evidenced under the Note, repayment of Revolving Credit Loans, advances and other extensions of credit, all fees and charges owing by Borrower, and all other liabilities and obligations of every kind or nature whatsoever of Borrower to Lender pursuant to the Loan Documents, whether now existing or hereafter incurred, joint or several, matured or unmatured, direct or indirect, primary or secondary, related or unrelated, due or to become due, including but not limited to any extensions, modifications, substitutions, increases and renewals thereof, all as may be due under or related to this Agreement and the other Loan Documents, (ii) the payment of all amounts advanced by Lender to preserve, protect, defend, and enforce its rights under this Agreement and in the following property in accordance with the terms of this Agreement, and (iii) the payment of all expenses incurred by Lender in connection therewith (collectively, the "Obligations"), and as further security for the payment and performance of the obligations of Affiliated Borrowers under the Affiliated Loan Agreements, Borrower hereby assigns and grants to Lender a continuing first priority lien on and security interest in, upon, and to the following property (the "Collateral"): (a) All of Borrower's now-owned and hereafter acquired or arising Accounts and all accounts receivable and rights to payment of every kind and description relating to Services, and all of Borrower's contract rights, Chattel Paper, Documents and Instruments with respect thereto, and all of Borrower's rights, remedies, security and liens, in, to and in respect of the Accounts, including, without limitation, all rights and remedies of an unpaid lienor or secured party, guaranties or other contracts of suretyship with respect to the Accounts, deposits or other security for the obligation of any Account Debtor, and credit and other insurance; (b) All moneys, securities and other property and the proceeds thereof, now or hereafter held or received by, in transit to, in possession of, or under the control of Lender or a bailee or Affiliate of Lender, from or for Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all of Borrower's deposits (general or special), balances, sums and credits with Lender at any time existing; (c) All of Borrower's now or hereafter acquired deposit accounts into which proceeds of Accounts are deposited, to the extent of such proceeds, including the Lockbox; (d) All of Borrower's now owned and hereafter acquired or arising General Intangibles and other property of every kind and description with respect to, evidencing or relating to its Accounts, including, but not limited to, all existing and future customer lists, choses in action, claims, books, records, ledger cards, contracts, licenses, formulae, tax and other types of refunds, returned and unearned insurance premiums, rights and claims under insurance policies, and computer programs, information, software, records, and data, but solely as each of the same relate to the Accounts; (e) All of Borrower's other general intangibles (including, without limitation, any proceeds from insurance policies after payment of prior interests), patents, unpatented inventions, trade secrets, copyrights, contract rights, goodwill, literary rights, rights to performance, rights under licenses, choses-in-action, claims, information contained in computer media (such as data bases, source and object codes, and information therein), things in action, trademarks and trademarks applied for (together with the goodwill associated therewith) and derivatives thereof, trade names, including the right to make, use, and vend goods utilizing any of the foregoing, and permits, licenses, certifications, authorizations and approvals, and the rights of Borrower thereunder, issued by any governmental, regulatory, or private authority, agency, or entity whether now owned or hereafter acquired, together with all cash and non-cash proceeds and products thereof; (f) All of Borrower's now owned or hereafter acquired inventory of every description which is held by Borrower for sale or lease or is furnished by Borrower under any contract of service or is held by Borrower as raw materials, work in process or materials used or consumed in a business, wherever located, and as the same may now and hereafter from time to time be constituted, together with all cash and non-cash proceeds and products thereof; (g) All of Borrower's now owned or hereafter acquired machinery, equipment, computer equipment, tools, tooling, furniture, fixtures, goods, supplies, materials, work in process, whether now owned or hereafter acquired, together with all additions, parts, fittings, accessories, special tools, attachments, and accessions now and hereafter affixed thereto and/or used in connection therewith, all replacements thereof and substitutions therefor, and all cash and non-cash proceeds and products thereof; and (h) The proceeds (including, without limitation, insurance proceeds) of all of the foregoing. The Collateral as described above includes both the "Receivables-Related Collateral" and the "Tangible Collateral." SECTION 3.2. LIEN DOCUMENTS. At Closing and thereafter as Lender deems necessary in its sole discretion, Borrower shall execute and deliver to Lender, or have executed and delivered (all in form and substance satisfactory to Lender in its reasonable discretion): (a) UCC-1 Financing Statements pursuant to the Uniform Commercial Code in effect in the jurisdiction(s) in which Borrower operates, which Lender may file in any jurisdiction where any Collateral is or may be located and in any other jurisdiction that Lender deems appropriate; PROVIDED that a carbon, photographic, or other reproduction or other copy of this Agreement is sufficient as and may be filed in lieu of a financing statement; and (b) Any other agreements, documents, instruments, and writings deemed necessary by Lender or as Lender may otherwise reasonably request from time to time to evidence, perfect, or protect Lender's lien and security interest in the Collateral required under this Agreement. SECTION 3.3. COLLATERAL ADMINISTRATION. (a) All Collateral (except deposit accounts) will at all times be kept by Borrower at its principal office(s) or at such other locations as identified to Lender, all as set forth on SCHEDULE 4.15 and shall not, without at least thirty (30) days notice to Lender, be moved therefrom. (b) Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit to Lender on such periodic basis as Lender shall reasonably request a collections report for the preceding period, in form reasonably satisfactory to Lender. In addition, if Accounts in an aggregate face amount in excess of $50,000.00 become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Qualified Accounts, Borrower shall notify Lender of such occurrence on the first Business Day following the date on which Borrower first becomes aware of such occurrence, and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. After the occurrence and during the continuance of an Event of Default, if requested by Lender, Borrower shall execute and deliver to Lender formal written assignments of all of its Accounts weekly or daily, which shall include all Accounts that have been created since the date of the last assignment, together with copies of claims, invoices or other information related thereto. (c) After an Event of Default has occurred, and while it is continuing, any of Lender's officers, employees or agents shall have the right, at any time or times thereafter, in the name of Lender, any designee of Lender or Borrower, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with Lender in an effort to facilitate and promptly conclude such verification process. (d) To expedite collection, Borrower shall endeavor in the first instance to make collection of its Accounts for Lender. Lender retains the right at all times after the occurrence of an Event of Default, to notify Account Debtors that Accounts have been assigned to Lender and to collect Accounts directly in its own name and to charge reasonable collection costs and expenses, including reasonable attorneys' fees (including both outside and in-house counsel), to Borrower. SECTION 3.4. OTHER ACTIONS. In addition to the foregoing, Borrower (i) shall provide prompt written notice to each entity that becomes an Account Debtor at any time following the date of this Agreement that payments on Accounts shall thereafter be made directly to the Lockbox, (ii) after an Event of Default has occurred and is continuing, hereby authorizes Lender to provide written notice to each entity that is then an Account Debtor or thereafter becomes an Account Debtor that Lender has been granted a first priority lien and security interest in, upon and to all Accounts applicable to such Account Debtor, and (iii) shall do anything further that may be lawfully required by Lender to secure Lender and effectuate the intentions and objects of this Agreement, including but not limited to the execution and delivery of lockbox agreements, continuation statements, amendments to financing statements, terminations of financing statements, and any other documents required under this Agreement. At Lender's request, Borrower shall also immediately deliver to Lender all items for which Lender must receive possession to obtain a perfected security interest. Borrower shall, on Lender's demand, deliver to Lender all notes, certificates, and documents of title, Chattel Paper, warehouse receipts, Instruments, and any other similar instruments constituting Collateral. SECTION 3.5. SEARCHES. Before Closing, and thereafter (as and when determined by Lender in its reasonable discretion), Lender shall perform the searches set forth in clauses (a) and (b) below against Borrower (the results of which are to be consistent with Borrower's representations and warranties under this Agreement), all at Borrower's expense: (a) Uniform Commercial Code searches with the Secretary of State and local filing offices of each jurisdiction where Borrower maintains its executive offices, a place of business, or assets; and (b) Judgment, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction searched under clause (a) above. So long as no Event of Default has occurred and is continuing, Lender agrees to perform such searches no more frequently than quarterly. Borrower shall obtain and deliver to Lender prior to Closing Good Standing certificates showing Borrower to be in good standing in its state of formation and in each other state in which it is doing and currently intends to do business for which qualification is required. SECTION 3.6. POWER OF ATTORNEY. After an Event of Default and while it is continuing, Borrower hereby makes, constitutes and appoints each of the officers of Lender as the true and lawful attorney for Borrower (without requiring any of them to act as such) with full power of substitution to do the following: (i) endorse the name of Borrower upon any and all checks, drafts, money orders, and other instruments for the payment of money that are payable to Borrower and constitute collections on Borrower's Accounts; (ii) execute in the name of Borrower any financing statements, schedules, assignments, instruments, documents, and statements that Borrower is obligated to give Lender under this Agreement; and (iii) after the occurrence of an Event of Default, do such other and further acts and deeds in the name of Borrower that Lender may deem necessary or reasonable to enforce any Account or other Collateral or perfect Lender's security interest or lien in any Collateral. SECTION 3.7. RELEASE OF SECURITY INTEREST AND LIENS. Lender shall release its security interest and other liens in, on and to the Collateral when all the Obligations have been paid in full, and Lender will reassign and redeliver (or cause to be reassigned and redelivered) to Borrower, or to such Person as Borrower designates, against receipt, such of the Collateral (if any) assigned by Borrower to Lender (or otherwise held by Lender) as has not been sold or otherwise applied by Lender under the terms of this Agreement and the other Loan Documents and is still held by it under this Agreement of the other Loan Documents, together with appropriate instruments of reassignment and release. Notwithstanding the foregoing, upon the disposition for value by Borrower of Tangible Collateral, Lender agrees, so long as no Event of Default has occurred and is continuing, that it will release its lien(s) on such Collateral and execute any necessary or desirable instruments in connection therewith. ARTICLE IV REPRESENTATIONS AND WARRANTIES Each entity comprising Borrower represents and warrants to Lender that: SECTION 4.1. SUBSIDIARIES. Except as set forth in SCHEDULE 4.1, on the Closing Date, Borrower has no subsidiaries. SECTION 4.2. ORGANIZATION AND GOOD STANDING. Each entity comprising Borrower is a corporation duly organized, validly existing, and in good standing under the laws of its state of formation, is in good standing as a foreign corporation in each jurisdiction in which the character of the properties owned or leased by it in such jurisdiction or the nature of its business makes such qualification necessary (other than those jurisdictions where the failure to qualify could not reasonably be likely to have a Material Adverse Effect), has the corporate power and authority to own its assets and transact the business in which it is engaged, and has obtained all certificates, licenses and qualifications required under all laws, regulations, ordinances, or orders of public authorities necessary for the ownership and operation of all of its properties and transaction of all of its business, other than those where the failure to so obtain could not reasonably be likely to have a Material Adverse Effect. SECTION 4.3. AUTHORITY. Borrower has full corporate power and authority to enter into, execute, and deliver this Agreement and to perform its obligations under this Agreement, to borrow the Loan, to execute and deliver the Note, and to incur and perform the obligations provided for in the Loan Documents, all of which have been duly authorized by all necessary corporate action. No consent or approval of shareholders of, or lenders to, Borrower and no consent, approval, filing or registration with any Governmental Authority is required as a condition to the validity of the Loan Documents or the performance by Borrower of its obligations under the Loan Documents other than those previously obtained. SECTION 4.4. BINDING AGREEMENT. This Agreement and all other Loan Documents constitute, and the Note, when issued and delivered pursuant hereto for value received, will constitute, the valid and legally binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms other than (i) applicable bankruptcy, insolvency, reorganization, voidable preference, moratorium or similar laws, and related judicial doctrines, affecting creditors' rights and remedies generally, as in effect from time to time, and (ii) general principles of equity, whether such principles are considered in a proceeding at law or in equity. SECTION 4.5. LITIGATION. Except as disclosed in SCHEDULE 4.5, there are no actions, suits, proceedings or investigations pending or, to Borrower's knowledge, threatened against Borrower before any court or arbitrator or before or by any Governmental Authority which, in any one case or in the aggregate, if determined adversely to the interests of Borrower, could have a Material Adverse Effect. Borrower is not in default with respect to any order of any court, arbitrator, or Governmental Authority applicable to Borrower or its properties. SECTION 4.6. NO CONFLICTS. The execution and delivery by Borrower of this Agreement and the other Loan Documents do not, and the performance of its obligations under the Loan Documents will not, violate, conflict with, constitute a default under, or result in the creation of a lien or encumbrance upon the property of Borrower under: (i) any provision of Borrower's charter documents; (ii) any provision of any law, rule, or regulation applicable to Borrower other than those provisions the violation of which could not reasonably be likely to have a Material Adverse Effect, or (iii) any of the following: (A) any indenture or other material agreement or instrument to which Borrower is a party or by which Borrower or its property is bound; or (B) any judgment, order or decree of any court, arbitration tribunal, or Governmental Authority having jurisdiction over Borrower which is applicable to Borrower. SECTION 4.7. FINANCIAL CONDITION. The annual consolidated financial statements of PMC as of January 31, 1998 audited by PricewaterhouseCoopers and the unaudited financial statements of PMC as of October 31, 1998, certified by the chief financial officer of PMC, which have been delivered to Lender, fairly present the financial condition of PMC and the results of its operations and changes in financial condition as of the dates and for the periods referred to, and have been prepared in accordance with GAAP. There are no material unrealized or anticipated liabilities, direct or indirect, fixed or contingent, of PMC as of the dates of such financial statements which are not reflected in such financial statements or in the notes to such financial statements. Except as previously disclosed by Borrower to Lender, there has been no event that could reasonably be likely to have a Material Adverse Effect since October 31, 1998. The federal tax identification number of each entity comprising Borrower is as described on SCHEDULE 4.7. SECTION 4.8. NO DEFAULT. Borrower is not in default under or with respect to any material obligation in any respect which could reasonably be likely to have a Material Adverse Effect. No Event of Default has occurred and is continuing under this Agreement. SECTION 4.9. TITLE TO PROPERTIES. Borrower has good and marketable title to the Collateral, subject to no lien, pledge, encumbrance or charge of any kind, other than Permitted Liens. Borrower has not agreed or consented to cause any of the Collateral, whether owned now or hereafter acquired or created, to be subject in the future (upon the happening of a contingency or otherwise) to any lien, pledge, encumbrance or charge of any kind other than Permitted Liens. SECTION 4.10. TAXES. Borrower has filed, or has obtained extensions for the filing of, all federal, state and other tax returns which are required to be filed, and has paid all taxes shown as due on those returns and all assessments, fees and other amounts due as of the date of this Agreement. All material tax liabilities of Borrower were, as of October 31, 1998 adequately provided for on Borrower's books. No material tax liability has been asserted by the Internal Revenue Service or other taxing authority against Borrower for taxes in excess of those already paid. Notwithstanding the foregoing, Borrower shall not be, and shall not have been required to pay any tax (other than payroll taxes) so long as the validity or amount of the tax shall be contested in good faith and by appropriate proceedings, demonstrated to the reasonable satisfaction of Lender, by Borrower, and Borrower shall have set aside on its books adequate reserve therefor to the extent required by GAAP; PROVIDED, HOWEVER, that such deferment of payment is permissible only so long as Borrower's title to, and its right to use, the Collateral is not adversely affected thereby and Lender's lien and priority on the Collateral are not adversely affected, altered or impaired thereby. SECTION 4.11. SECURITIES AND BANKING LAWS AND REGULATIONS. (a) The use of the proceeds of the Loan and Borrower's issuance of the Note will not directly or indirectly violate or result in a violation of the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including without limitation Regulations U, T, or X of the Board of Governors of the Federal Reserve System. Borrower is not engaged in the business of extending credit for the purpose of the purchasing or carrying "margin stock" within the meaning of those regulations. No part of the proceeds of the Loan under this Agreement will be used to purchase or carry any margin stock or to extend credit to others for such purpose. (b) Borrower is not an investment company within the meaning of the Investment Company Act of 1940, as amended, nor is it, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company within the meaning of that Act. SECTION 4.12. ERISA. No employee benefit plan (a "Plan") subject to the Employee Retirement Income Security Act of 1974 ("ERISA") and regulations issued pursuant thereto that is maintained by Borrower or under which Borrower could have any material liability under ERISA (a) has failed to meet minimum funding standards established in Section 302 of ERISA, (b) has failed to comply with all applicable requirements of ERISA and of the Internal Revenue Code, including all applicable rulings and regulations thereunder, (c) has engaged in or been involved in a prohibited transaction (as defined in ERISA) under ERISA or under the Internal Revenue Code, or (d) has been terminated. Borrower has not assumed, or received notice of a claim asserted against Borrower for, withdrawal liability (as defined in the Multi-Employer Pension Plan Amendments Act of 1980, as amended) with respect to any multi-employer pension plan and is not a member of any Controlled Group (as defined in ERISA). Borrower has timely made when due all contributions with respect to any multi-employer pension plan in which it participates and no event has occurred triggering a claim against Borrower for withdrawal liability with respect to any multi-employer pension plan in which Borrower participates. SECTION 4.13. COMPLIANCE WITH LAW. Except as described in SCHEDULE 4.13, Borrower is not in material violation of any statute, rule or regulation of any Governmental Authority (including, without limitation, any statute, rule or regulation relating to employment practices or to environmental, occupational and health standards and controls) where the failure to comply would have a Material Adverse Effect. Borrower has obtained all licenses, permits, franchises, and other governmental authorizations necessary for the ownership of its properties and the conduct of its business where the failure to so obtain such licenses, permits, franchises, and other governmental authorizations would have a Material Adverse Effect. Borrower is current with all reports and documents required to be filed with any state or federal securities commission or similar Governmental Authority and is in full compliance with all applicable rules and regulations of such commissions to the extent noncompliance therewith could reasonably be likely to have a Material Adverse Effect. SECTION 4.14. ENVIRONMENTAL MATTERS. No use, exposure, release, generation, manufacture, storage, treatment, transportation or disposal of Hazardous Material has occurred or is occurring on or from any real property on which the Collateral is located or which is owned, leased or otherwise occupied by Borrower (the "Premises"), or off the Premises as a result of any action of Borrower other than in material compliance with all laws and except as described in SCHEDULE 4.14. All Hazardous Material used, treated, stored, transported to or from, generated or handled on the Premises, or off the Premises by Borrower, has been disposed of on or off the Premises by or on behalf of Borrower in material compliance with all laws. There are no underground storage tanks present on or under the Premises owned or leased by Borrower. To the best of Borrower's knowledge, no other environmental, public health or safety hazards exist with respect to the Premises. SECTION 4.15. PLACES OF BUSINESS. The only places of business of Borrower, and the places where it keeps and intends to keep the Collateral and records concerning the Collateral, are at the addresses set forth in SCHEDULE 4.15. SECTION 4.16. STOCK OWNERSHIP. The identity of each stockholder of record of each entity comprising Borrower (other than PhyMatrix) at the Closing Date, together with the respective ownership percentages held by each such stockholder as of such date, are as set forth on SCHEDULE 4.16. The identity of each current executive officer or director of PhyMatrix known to own five percent (5%) or more of any outstanding class of stock of PhyMatrix, together with the respective ownership percentages held by each such person as of such date, are as set forth on SCHEDULE 4.16. SECTION 4.17. BUSINESS INTERRUPTIONS. Within five years before the date of this Agreement, neither the business, property or assets, or operations of Borrower has been adversely affected in any way by any casualty, strike, lockout, combination of workers, or order of the United States of America or other Governmental Authority, directed against Borrower. There are no pending or, to Borrower's knowledge, threatened labor disputes, strikes, lockouts, or similar occurrences or grievances against Borrower or its business the effect of which could reasonably be likely to have a Material Adverse Effect. SECTION 4.18. NAMES. Within five years before the date of this Agreement, Borrower has not conducted business under or used any other name (whether corporate, partnership or assumed) other than as shown on SCHEDULE 4.18. Borrower is the sole owner of all names listed on that Schedule and any and all business done and invoices issued in such names are Borrower's sales, business, and invoices. Each trade name of Borrower represents a division or trading style of Borrower and not a separate Person or independent Affiliate. SECTION 4.19 ACCOUNTS. Lender may rely, in determining which Accounts are Qualified Accounts, on all statements and representations made by Borrower with respect to any Account or Accounts. Unless otherwise indicated in writing to Lender, with respect to each Account: (a) It is genuine and in all respects what it purports to be, and is not evidenced by a judgment; (b) It arises out of a completed, BONA FIDE rendition of Services by Borrower in the ordinary course of their respective businesses and in accordance with the terms and conditions of all contracts, certification, or other documents relating thereto and forming a part of the contract between Borrower and the Account Debtor; (c) It is for a liquidated amount maturing as stated in a duplicate claim or invoice covering such sale or rendition of Services, a copy of which has been furnished or is available to Lender; (d) Such Account, and Lender's security interest in such Account is not, and will not (by voluntary act or omission by Borrower), be in the future, subject to any offset, lien, deduction, defense, dispute, counterclaim or any other adverse condition, and each such Account is absolutely owing to Borrower and is not contingent in any respect or for any reason; (e) There are no facts, events or occurrences which in any way impair the validity or enforceability of any Accounts or tend to reduce the amount payable under the Accounts from the face amount of the claim or invoice and statements delivered to Lender with respect thereto; (f) To the Borrower's knowledge, (i) the Account Debtor under the Account had the capacity to contract at the time any contract or other document giving rise to the Account was executed and (ii) such Account Debtor is solvent; (g) To the Borrower's knowledge, there are no proceedings or actions which are threatened or pending against any Account Debtor under an Account which might result in any material adverse change in such Account Debtor's financial condition or the collectibility of such Account; (h) It has been billed and forwarded to the Account Debtor for payment in accordance with applicable laws and compliance and conformance with any and all requisite procedures, requirements and regulations governing payment by such Account Debtor with respect to such Account; and (i) Borrower has obtained and currently has all licenses, permits and authorizations as necessary in the generation of such Accounts. SECTION 4.20. SOLVENCY. Both before and after giving effect to the transactions contemplated by the terms and provisions of this Agreement, (i) PMC owns property whose fair saleable value is greater than the amount required to pay all of PMC's Indebtedness (including contingent debts), (ii) PMC was and is able to pay all of its Indebtedness as such Indebtedness matures, and (iii) PMC had and has capital sufficient to carry on its business and transactions and all business and transactions in which it about to engage. For purposes of this Section 4.20, the term "Indebtedness" means, without duplication (x) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such PMC as of the date on which Indebtedness is to be determined, (y) all obligations of any other person or entity which such PMC has guaranteed, and (z) the Obligations. SECTION 4.21. COMMISSIONS. The transaction contemplated by this Agreement was brought about by Lender and Borrower acting as principals and without any brokers, agents, or finders being the effective procuring cause. Borrower represents that it has not committed Lender to the payment of any brokerage fee, commission, or charge in connection with this transaction. SECTION 4.22. INTELLECTUAL PROPERTY. Borrower exclusively owns or possesses all the patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, franchises, licenses, and rights with respect to the foregoing necessary for the current and planned future conduct of its business, without any conflict with the rights of others. A list of all such intellectual property (indicating the nature of Borrower's interest), as well as all outstanding franchises and licenses given by or held by Borrower, is attached as SCHEDULE 4.22. Borrower is not in default of any obligation or undertaking with respect to such intellectual property or rights. SECTION 4.23. MATERIAL FACTS. Neither this Agreement nor any other Loan Document nor any other agreement, document, certificate, or statement furnished to Lender by or on behalf of Borrower in connection with the transactions contemplated hereby contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained in this Agreement or other Loan Document not misleading. There is no fact known to Borrower that adversely affects or in the future may adversely affect the business, operations, affairs or financial condition of Borrower, or any of its properties or assets. SECTION 4.24. INVESTMENTS, GUARANTEES, AND CERTAIN CONTRACTS. Borrower does not own or hold any equity or long-term debt investments in, have any outstanding advances to, have any outstanding guarantees for the obligations of, or have any outstanding borrowings from, any Person, except as described on SCHEDULE 4.24. Borrower is not a party to any contract or agreement, or subject to any corporate restriction, which adversely affects its business. SECTION 4.25 JOINT VENTURES. Borrower is not engaged in any joint venture or partnership with any other Person, except as set forth on SCHEDULE 4.25. SECTION 4.26. YEAR 2000 COMPLIANCE. (a) All devices, systems, machinery, information technology, computer software and hardware, and other date sensitive technology (jointly and severally, the "Systems") necessary for Borrower to carry on its business as currently conducted and as contemplated to be conducted in the future are Year 2000 Compliant or will be Year 2000 Compliant within a period of time calculated to result in no material disruption of any of Borrower's business operations. For purposes of these provisions, "Year 2000 Compliant" means that such Systems are designed to be used before, during and after the Gregorian calendar year 2000 A.D. and will operate during each such time period without error related to date data, specifically including any error relating to, or the product of, date data that represents or refers to different centuries or more than one century. (b) Borrower has: (i) undertaken a detailed inventory, review, and assessment of all areas within its business and operations that could be adversely affected by the failure of Borrower to be Year 2000 Compliant on a timely basis; (ii) developed a detailed plan and time line for becoming Year 2000 Compliant on a timely basis; and (iii) to date, implemented that plan in accordance with the timetable in all material respects. ARTICLE V CLOSING AND CONDITIONS OF LENDING SECTION 5.1. CONDITIONS PRECEDENT TO AGREEMENT. The obligation of Lender to enter into and perform this Agreement and to make Revolving Credit Loans is subject to the following conditions precedent: (a) Lender shall have received two (2) originals of this Agreement and all other Loan Documents required to be executed and delivered at or before Closing (other than the Note, as to which Lender shall receive only one original), executed by Borrower and any other required Persons, as applicable. (b) Lender shall have received all searches and good standing certificates required by Section 3.5. (c) Borrower shall then be in compliance with all the terms, covenants and conditions of the Loan Documents. (d) There shall exist no Event of Default and no event which, with the giving of notice or the lapse of time, or both, could constitute such an Event of Default. (e) The representations and warranties contained in Article IV shall be true and correct in all material respects. (f) Lender shall have received copies of all board of directors resolutions of Borrower, and other corporate action taken by Borrower to authorize the execution, delivery and performance of the Loan Documents and the borrowing of the Loan under the Loan Documents, as well as the names and signatures of the officers of Borrower authorized to execute documents on its behalf in connection herewith, all as also certified as of the date of this Agreement by Borrower's chief financial officer, and such other papers as Lender may reasonably require. (g) Lender shall have received a copy of the charter documents of each Borrower, with any amendments to any of the foregoing, certified by the Secretary of State of the state of each such entity's formation, and copies, certified as true, correct and complete by a corporate officer of Borrower, of Borrower's bylaws and all other documents necessary for performance of the obligations of Borrower under this Agreement and the other Loan Documents. (h) Lender shall have received a written opinion of counsel for Borrower, dated the date of this Agreement, substantially in the form of EXHIBIT C. (i) Lender shall have received such financial statements, reports, certifications, and other operational information required to be delivered under this Agreement, including without limitation an initial Borrowing Base Certificate calculating the Borrowing Base. (j) Lender shall have received the remainder of the Commitment Fee. (k) The Lockbox and the Concentration Account shall have been established. (l) Lender shall have received a certificate of Borrower's chief financial officer, dated the Closing Date, certifying that all of the conditions specified in this Section have been fulfilled. SECTION 5.2. CONDITIONS PRECEDENT TO ADVANCES. Notwithstanding any other provision of this Agreement, no Loan proceeds, Revolving Credit Loans, advances or other extensions of credit under the Loan shall be disbursed under this Agreement unless the following conditions have been satisfied or waived immediately prior to such disbursement: (a) The representations and warranties on the part of Borrower contained in Article IV of this Agreement shall be true and correct in all material respects at and as of the date of disbursement or advance, as though made on and as of such date (except to the extent that such representations and warranties expressly relate solely to an earlier date and except that the references in Section 4.7 to financial statements shall be deemed to be a reference to the then most recent annual and interim financial statements of PMC furnished to Lender pursuant to Section 6.1). (b) No Event of Default or event which, with the giving of notice of the lapse of time, or both, could become an Event of Default shall have occurred and be continuing or would result from the making of the disbursement or advance. (c) Except as set forth in the Business Plan, no event shall have occurred and be continuing with respect to PMC since the date of this Agreement that has had or is likely to have a Material Adverse Effect. SECTION 5.3. CLOSING. Subject to the conditions of this Article V, the Loan shall be made available on the date as is mutually agreed by the parties (the "Closing Date") at such time as may be mutually agreeable to the parties upon the execution of this Agreement (the "Closing") at such place as may be requested by Lender. SECTION 5.4. WAIVER OF RIGHTS. By completing the Closing under this Agreement, or by making advances under the Loan, Lender does not waive a breach of any representation or warranty of Borrower under this Agreement or under any other Loan Document, and all of Lender's claims and rights resulting from any breach or misrepresentation by Borrower are specifically reserved by Lender. SECTION 5.5. LENDER'S SATISFACTION. All instruments and legal documents and proceedings in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to Lender and its counsel, and Lender shall have received all documents, including records of corporate proceedings and opinions of counsel, which Lender may have requested in connection therewith. ARTICLE VI AFFIRMATIVE COVENANTS Each entity comprising Borrower covenants and agrees that for so long as Borrower may borrow under this Agreement and until payment in full of the Note and performance of all other obligations of Borrower under the Loan Documents: SECTION 6.1. FINANCIAL STATEMENTS AND COLLATERAL REPORTS. PMC will furnish to Lender (i) a collections report and accounts receivable aging schedule on a form acceptable to Lender within fifteen (15) days after the end of each calendar month, which shall include, but not be limited to, a report of credits issued, and collections received; (ii) accounts payable aging schedules within fifteen (15) days after the end of each calendar month; (iii) internally prepared monthly financial statements for PMC, certified by the chief financial officer of PMC, within forty-five (45) days of the end of each calendar month; (iv) annual audited financial statements for PMC prepared by PricewaterhouseCoopers, or another firm of independent public accountants reasonably satisfactory to Lender, within one hundred thirty-five (135) days after the end of each of PMC's fiscal years; (v) promptly upon receipt thereof, copies of any reports submitted to PMC by the independent accountants in connection with any interim audit of the books of PMC and copies of each management control letter provided to PMC by independent accountants; (vi) as soon as available, copies of all financial statements and notices provided by PMC to all of its stockholders; and (vii) such additional information, reports or statements as Lender may from time to time request. Annual financial statements shall set forth in comparative form figures for the corresponding periods in the prior fiscal year. All financial statements shall include a balance sheet and statement of earnings and shall be prepared in accordance with GAAP (except that unaudited financial statements need not include all necessary notes to financials). SECTION 6.2. PAYMENTS UNDER THIS AGREEMENT. Borrower will make all payments of principal, interest, fees, and all other payments required under this Agreement and under the Loan, as and when due. SECTION 6.3. EXISTENCE, GOOD STANDING, AND COMPLIANCE WITH LAWS. Borrower will do or cause to be done all things necessary (i) to obtain and keep in full force and effect all corporate existence, rights, licenses, privileges, and franchises of Borrower necessary to the ownership of its property or the conduct of its business, and comply in all material respects with all applicable current and future laws, ordinances, rules, regulations, orders and decrees of any Governmental Authority having or claiming jurisdiction over Borrower; and (ii) to maintain and protect the properties used in the conduct of the operations of Borrower, in a prudent manner, including without limitation the maintenance at all times of such insurance upon its insurable property and operations as required by law or by Section 6.6. SECTION 6.4. LEGALITY. The making of the Loan and each disbursement or advance under the Loan shall not be subject to any penalty or special tax, shall not be prohibited by any governmental order or regulation applicable to Borrower, and shall not violate any rule or regulation of any Governmental Authority, and all necessary consents, approvals and authorizations of any Governmental Authority to or of any such disbursement or advance that are obtainable by Borrower shall have been obtained. SECTION 6.5. TAXES AND CHARGES. Borrower will timely file all tax reports and pay and discharge all taxes, assessments and governmental charges or levies imposed upon Borrower, or its income or profits or upon its properties or any part thereof, before the same shall be in default and prior to the date on which penalties attach thereto, as well as all lawful claims for labor, material, supplies or otherwise which, if unpaid, might become a lien or charge upon the properties or any part thereof of Borrower and could reasonably be likely to have a Material Adverse Effect; PROVIDED, HOWEVER, that Borrower shall not be required to pay and discharge or cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith and by appropriate proceedings by Borrower, and Borrower shall have set aside on their books adequate reserve therefor to the extent required by GAAP; and PROVIDED FURTHER, that such deferment of payment is permissible only so long as Borrower's title to, and its right to use, the Collateral is not adversely affected thereby and Lender's lien and priority on the Collateral are not adversely affected, altered or impaired thereby. Notwithstanding the foregoing, Borrower shall timely file all payroll tax reports and timely pay all payroll taxes imposed on Borrower. SECTION 6.6. INSURANCE. Borrower will carry adequate public liability and professional liability insurance with responsible companies reasonably satisfactory to Lender in such amounts and against such risks as is customarily maintained by similar businesses and by owners of similar property in the same general area. SECTION 6.7. GENERAL INFORMATION. Borrower will furnish to Lender such information as Lender may, from time to time, reasonably request with respect to the business or financial affairs of Borrower, and, from time to time, permit any officer, employee or agent of Lender to visit and inspect any of the properties, and to inspect, audit and make extracts from the minute books, books of account and other records, including management letters prepared by Borrower's auditors, of Borrower, and make copies thereof or extracts therefrom, and to discuss its and their assets, liabilities, business prospects, results of operation, business affairs, finances, and accounts with, and be advised as to the same by, the independent accountants and the employees and officers of Borrower, all at such reasonable times and as often as Lender may reasonably require. SECTION 6.8 NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE DEVELOPMENTS. Borrower promptly will notify Lender upon the occurrence of: (i) any Event of Default; (ii) any event which, with the giving of notice or lapse of time, or both, could constitute an Event of Default; (iii) any material adverse event, not reflected or reserved against in the latest set of financial statements that were certified by Borrower's chief financial officer and furnished to Lender; (iv) any judicial, administrative or arbitration proceeding pending against Borrower, and any judicial or administrative proceeding known by Borrower to be threatened against it which, if adversely decided, could reasonably be likely to have a Material Adverse Effect; (v) any material default claimed by any other creditor for Borrowed Money of Borrower other than Lender; in each case describing the nature of such default and (in the case of notification under clauses (i) and (ii)) the action Borrower proposes to take with respect thereto. SECTION 6.9. FINANCIAL RECORDS. Borrower shall keep current and accurate books of records and accounts in which full and correct entries will be made of all of its business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP. SECTION 6.10. COLLECTION OF ACCOUNTS. Borrower shall continue to collect its Accounts in the ordinary course of business, with such changes in collection procedure as are contemplated by this Agreement (e.g., the Lockbox). SECTION 6.11. PLACES OF BUSINESS. Borrower shall give thirty (30) days' prior written notice to Lender of any change in the location of any of its places of business, of the places where its records concerning its Accounts are kept, of the places where the Collateral is kept, or of the establishment of any new, or the discontinuance of any existing, places of business. SECTION 6.12. BUSINESS CONDUCTED. Borrower shall continue in the business presently conducted by it using its best efforts to maintain its customers and goodwill. Without at least thirty (30) days' prior written notice to Lender, Borrower shall not engage, directly or indirectly, in any line of business substantially different from the business conducted by it immediately prior to the Closing Date, or engage in business or lines of business which are not reasonably related thereto. Notwithstanding the foregoing, if PhyMatrix determines to dispose of physician practices or other operating entities pursuant to the terms of the Business Plan (which shall not include the disposition of any entity engaged in the business of providing site management or clinical research services), then, so long as (i) Borrower notifies Lender of such disposition at least five (5) Business Days before the expected closing date of such disposition, and (ii) no Event of Default has occurred and is continuing under this Agreement or the Affiliated Loan Agreements, and (iii) the proceeds of such disposition will be used to pay down the Obligations attributable to the business being disposed of (as reflected on the most recent Borrowing Base), then Lender shall take all reasonable steps necessary to consent to such disposition(s) and to release its liens on any assets being disposed of in connection with such disposition(s), upon receipt of the disposition proceeds. If an Event of Default has occurred and is continuing, then the proceeds of any such disposition, even if related to Tangible Collateral, shall be used to pay down the Obligation. SECTION 6.13. LITIGATION AND OTHER PROCEEDINGS. Borrower shall give prompt notice to Lender of any litigation, arbitration or other proceeding before any Governmental Authority against or affecting Borrower if a judgment, award or decision against Borrower in such proceeding could have a Material Adverse Effect on Borrower's financial condition or operations. SECTION 6.14. SUBMISSION OF COLLATERAL DOCUMENTS. Borrower will, on demand of Lender, make available to Lender copies of documents evidencing the providing of Services giving rise to Accounts, a copy of the claim or invoice for each Account and copies of any written contract or order from which the Account arose. SECTION 6.15. EMPLOYEE BENEFIT PLANS. Borrower will (i) comply in all material respects with the funding requirements of ERISA with respect to the Plans for its employees, or will promptly satisfy any accumulated funding deficiency that arises under Section 302 of ERISA; (ii) furnish Lender, promptly after filing the same, with copies of all reports or other statements filed with the United States Department of Labor, the Pension Benefit Guaranty Corporation, or the Internal Revenue Service with respect to all Plans, or which Borrower, or any member of a Controlled Group, may receive from such Governmental Authority with respect to any such Plans, and (iii) promptly advise Lender of the occurrence of any Reportable Event or Prohibited Transaction with respect to any such Plan and the action which Borrower proposes to take with respect thereto. Borrower will make all contributions when due with respect to any multi-employer pension plan in which it participates and will promptly advise Lender: (i) upon its receipt of notice of the assertion against Borrower of a claim for withdrawal liability; (ii) upon the occurrence of any event which could trigger the assertion of a claim for withdrawal liability against Borrower; and (iii) upon the occurrence of any event which would place Borrower in a Controlled Group as a result of which any member of such Controlled Group (including Borrower) may be subject to a claim for withdrawal liability, whether liquidated or contingent. SECTION 6.16. FINANCING STATEMENTS. Borrower shall provide to Lender evidence satisfactory to Lender as to the due recording of termination statements, releases of collateral, and Forms UCC-3, and shall cause to be recorded financing statements on Form UCC-1, duly executed by Borrower and Lender, in all places necessary to release all existing security interests and other liens in the Collateral (other than as permitted hereby) and to perfect and protect Lender's first priority lien and security interest in the Collateral, as Lender may request. SECTION 6.17. CASH COLLATERAL. At all times during the term of this Agreement and the Affiliated Loan Agreements, PMC shall maintain aggregate minimum cash collateral of Two Million and No/100 Dollars ($2,000,000.00), unless a higher minimum amount is required pursuant to Section 7.7 (the "Minimum Cash Collateral"). The Minimum Cash Collateral shall be held in one or more bank accounts identified to and approved by Lender in the exercise of its reasonable discretion. Borrower agrees to provide to Lender evidence of the maintenance of the Minimum Cash Collateral at least monthly and more frequently upon Lender's reasonable request. The Minimum Cash Collateral shall be the aggregate cash collateral required by this Agreement and the Affiliated Loan Agreements taken as a whole. SECTION 6.18. OFFICER'S CERTIFICATES. Together with the monthly financial statements delivered pursuant to clause (iii) of Section 6.1, and together with the audited annual financial statements delivered pursuant to clause (iv) of that Section, Borrower shall deliver to Lender a certificate of its chief financial officer, in form and substance reasonably satisfactory to Lender. The certificate shall state that the signer has reviewed the relevant terms of this Agreement, and has made (or caused to be made under his supervision) a review of the transactions and conditions of Borrower from the beginning of the accounting period covered by the income statements being delivered to the date of the certificate, and that such review has not disclosed the existence during such period of any condition or event which constitutes an Event of Default or which is then, or with the passage of time or giving of notice or both, could become an Event of Default, and if any such condition or event existed during such period or now exists, specifying the nature and period of existence thereof and what action Borrower has taken or proposes to take with respect thereto. ARTICLE VII NEGATIVE COVENANTS Borrower covenants and agrees that so long as Borrower may borrow under this Agreement and until payment in full of the Note and performance of all other obligations of Borrower under the Loan Documents: SECTION 7.1. BORROWING. Borrower will not: (a) create, incur, assume or suffer to exist any liability for accounts payable to trade creditors and current operating expenses (other than for borrowed money) which are aged more than one hundred eighty (180) days from the billing date or more than sixty (60) days from the due date, in each case incurred in the ordinary course of business and paid within such time period, unless the same are being contested in good faith and by appropriate and lawful proceedings, and Borrower shall have set aside such reserves, if any, with respect thereto as are required by GAAP and deemed adequate by Borrower and its independent accountants; (b) create, incur, assume or suffer to exist any liability for Borrowed Money ("Indebtedness") except (i) liabilities created by or pursuant to this Agreement; (ii) existing Indebtedness on the date of this Agreement, as set forth on SCHEDULE 7.1, including any extensions or renewals of the Indebtedness (provided that there is no increase in the amount of such Indebtedness or other significant change in the terms of such Indebtedness); (iii) Indebtedness of (A) any direct or indirect subsidiary of PMC to another subsidiary of PMC, and (B) of PMC to any such subsidiary, in each case where such subsidiary is a Borrower under this Agreement or under one of the Affiliated Loan Agreements; (iv) Indebtedness (A) that is secured by purchase money security interests not exceeding the lesser of $3,000,000.00 or two percent (2%) of PMC's tangible assets on a consolidated basis, (B) that is incurred in connection with interest rate protection agreements, (C) that is incurred as a result of the assumption of liabilities in an acquisition, and (D) that is expressly subordinated to the Obligations pursuant to written terms reasonably acceptable to Lender, but the aggregate of all such Indebtedness described in this subparagraph shall not at any time exceed $25,000,000.00; PROVIDED, HOWEVER, that so long as PMC's cash balance is and continues to be in excess of the Overall Maximum Loan Amount, the $25,000,000.00 limit may be increased as follows: for each one dollar ($1.00) of such excess, the maximum aggregate Indebtedness may increase by fifty cents ($0.50). (c) except as set forth on SCHEDULE 7.1, make prepayments over $1,000,000 on any existing or future indebtedness for Borrowed Money to any Person (other than Lender, to the extent permitted by this Agreement or any subsequent agreement between Borrower and Lender). Any permitted Indebtedness, prepayment or other exception set forth above shall be permitted to be created only so long as no Event of Default has occurred and is continuing under this Agreement at the time of such creation and shall be prohibited after the occurrence and during the continuance of any Event of Default. SECTION 7.2 JOINT VENTURES. Borrower will not invest directly or indirectly in any joint venture in which a Person other than an Affiliate of PMC is a joint venturer for any purpose without compliance with the following conditions: (i) if the amount of a single investment is less than or equal to $2,500,000, then Borrower need not notify or obtain the prior consent of Lender; (ii) if the amount of a single investment is more than $2,500,000 and Lender will receive a first priority lien on all of the assets of the joint venture, then Borrower shall notify Lender of the proposed investment within three (3) Business Days before the effective date of the investment; (iii) if the amount of a single investment is more than $2,500,000 and Lender will not receive a first priority lien on the assets of the joint venture, then Borrower shall obtain the prior written consent of Lender, which consent shall not be unreasonably withheld; and (iv) if Borrower invests more than $5,000,000 in the aggregate in joint ventures during the Term, then in all cases Borrower shall obtain Lender's prior written consent for further investments, which consent shall not be unreasonably withheld. SECTION 7.3. LIENS AND ENCUMBRANCES. Borrower will not create, incur, assume or suffer to exist any pledge, lien or other encumbrance of any kind (including the charge upon property purchased under a conditional sale or other title retention agreement) upon, or any security interest in, any of the Receivables-Related Collateral, whether now owned or hereafter acquired, except for Permitted Liens. SECTION 7.4. FUNDAMENTAL CHANGES. Except as set forth in the Business Plan, Borrower will not: (i) enter into any transaction of merger or consolidation where Borrower is not the surviving entity or the surviving entity does not expressly assume the Note and other Loan Documents; (ii) liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution); or (iii) convey, sell, lease, sublease, transfer or otherwise dispose of, in one transaction or a series of transactions, any of the Receivables-Related Collateral, whether now owned or hereafter acquired, or any other substantial portion of the assets and a business operation, without prior notice to, and the prior written consent of, Lender, which consent shall not be unreasonably withheld. Moreover, Borrower will not acquire by purchase or otherwise all or any substantial part of the business or assets of, or stock or other evidence of beneficial ownership of, any Person unless (x) Lender is granted a first priority lien on such assets, (y) no Event of Default has occurred and is continuing under this Agreement, and (z) (A) for transactions greater than $1,000,000.00, Lender is provided with prior written notice of such transaction, and (B) for transactions aggregating more than $10,000,000 during the Term, Lender is provided with prior notice of such transaction and gives its prior written consent to such transaction, which consent shall not be unreasonably withheld. Borrower further agrees that in addition to all other remedies available to Lender, Lender shall be entitled to specific enforcement of the covenants in this Section 7.4, including injunctive relief. SECTION 7.5 SALE AND LEASEBACK. Borrower will not, directly or indirectly, enter into any arrangement whereby Borrower sells or transfers all or any part of its assets and within one year thereafter rents or leases the assets so sold or transferred without prior written notice to, and the prior written consent of, Lender, which consent shall not be unreasonably withheld. SECTION 7.6. TRANSACTIONS WITH AFFILIATES. Other than as set forth in SCHEDULE 7.6, Borrower will not enter into any material transaction, including without limitation the purchase, sale, or exchange of property, or the loaning or giving of a material amount of funds to any Affiliate or subsidiary, except in the ordinary course of business and pursuant to the reasonable requirements of Borrower's business and upon terms substantially the same and no less favorable to Borrower as it would obtain in a comparable arm's length transaction with any Person not an Affiliate or subsidiary, and so long as the transaction does not impair the Collateral or Lender's interest in the Collateral. For purposes of the foregoing, Lender consents to the transactions described on SCHEDULE 7.6. SECTION 7.7. LOANS. Borrower will not make loans or advances to any Person, other than (i) trade credit extended in the ordinary course of its business, and (ii) advances for business travel and similar temporary advances in the ordinary course of business to officers, stockholders, directors, and employees, (iii) loans or advances to direct or indirect subsidiaries of PhyMatrix, or (iv) without the prior written consent of Lender, which consent shall not be unreasonably withheld, loans or advances (A) which are not otherwise specifically permitted under this Agreement, (B) which have been presented to Lender by Borrower to determine if Lender will fund the loan or advance under this Agreement or the Affiliated Loan Agreements, (C) which Lender determines within ten (10) Business Days of such presentation that it will not fund, and (D) which do not exceed an aggregate of $5,000,000 outstanding at any time. If such a loan or advance is made by Borrower to any such Person, then Borrower shall increase the amount of cash collateral required to be maintained pursuant to the provisions of Section 6.17 by one dollar ($1.00) for each one dollar ($1.00) being loaned or advanced by Borrower. SECTION 7.8. CONTINGENT LIABILITIES. Borrower will not assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any Person, except with respect to (i) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (ii) liabilities of direct or indirect subsidiaries of PhyMatrix, (iii) those items set forth on SCHEDULE 7.8, or (iv) any liability of a Person not otherwise permitted hereunder in the aggregate that when combined, without duplication, with the new Indebtedness to be permitted under Section 7.1 , does not exceed the maximum Indebtedness cap set forth in Section 7.1. SECTION 7.9. COMPLIANCE WITH ERISA. Borrower will not permit with respect to any Plan covered by Title IV of ERISA any Prohibited Transaction or any Reportable Event. SECTION 7.10. USE OF LENDER'S NAME. Borrower will not use Lender's name (or the name of any of Lender's affiliates) in connection with any of its business operations. Borrower may disclose to third parties that Borrower has a borrowing relationship with Lender. Nothing contained in this Agreement is intended to permit or authorize Borrower to make any contract on behalf of Lender. SECTION 7.11. CONTRACTS AND AGREEMENTS. Borrower will not become or be a party to any contract or agreement which would breach this Agreement, or breach in any material manner any other instrument, agreement, or document to which Borrower is a party or by which it is or may be bound. SECTION 7.12. DIVIDENDS AND DISTRIBUTION. PMC will not declare or pay any dividends or other distributions with respect to, purchase, redeem or otherwise acquire for value any of its outstanding stock now or hereafter outstanding, or return any capital of its stockholders, where such payment, purchase, redemption or acquisition would have a Material Adverse Effect, without prior notice to and the prior written consent of Lender, which consent will not be unreasonably withheld; provided, however, that so long as no Event of Default has occurred and is continuing, no such consent shall be required for (i) any stock dividend, or (ii) any repurchase of PMC's stock by PMC that does not use the proceeds of a Loan to pay the purchase price therefor. After an Event of Default has occurred and while it is continuing, Borrower shall make no such declarations, payments, purchases, redemptions or acquisitions for value. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. EVENTS OF DEFAULT. Each of the following (individually, an "Event of Default" and collectively, the "Events of Default") shall constitute an event of default under this Agreement: (a) A default in the payment of any installment of principal of, or interest upon, the Note when due and payable, whether at maturity or otherwise, or any default in the due observation or performance by Borrower of any term, covenant or agreement contained in Section 2.3 of this Agreement, which default or breach, as applicable, shall have continued unremedied for a period of five (5) days after written notice thereof from Lender to Borrower; (b) A default in the payment of any other charges, fees, or other monetary obligations owing to Lender arising out of or incurred in connection with this Agreement when such payment is due and payable, which default shall have continued unremedied for a period of five (5) days after written notice from Lender; (c) A default in the due observance or performance by Borrower of any other term, covenant or agreement contained in any of the Loan Documents, which default shall have continued unremedied for a period of thirty (30) days after written notice from Lender; (d) Any representation or warranty made by Borrower in this Agreement or in any of the other Loan Documents, any financial statement, or any statement or representation made in any other certificate, report or opinion delivered in connection herewith or therewith proves to have been incorrect or misleading in any material respect when made, which default shall have continued unremedied for a period of thirty (30) days after written notice from Lender; (e) Any material obligation of Borrower (other than its Obligations under this Agreement) for the payment of Borrowed Money is not paid when due or within any applicable grace period, or such obligation becomes or is declared to be due and payable prior to the expressed maturity thereof; (f) Borrower makes an assignment for the benefit of creditors, offers a composition or extension to creditors, or makes or sends notice of an intended bulk sale of any business or assets now or hereafter conducted by Borrower; (g) Borrower files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver of or any trustee for itself or any substantial part of its property, commences any proceeding relating to itself under any reorganization, arrangement, readjustment or debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or there is commenced against Borrower any such proceeding which remains undismissed for a period of sixty (60) days, or any Borrower by any act indicates its consent to, approval of, or acquiescence in, any such proceeding or the appointment of any receiver of or any trustee for a Borrower or any substantial part of its property, or suffers any such receivership or trusteeship to continue undischarged for a period of sixty (60) days; (h) One or more final judgments against Borrower or attachments against its property not fully and unconditionally covered by insurance or indemnity shall be rendered by a court of record and shall remain unpaid, unstayed on appeal, undischarged, unbonded and undismissed for a period of thirty (30) days where such judgment may have a Material Adverse Effect; (i) A Reportable Event which might constitute grounds for termination of any Plan covered by Title IV of ERISA or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan or for the entry of a lien or encumbrance to secure any deficiency, has occurred and is continuing thirty (30) days after its occurrence, or any such Plan is terminated, or a trustee is appointed by an appropriate United States District Court to administer any such Plan, or the Pension Benefit Guaranty Corporation institutes proceedings to terminate any such Plan or to appoint a trustee to administer any such Plan, or a lien or encumbrance is entered to secure any deficiency or claim; (j) A Change of Control has occurred; (k) The Collateral is attached, seized, levied upon or subjected to a writ or distress warrant, or comes within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within sixty (60) days thereafter or a notice of lien, levy or assessment is filed of record with respect to the Collateral by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, or if any taxes or debts owing at any time or times hereafter to any one of these becomes a lien or encumbrance upon the Collateral and the same is not released within thirty (30) days after the same becomes a lien or encumbrance; PROVIDED, that Borrower shall have the right to contest in good faith and by appropriate proceedings any such lien, levy or assessment if Borrower provides Lender with a bond or indemnity satisfactory to Lender assuring the payment of such lien, levy or assessment; (l) Lender receives substantial credible evidence that Borrower may have been involved in an activity that has a reasonable likelihood of causing the forfeiture of all or any part of the Collateral to any Governmental Authority, where Lender has notified Borrower in writing of the receipt of such evidence, and Borrower has not provided assurance, satisfactory to Lender in its reasonable discretion, that such activity will not result in such forfeiture; (m) Borrower or any Affiliate of Borrower, shall challenge or contest, in any action, suit or proceeding, the validity or enforceability of this Agreement, or any of the other Loan Documents, the legality or the enforceability of any of the Obligations or the perfection or priority of any Lien granted to Lender; (n) Borrower shall be criminally indicted or convicted under any law where the conviction has a reasonable likelihood of causing a forfeiture of any Collateral; (o) There shall occur an event that Lender has determined in its reasonable discretion has a Material Adverse Effect and such event continues unremedied for a period of thirty (30) days after written notice from Lender; or (p) Borrower ceases any material portion of its business operations as currently conducted except as set forth in the Business Plan. (q) An Event of Default shall have occurred under either of the Affiliated Loan Agreements. SECTION 8.2. ACCELERATION. Upon the occurrence of any of the foregoing Events of Default, the Note shall become and be immediately due and payable upon declaration to that effect delivered by Lender to Borrower; provided that, upon the happening of any event specified in Section 8.1(g), the Note shall be immediately due and payable without declaration or other notice to Borrower. SECTION 8.3. REMEDIES. (a) In addition to all other rights, options, and remedies granted to Lender under this Agreement or at law or in equity, upon the occurrence of an Event of Default, Lender may (i) terminate the Loan, whereupon all outstanding Obligations shall be immediately due and payable, (ii) exercise all other rights and remedies granted to it under this Agreement and all rights under the Uniform Commercial Code in effect in the applicable jurisdiction(s) and under any other applicable law, and (iii) exercise all rights and remedies under all Loan Documents now or hereafter in effect, including but not limited to the following rights and remedies: (i) The right to take possession of, send notices regarding, and collect directly the Collateral, with or without judicial process; and (ii) The right to reduce the Maximum Loan Amount or to use the Collateral and/or funds in the Concentration Account in amounts up to the Maximum Loan Amount for any reason related to the Loan; (b) Borrower agrees that a notice received by it at least thirty (30) days before the time of any intended public sale, or the time after which any private sale or other disposition of the Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. At any sale or disposition of Collateral, Lender may (to the extent permitted by applicable law) purchase all or any part of the Collateral, free from any right of redemption by Borrower, which right is hereby waived and released to the extent permitted by applicable law. Borrower covenants and agrees not to interfere with or impose any obstacle to Lender's exercise of its rights and remedies with respect to the Collateral except to the extent required by applicable law. SECTION 8.4. NATURE OF REMEDIES. Lender shall have the right to proceed against all or any portion of the Collateral to satisfy in any order, (i) the liabilities and Obligations of Borrower to Lender or (ii) upon the occurrence of an Event of Default under either of the Affiliated Loan Agreements, the liabilities and obligations of Affiliated Borrowers under the Affiliated Loan Agreements. To the extent permitted by applicable law, all rights and remedies granted Lender under this Agreement and under any agreement referred to in this Agreement, or otherwise available at law or in equity, shall be deemed concurrent and cumulative, and not alternative remedies, and Lender may proceed with any number of remedies at the same time until the Loans, and all other existing and future liabilities and obligations of Borrower to Lender, are satisfied in full. The exercise of any one right or remedy shall not be deemed a waiver or release of any other right or remedy, and Lender, upon the occurrence of an Event of Default, may proceed against Borrower, and/or the Collateral, at any time, under any agreement, with any available remedy and in any order. SECTION 8.5. LIMITATION ON REMEDIES. Notwithstanding anything to the contrary elsewhere in this Agreement, Lender shall proceed against the Tangible Collateral only upon an Event of Default identified in SECTION 8.1 (a), (b), (f), (g) or (o). ARTICLE IX MISCELLANEOUS SECTION 9.1. EXPENSES AND TAXES. (a) Borrower agrees to pay, whether or not the Closing occurs, a reasonable documentation preparation fee, together with actual audit fees and all other out-of-pocket charges and expenses incurred by Lender in connection with the negotiation, preparation, legal review and execution of each of the Loan Documents, including but not limited to UCC and judgment lien searches and UCC filings and fees for post-Closing UCC and judgment lien searches. In addition, Borrower shall pay all such fees associated with any amendments to the Loan Documents following Closing. (b) Borrower also agrees to pay all out-of-pocket charges and expenses incurred by Lender (including the fees and expenses of Lender's counsel) in connection with the enforcement, protection or preservation of any right or claim of Lender and the collection of any amounts due under the Loan Documents. If Lender uses in-house counsel for any of these purposes (i.e., for any task in connection with the enforcement, protection or preservation of any right or claim of Lender and the collection of any amounts due under its Loan Documents), Borrower further agrees that its Obligations under the Loan Documents include reasonable charges for such work commensurate with the fees that would otherwise be charged by outside legal counsel selected by Lender for the work performed. (c) Borrower shall pay all taxes (other than taxes based upon or measured by Lender's income or revenues or any personal property tax), if any, in connection with the issuance of the Note and the recording of the security documents therefor. The obligations of Borrower under this clause (c) shall survive the payment of Borrower's indebtedness under this Agreement and the termination of this Agreement. SECTION 9.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other Loan Documents constitute the full and entire understanding and agreement among the parties with regard to their subject matter and supersede all prior written or oral agreements, understandings, representations and warranties made with respect thereto. No amendment, supplement or modification of this Agreement nor any waiver of any provision of this Agreement shall be made except in writing executed by the party against whom enforcement is sought. SECTION 9.3. NO WAIVER; CUMULATIVE RIGHTS. No waiver by any party hereto of any one or more defaults by the other party in the performance of any of the provisions of this Agreement shall operate or be construed as a waiver of any future default or defaults, whether of a like or different nature. No failure or delay on the part of any party in exercising any right, power or remedy under this Agreement shall operate as a waiver of such right, power or remedy, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise of such right, power or remedy or the exercise of any other right, power or remedy. The remedies provided for in this Agreement are cumulative and are not exclusive of any remedies that may be available to any party hereto at law, in equity or otherwise. SECTION 9.4. NOTICES. Any notice or other communication required or permitted under this Agreement shall be in writing and personally delivered, mailed by registered or certified mail (return receipt requested and postage prepaid), sent by telecopier (with a confirming copy sent by regular mail), or sent by prepaid overnight courier service, and addressed to the relevant party at its address set forth below, or at such other address as such party may, by written notice, designate as its address for purposes of notice under this Agreement: If to Lender, at: HCFP Funding, Inc. 2 Wisconsin Circle, 4th floor Chevy Chase, Maryland 20815 Attention: Ethan D. Leder, President Telephone: (301) 961-1640 Telecopier: (301) 664-9860 If to Borrower, at: PhyMatrix Corp. 110 Cedar Street, 1st floor Wellesley, Massachusetts 02481 Attention: Mr. Fred Leathers, Chief Financial Officer Telephone: (781) 416-5100 Telecopier: (781) 416-2776 With a copy to: Nutter, McClennen & Fish, LLP One International Place Boston, Massachusetts 02110-2699 Attention: Paul R. Eklund, Esquire Telephone: (617) 439-2000 Telecopier: (617) 973-9748 If mailed, notice shall be deemed to be given five (5) Business Days after being sent, and if sent by personal delivery, telecopier, or prepaid courier, notice shall be deemed to be given when delivered. SECTION 9.5. SEVERABILITY. If any term, covenant or condition of this Agreement, 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 Agreement and the application of such term, 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, Lender may, but is not obligated to, advance funds to Borrower under this Agreement until the parties shall amend this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner. SECTION 9.6. SUCCESSORS AND ASSIGNS. This Agreement, the Note, and the other Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns. Notwithstanding the foregoing, Borrower may not assign any of its rights or delegate any of its obligations under this Agreement without the prior written consent of Lender, which may be withheld in its sole discretion. Lender may sell, assign or transfer any or all of its rights or obligations under this Agreement without notice to or consent of Borrower, so long as the purchaser, assignee or transferee is a financial institution or an entity engaged wholly or substantially in the business of making commercial loans. SECTION 9.7. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one instrument. SECTION 9.8. INTERPRETATION. No provision of this Agreement or any other Loan Document shall be interpreted or construed against any party because that party or its legal representative drafted that provision. The titles of the paragraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. Any pronoun used in this Agreement shall be deemed to include singular and plural and masculine, feminine and neuter gender as the case may be. The words "herein," "hereof," and "hereunder" shall be deemed to refer to this entire Agreement, except as the context otherwise requires. SECTION 9.9. SURVIVAL OF TERMS. All covenants, agreements, representations and warranties made in this Agreement, any other Loan Document, and in any certificates and other instruments delivered in connection therewith shall be considered to have been relied upon by Lender and shall survive the making by Lender of the Loans contemplated in this Agreement and the execution and delivery to Lender of the Note, and shall continue in full force and effect until all liabilities and obligations of Borrower to Lender are satisfied in full. SECTION 9.10. TIME. Whenever Borrower is required to make any payment or perform any act on a day that is not a Business Day, the payment may be made or the act performed on the next Business Day. Time is of the essence in Borrower's performance under this Agreement and all other Loan Documents. SECTION 9.11. COMMISSIONS. If any claim for commission, brokerage fee or charge is made on Lender by any broker, finder, or agent or other person, Borrower will indemnify, defend, and hold Lender harmless from and against the claim and will defend any action to recover on that claim, at Borrower's cost and expense, including Lender's counsel fees. Borrower further agrees that until any such claim or demand is adjudicated in Lender's favor, the amount demanded will be deemed a liability of Borrower under this Agreement, secured by the Collateral. SECTION 9.12. THIRD PARTIES. No rights are intended to be created under this Agreement or under any other Loan Document for the benefit of any third party donee, creditor, or incidental beneficiary of Borrower. Nothing contained in this Agreement shall be construed as a delegation to Lender of Borrower's duty of performance, including without limitation Borrower's duties under any account or contract in which Lender has a security interest. SECTION 9.13. DISCHARGE OF BORROWER'S OBLIGATIONS. Lender, in its sole discretion, shall have the right at any time, and from time to time, without prior notice to Borrower if Borrower fails to do so, to: (i) obtain insurance covering any of the Collateral as required under this Agreement; (ii) pay for the performance of any of Borrower's obligations under this Agreement; (iii) discharge taxes, liens, security interests, or other encumbrances at any time levied or placed on any of the Collateral in violation of this Agreement unless Borrower is in good faith with due diligence by appropriate proceedings contesting those items. Expenses and advances shall be added to the Loan, until reimbursed to Lender and shall be secured by the Collateral. Any such payments and advances by Lender shall not be construed as a waiver by Lender of an Event of Default. SECTION 9.14. INFORMATION TO PARTICIPANTS. Lender may divulge to any participant it may obtain in the Loan, or any portion of the Loan, all information, and furnish to such participant copies of reports, financial statements, certificates, and documents obtained under any provision of this Agreement or any other Loan Document, subject to Section 9.16. SECTION 9.15. CONFIDENTIALITY. Lender will take reasonable efforts to keep all financial information, and all information acquired as a result of any inspection conducted in accordance with Section 6.7 (and any other information provided to Lender under any Loan Document), confidential, provided that Lender may communicate such information (i) in accordance with Borrower's written authorization, to any Person in accordance with the customary practices of financial institutions or entities engaged wholly or substantially in the business of making commercial loans relating to routine trade inquiries, (ii) to any regulatory authority having jurisdiction over Lender to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iii) to any other Person in connection with Lender's sale of any assignments of the Obligations, provided that the recipient of such Obligations agrees in writing delivered to Borrower to hold such information confidential in accordance with the terms of this Agreement, (iv) to any other Person in connection with the exercise of Lender's rights under this Agreement or any other Loan Document, (v) to any Person to the extent required in any litigation in which Lender is a party; PROVIDED, that to the extent permitted by applicable law, rule or regulation or response to a subpoena, under or other legal process or legislative body or committee or other governmental authority. Notwithstanding the foregoing, information will not be deemed to be confidential to the extent such information (w) was already lawfully in the possession of Lender prior to the Closing Date, (x) is available in the public domain, (y) becomes available in the public domain other than as a result of unauthorized disclosure by Lender, or (z) is acquired from a Person not known by Lender to be in breach of any confidentiality agreement with respect to such information. Notwithstanding anything to the contrary, Borrower hereby consents to Lender's discussions and communications with Borrower's independent public accountants and agrees that such discussion or communication is without liability to either Lender or Borrower's independent certified public accountants. SECTION 9.16. INDEMNITY. Borrower hereby agrees to indemnify and hold harmless Lender, its partners, officers, agents and employees (collectively, "Indemnitee") from and against any liability, loss, cost, expense, claim, damage, suit, action or proceeding ever suffered or incurred by Lender (including reasonable attorneys' fees and expenses) arising from Borrower's failure to observe, perform or discharge any of its covenants, obligations, agreements or duties under this Agreement, or from the breach of any of the representations or warranties contained in Article IV. In addition, Borrower shall defend Indemnitee against and save it harmless from all claims of any Person with respect to the Collateral. Notwithstanding any contrary provision in this Agreement, the obligation of Borrower under this Section 9.17 shall survive the payment in full of the Obligations and the termination of this Agreement. SECTION 9.17. APPOINTMENT OF AGENT UNDER THIS AGREEMENT. (a) Each of the entities comprising Borrower (other than PhyMatrix) hereby irrevocably appoints and constitutes PhyMatrix as its agent to request and receive Revolving Credit Loans (and to otherwise act on behalf of each such entity pursuant to this Agreement and the other Loan Documents) from Lender in the name or on behalf of each such entity. Lender may disburse the Revolving Credit Loans to the bank account of any one or more of such entities without notice to any of the other entities comprising Borrower or any other Person at any time obligated on or in respect of the Obligations. (b) Each of the entities comprising Borrower (other than PhyMatrix) hereby irrevocably appoints and constitutes PhyMatrix as its agent to receive statements of account and all other notices from Lender with respect to the Obligations or otherwise under or in connection with this Agreement and the other Loan Documents. (c) No purported termination of the appointment of PhyMatrix as agent shall be effective without the prior written consent of Lender. SECTION 9.18. FURTHER ASSURANCES. The parties agree that the Maximum Loan Amount on this Agreement and the Affiliated Loan Agreements shall be adjusted as the business needs of PMC change, subject to the exercise of Lender's reasonable credit judgment and discretion. SECTION 9.19. CHOICE OF LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND THE NOTE 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 AGREEMENT OR THE NOTE 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, BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND. ANY PROCESS IN ANY SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS DESCRIBED IN SECTION 9.4. SECTION 9.20. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER HEREBY (A) COVENANT AND AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVE 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 EACH PARTY 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. EACH PARTY IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF EACH PARTY'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. [SIGNATURES FOLLOW] IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first written above. LENDER: HCFP FUNDING, INC. a Delaware corporation By: /s/ Jeffrey P. Hoffman -------------------------------------- Name: Jeffrey P. Hoffman Title: Vice President BORROWER: PHYMATRIX CORP. a Delaware corporation By: /s/ Frederick R. Leathers -------------------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer CLINICAL STUDIES, LTD. a Delaware corporation By: /s/ Frederick R. Leathers -------------------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer CLINICAL MARKETING, LTD. a Delaware corporation By: /s/ Frederick R. Leathers -------------------------------------- Name: Frederick R. Leathers Title: Chief Financial Officer EX-10.12 5 EXHIBIT 10.12 Exhibit 10.12 SEPARATION AND SETTLEMENT AGREEMENT THIS SEPARATION AND SETTLEMENT AGREEMENT ("Agreement") is entered into on December 8, 1998, between PHYMATRIX CORP., ("Company") and ROBERT A. MILLER ("Employee"). WHEREAS, Employee has been employed by the Company as President and has served as a member of its Board of Directors; and WHEREAS, the parties hereto wish to enter into this Agreement for the purpose of providing a full and final settlement and resolution of all matters arising out of or pertaining to Employee's employment relationship with the Company, his service as a member of the Company's Board of Directors and the termination of Employee's relationships with the Company, whether past, present, or future; THEREFORE, in consideration of the mutual promises and undertakings contained herein and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows: 1. TERMINATION OF EMPLOYMENT: Employee's employment with the Company shall terminate on December 8, 1988 ("Termination Date"), and he hereby resigns all of his positions with the Company and its subsidiaries and he hereby resigns his seat on the Company's Board of Directors. 2. COMPENSATION: In consideration for execution and compliance with this Agreement, Employee shall receive a severance payment in the amount of Six-Hundred Seventeen Thousand Five-Hundred Twenty-Eight Dollars ($617,528.00), less applicable taxes and statutory deductions, which amount includes all amounts due to Employee based on his employment with the Company 1 (including its subsidiaries), including without limitation, all compensation payable pursuant to any written agreement, all vacation pay, sick pay, prerequisites and bonuses. The severance payment shall be payable Three Hundred Seventy-Five Thousand Dollars ($375,000.00) at the time of execution of this Agreement with the remaining Two Hundred Forty-Two Thousand Five Hundred Twenty-Eight Dollars ($242,528.00) plus the Interest Factor payable in four (4) equal monthly payments of principal and interest beginning on January 1, 1999 and ending April 1, 1999. The Interest Factor shall be equal to the Prime Rate of Interest charged by Nations Bank on the date of execution of this Agreement plus two percent (2%) per annum, multiplied by the unpaid portion of the severance pay payable to employee over the aforementioned six (6) month period. The Interest Factor shall be adjusted as payments are made under this Agreement; in which case, the portion of the four (4) equal payments of interest shall be adjusted to reflect the same. These payments may be accelerated at the option of the Company; provided however, that in the event that the Company generates over Twenty Million Dollars ($20,000,000.00) of gross sales proceeds from the sale or exchange of any of its assets after the date of execution of this Agreement and prior to April 1, 1999, there shall be an immediate acceleration of the unpaid severance pay due to Employee under this Agreement; in which case, such amount shall be immediately payable to the Employee. Any acceleration of payment due under this Agreement shall offset the latest required payment due to Employee under this Agreement. Without limiting the foregoing, Employee acknowledges and agrees that the foregoing severance payment is provided in excess of any payment or other thing of value to which he is already entitled or would be entitled if he did not sign this Agreement. In connection with the termination of Employee's employment, Employee's right to participate in and receive benefit under any employee benefit or fringe benefit plan, program or 2 arrangement established, maintained or contributed to by the Company (or its subsidiaries) shall terminate as of the effective date of this Agreement subject to the Employee's rights, if any, to continue coverage under a group health plan maintained by the Company pursuant to the Federal Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), if any, provided, however, that Employee shall be solely responsible for all costs associated with such COBRA coverage (including all costs associated with any qualified beneficiaries who elect to continue coverage under COBRA who are or were dependents of the Employee) including, without limitation, all preliminary costs for such COBRA coverage. 3. COMPANY PROPERTY: Employee shall return to the Company all property, equipment, records, correspondence, manuals, documents, files, keys, computer disks, computer programs, data and any other information (whether originals, copies or extracts) belonging to the Company, whether maintained by Employee in the facilities of the Company, at Employee's home, or at any other location, and Employee shall not retain any copies or reproductions of any confidential information of the Company. Employee further represents and warrants that he has not, and will not, destroy, delete, erase, or alter, without the express written permission of the Company, any information or data currently used by the Company in the course of its business. Employee agrees to provide the Company with the passwords to access all files maintained on the Company's computer system. Notwithstanding the foregoing, Employee shall have the right to keep all of the furniture and other personal property located in his office, including but not limited to, computers and their accessories, as well as all of the furniture and other property utilized by his assistant at her work station, including but not limited to, her computer, printers, facsimile and other accessories. In addition, Employee or any of his affiliates shall also have the right to hire Ms. Laura Walenius. 3 4. RELEASE OF CLAIMS AGAINST THE COMPANY AND ITS AFFILIATES. a. Employee accepts the terms of this Agreement in full, final and complete satisfaction and settlement of any and all claims which in any way relate or pertain to or arise out of (i) him employment with the Company (including its subsidiaries), the terms and conditions of such employment and the termination of that employment or (ii) his dealings with, and any positions held with respect to the Company and its subsidiaries, including without limitation, his membership on the Company's Board of Directors. Without limiting the foregoing, in consideration of the Company's promise to pay the amount specified in Paragraph 3 of this Agreement, Employee hereby waives, covenants not to sue and releases the Company and any and all parent, subsidiary or affiliated corporations or business entities and any and all respective past or present employees, officers, agents, directors, shareholders, representatives and attorneys of the foregoing and others acting for or on behalf of the foregoing (the "Releases") from all past, present or future claims, actions, rights or benefits of whatever nature or description both in law and in equity from the beginning of time through and including the date of execution of this Agreement ("Claims") including without limitation Claims arising out of, based upon or connected with his employment, the terms and conditions of his employment or the termination of Employment under the Age Discrimination in Employment Act of 1967, as amended, (the "ADEA") attorney's fees and expenses and any claim to stock option(s), change-in-control bonuses, or bonus payments, past, present or future, whether accrued or not, and any other document executed contemporaneous with this Agreement; provided, however, that this waiver shall not release any rights or claims that may arise under the ADEA after the execution of this Agreement. The Company acknowledges that nothing in this release encompasses, covers, alters, 4 limits or bars the right of Employee to pursue claims against the Company for breach of paragraphs 3, 7, 11, or 12 of this Agreement or the Physician Practice Consulting Agreement. b. In the event the Company fails to make any of its payment obligations when due under the Separation and Settlement Agreement as well as its obligations to RAM Advisors, Inc. under the Consulting Agreement being executed contemporaneously with the execution of this Agreement, then, notwithstanding the provisions of paragraph 4(a) or any other language in this Agreement to the contrary until such payments are made, the Company and the Employee shall each retain the absolute right to take all proper and necessary actions to satisfy any and all claims or rights of the Employee or the Company, as the case may be. 5. Employee acknowledges the following: (i) he has been given a full and fair opportunity to consider this Agreement, and understands its terms; (ii) he has been advised in writing to consult with an attorney, and he has in fact consulted with an attorney before signing this Agreement; (iii) he was given a period of twenty-one days from the date he was furnished with this Agreement within which to consider execution of the Agreement; and (iv) should be decide to sign the Agreement, Employee has seven days following the signing to revoke the Agreement (the "Revocation Period"). The Agreement will not become effective and enforceable until the Revocation Period has expired. Employee acknowledges that if he either decides not to sign this Agreement, or if he signs it and elects to revoke it during the Revocation Period, then this Agreement shall be null and void. 6. RELEASE OF CLAIMS AGAINST EMPLOYEE. a. The Company and its subsidiaries, successors and assigns accept the terms of this Agreement in full, final and complete satisfaction and settlement of any and all claims which in any way relate or pertain to or arise out of Employee's employment with the Company 5 and its subsidiaries and Employee's service as a member of the Company's Board of Directors. Accordingly, the Company hereby releases Employee from all past, present to future claims, actions, rights or benefits of whatever nature or description, including claims for attorneys' fees and expenses, past or future, whether accrued or not, from the beginning of time through and including the date of the execution of this Agreement. b. The Company and its subsidiaries, successors and assigns agree to indemnify and hold harmless the Employee and his successors and assigns at all times after the date of this Agreement from and against any and all loss, cost, liability damage and expenses (including legal and other expenses incident thereto), to the fullest extent permitted by Delaware law, arising out of or resulting from (i) any inaccuracy, misrepresentation or breach of any representation, warranty, covenant or agreement of such party under this Agreement; (ii) any causes of action or claims brought by, in the name of or on behalf of any person or entity with respect to any Prior Related Event as defined below; (iii) any cause of action relating to the negotiation, execution and consummation of this Agreement; and, (iv) any claims, actions, suits, proceedings, demands, assessments, judgments, costs and expenses (including legal and other expenses incident thereto) incident to any of the foregoing. c. As used herein, "Prior Related Event: shall mean any transaction, event, circumstance, action, failure to act, or occurrence of any sort or type related in any way to (i) the business and employment relationships and activities between Employee and the Company prior to the date hereof, or (ii) the relationships relating to the matters covered by this Agreement prior to the date hereof, provided however, that a Prior Related Event does not include any act of fraud or wilful misconduct that are legally determined to have been caused by the Employee. 6 d. It is further understood and agreed that this document is intended to be a total accord, settlement, and satisfaction of any and all claims which the Company has and may have had against Employee. The Company further acknowledges and understands that there are no limitations or covenants which in any way restrict the future business activity of Employee. 7. CONFIDENTIALITY. a. Employee and the Company agree for a period of two (2) years from the date of this Agreement to maintain in strict confidence the terms of this Agreement and the amount of the payments specified in Paragraph 2 and that each of them will not disclose the terms of this Agreement or the amount of said payments to anyone unless required by law including all applicable securities laws and regulations; provided that, Employee may disclose to his accountants, attorneys, and tax advisors or financial consultants such information as may be necessary for tax planning or the preparation of tax returns. b. Employee and the Company further agree that for a period of two (2) years from the date of this Agreement that Employee shall not disclose to any third party any confidential or non-public information relating to the Company and the Company shall not disclose to any third party any confidential or non-public information relating to Employee ("Information") regardless of the source, without the written consent of the party to which such information relates (the "Information Party"). In the event any party to this Agreement is requested or required to disclose any of the Information, he, she or it will provide the Information Parties with notice of such request or requirement so that the Information Party may seek an appropriate protective order or waive compliance with the terms of this Agreement. If any party to this Agreement is, in the opinion of counsel, compelled to disclose any of the Information, he, she or it will cooperate with the Information Party to obtain assurances that confidential treatment will be accorded to the 7 disclosed Information. Each of the parties agree that in the event of any actual or threatened breach of the confidentiality provisions of this paragraph, in addition to whatever other remedies may be available to such party(ies) such party(ies) shall be entitled to an injunction or other equitable relief to prevent such breach and to attorney's fees incurred in the successful prosecution of any civil action or other legal proceedings from the breach of these provisions. 8. NON-SOLICITATION. Miller agrees for a period of two (2) years following the completion of the Physician Practice Management Consulting Agreement that he shall not solicit, induce or attempt to solicit or hire any current employee of the Company who is engaged in the direct delivery of clinical trial site management organization services. 9. NON-COMPETITION. Miller agrees that for a period of two (2) years commencing upon the completion of the Physician Practice Management Consulting Agreement that he will not engage in any business or employment which is in direct competition with the Company's direct delivery of clinical trial site management organization services. 10. NON-DISPARAGEMENT. Employee agrees that he will not at any time denigrate, degrade, ridicule, intentionally criticize or make negative remarks about the Company or any of its affiliates or any of their respective employees, officers, directors, agents or representatives. The Company agrees that it will not at any time denigrate, degrade, ridicule, intentionally criticize or make negative remarks about Employee. If called upon, the Company will direct all inquiries to Mr. Abraham D. Gosman, to provide a favorable reference for Employee. 11. PRESS RELEASE. The parties agree that they will prepare a form of press release announcing the Employee's resignation from the Company and that no statement will be made or issued concerning the Employee's resignation from the Company until a form of release has been jointly approved by the parties to this Agreement. 8 12. Availability for Work: Employee agrees that he shall be available to the Company or its designee, as reasonably requested, to assist in the transition of Company matters for which Employee had responsibility during the term of his employment. 13. Severability. Should any provision of this Agreement be declared or determined by any court of competent jurisdiction to be unenforceable or invalid for any reason, the validity of the remaining parts, terms and provisions of this Agreement shall not be affected thereby and the invalid or unenforceable part, term or provision shall be deemed not to be part of the Agreement. 14. Arbitration: Any dispute, controversy, claim or disagreement arising out of or relating to this Agreement in any way shall be conclusively settled by arbitration to be held in the City of West Palm Beach, Florida in accordance with the procedural rules of the American Arbitration Association. Judgement upon the decision and award of the arbitrator(s) may be entered in any court having jurisdiction thereof. In addition, the parties agree that the arbitrator(s) shall have the exclusive power to consider and issue requests for injunctive relief to prevent any breach of this Agreement or to enforce specifically the terms and provisions of this Agreement. The costs, attorney's fees and expenses of such arbitration that are incurred by the prevailing party shall be awarded by the arbitrator to the prevailing party. The parties specifically waive all rights to commence or prosecute (or cause to commence or prosecute) any action in a court or other judicial forum with respect to this Agreement, any Claims, or any matter addressed in this Agreement. Notwithstanding the foregoing, in the event the Company fails to timely make any payment required to be made to Employee under this Agreement, interest on the unpaid portion shall accrue at the rate of fifteen percent (15%) per annum and Employee shall be entitled to costs and attorney's fees incurred in connection with collection of any payment which was not timely 9 made to it under this Agreement. 15. Governing Law: This Agreement shall be exclusively subject to the law of the State of Florida. 16. Whole Agreement: This Agreement constitutes the entire Agreement between the parties and embodies and supersedes any agreements or understandings, whether oral or written. It is further understood and agreed that this Agreement may not be changed, altered or amended except in a subsequent writing signed by each of the parties hereto. This agreement may be executed in multiple originals. 17. Waiver of Rights: If in one or more instances, either party fails to insist that the other party perform any of the terms of this Agreement, such failure shall not be construed as a waiver by such party of any past, present or future right granted under this Agreement, and the obligations of both parties under this Agreement shall continue in full force and effect. 18. Acknowledgment: Employee and the Company acknowledge and represent that they have each read or caused to be read this Agreement and that each understands it fully and signs it voluntarily. Employee further acknowledges that nothing contained in this Agreement or the payment of the sums referred to above shall be construed as an admission of liability on the part of the Company or Employee, all such liability being expressly denied. 19. Notices: All notices and other communications required or permitted under this Agreement shall be in writing and shall be (as elected by the person giving such notice) hand delivered by messenger or overnight courier service or mailed by U.S. certified mail (postage prepaid), return receipt requested addressed to the parties as follows: 10 If to PhyMatrix Corp.: Abraham D. Gosman 513 North Country Road Palm Beach, FL 33480 with a copy to: Michael Bohnen, Esq. Nutter McClennen & Fish, LLP One International Place Boston, MA 02110-2699 If to Robert A. Miller: Robert A. Miller 607 S. Beach Road Tequesta, Florida 33469 with a copy to: Richard B. Comiter, P.A. Richard B. Comiter, Esq. 222 Lakeview Avenue, Suite 800 West Palm Beach, FL 33401 The Falk Law Firm, pllc James H. Falk, Jr. 2445 M Street, NW, Suite 260 Washington, D.C. 20037 or to such other address as either party may designate by notice complying with the terms hereof. Each such notice shall be deemed delivered (a) on the date delivered if by personal or overnight delivery, or (b) on the date upon which the return receipt is signed, delivery is refused, or the notice is designated by the postal authorities as not deliverable, as the case may be, if mailed. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and sent by registered or certified mail to the principal office of the recipient. 11 IN WITNESS WHEREOF, the undersigned hereunto set their hands on the dates shown below. ROBERT A. MILLER /s/ Robert A. Miller ---------------------------------------- PHYMATRIX CORP. By: /s/ Abraham Gosman ------------------------------------ DATED: 12/8/98 ----------------------- SEEN AND APPROVED: /s/ Abraham Gosman - ------------------------------ ABRAHAM GOSMAN 12/8/98 - ------------------------------ DATE 12 EX-10.13 6 EXHIBIT 10.13 Exhibit 10.13 CONSULTING AGREEMENT FOR PHYSICIAN PRACTICE MANAGEMENT ASSETS THIS CONSULTING AGREEMENT ("Agreement") is entered into on December 8, 1998 between PhyMatrix Corp. ("Company") and RAM Advisors Inc., ("RAM"). This Agreement will permit RAM to act as a consultant to, or perform services for the Company, upon the following terms and conditions: 1. RAM agrees to perform the following services for the Company: To act as a consultant in the negotiation and workout of the physician practice management assets of the Company which are not being divested by Smith Barney. 2. In exchange for these consulting services, the Company agrees to compensate RAM in the amount of Three Hundred and Ninety Thousand Dollars ($390,000.00) to be paid in the following manner: One Hundred Thousand Dollars ($100,000.00) at the time of execution of this Agreement, with the remaining Two Hundred Ninety Thousand Dollars ($290,000.00) plus the Interest Factor payable in six (6) equal monthly payments of principal and interest beginning on January 1, 1999 and ending on June 1, 1999. The Interest Factor shall be equal to the Prime Rate of Interest charged be Nations Bank on the date of execution of this Agreement plus two percent (2%), multiplied by the unpaid portion of the compensation payable to RAM over the aforementioned six (6) month period. The Interest Factor shall be adjusted as payments are made under this Agreement; in which case, the portion of the six (6) equal payments attributable to interest shall be adjusted to reflect the same. Notwithstanding the foregoing, in the event that the Company closes an agreement during the aforementioned period with American Regional Medical or Atlanta Gastroenterology Associates, there shall be an immediate acceleration of Fifty Thousand Dollars ($50,000.00) of the payments due by the Company to RAM under this Agreement for either such agreement entered into by the Company. Thus, if the Company enters into settlement agreements with American Regional Medical and Atlanta Gastroenterology Associates, there shall be immediate acceleration of One Hundred Thousand Dollars ($100,000.00) of payments due by the Company to RAM. In addition, in the event the Company closes an agreement with the Osler Medical Group, there shall be an immediate acceleration of One Hundred Thousand Dollars ($100,000.00) of the payments due to RAM under this Agreement; in which case One Hundred Thousand Dollars ($100,000.00) shall be immediately payable to RAM. Any payments due under this Agreement may be accelerated at the option of the Company. Any acceleration of any payment made by the Company under this Agreement shall offset on a pro-rata basis the remaining payments due to RAM under this Agreement. RAM shall be entitled to claim and be reimbursed for any and all necessary business expenses incurred in connection with the performance of the services herein within fifteen (15) days after 1 submission of such expenses to the Company. 3. The term of this Agreement is for a period beginning upon execution of this Agreement and ending on June 1, 1999. Such term may be extended only by mutual agreement in writing between the parties. 4. RAM shall be and remain an independent contractor. As such, the Company shall not deduct from fees paid under this Agreement any statutory deductions or unemployment, withholding or social security taxes. RAM agrees that neither it nor any of its employees, agents and independent contractors shall have any authority or shall represent themselves as having any authority to bind the Company in any manner whatsoever. 5. If any of the above services are performed on the Company's premises, RAM agrees to comply with all applicable state and federal rules and regulations as to safety, OSHA, etc. RAM also agrees that any employees employed by it in the provision of services under this Agreement will also comply with such rules and regulations. 6. During the term of this agreement, RAM may provide services to other parties so long as those services, in the reasonable opinion of RAM, do not interfere with the services to be rendered to the Company under this Agreement and the Divestiture Agreement. 7. Any information (written, oral or observed) received by RAM during the course of providing services to the Company will be deemed to be confidential. This information may only be used in the provision of services under this Agreement and may not be revealed to any third parties during this Agreement or after its expiration without the prior written consent of the Company. 8. RAM's rights under this Agreement may not be assigned without prior written consent of the Company. 9. Any dispute, controversy, claim or disagreement arising out of or relating to this Agreement in any way shall be conclusively settled by arbitration to be held in the City of West Palm Beach, Florida in accordance with the procedural rules of the American Arbitration Association. Judgment upon the decision and award of the arbitrator(s) may be entered in any court having jurisdiction thereof. In addition, the parties agree that the arbitrator(s) shall have the exclusive power to consider and issue requests for injunctive relief to prevent any breach of this Agreement or to enforce specifically the terms and provisions of this Agreement. The costs, attorney's fees and expenses of such arbitration that are incurred by the prevailing party shall be awarded by the arbitrator to the prevailing party. Notwithstanding the foregoing, in the event the Company fails to timely make any payment required to be made to RAM under this Agreement, interest on the unpaid amount of 2 compensation due to RAM under this Agreement shall accrue at the rate of fifteen percent (15%) per annum from the date of nonpayment and RAM shall be entitled to all costs and attorney's fees incurred in connection with collection of any payment which was not timely made to it under this Agreement. 10. This Agreement shall be governed by the laws of the State of Florida. 11. This Agreement constitutes the entire agreement between the parties, and any amendment to this Agreement must by in writing and signed by both parties. IN WITNESS WHEREOF, the undersigned hereunto set their hands on the dates shown below. RAM Advisors, Inc. By: /s/ Robert A. Miller --------------------- Title: PhyMatrix Corp. By: /s/ Abraham Gosman ------------------ Title: READ AND AGREED TO: /s/ ABRAHAM GOSMAN - ------------------------------ ABRAHAM GOSMAN 12/8/98 - ------------------------------ DATE 3 EX-10.14 7 EXHIBIT 10.14 Exhibit 10.14 BUSINESS AGREEMENT BUSINESS AGREEMENT, dated as of September 4, 1998, by and among Phymatrix Corp., a Delaware corporation ("Phymatrix"), Abraham D. Gosman ("Gosman") Dasco Development Corporation, a Florida corporation ("Dasco"), Dasco Development West, Inc. a California corporation ("Dasco West", together with Dasco, the "Dasco Companies"), The Rendina Companies, Inc., a Florida corporation, The Rendina Companies West, Inc., a California corporation (collectively, the "Rendina Companies"), and Bruce A. Rendina ("Rendina"); RECITALS WHEREAS, the Dasco Companies and the Rendina Companies are each engaged in the development of medical real estate projects; WHEREAS, Rendina formerly was an officer and director of Phymatrix and the Dasco Companies and previously engaged in such development as an officer of the Dasco Companies; WHEREAS, Rendina currently is a shareholder of Phymatrix; WHEREAS, the standard practice of the parties has been, and is, for Rendina to have sole voting power with respect to the controlling general partner of each limited partnership that owns and develops a medical real estate project, which limited partnership, upon funding of the construction loan for the Project, pays development and marketing fees to a development company for the project; WHEREAS, Rendina has resigned from Phymatrix and the Dasco Companies and has established Rendina Companies; WHEREAS, Phymatrix, the Dasco Companies and Gosman on the one hand (the "Phymatrix Parties"), and the Rendina Companies and Rendina on the other hand, (the "Rendina Parties"), desire to cooperate and define their rights and obligations with respect to certain medical development projects identified in this Agreement, and to resolve all other issues that may arise from the resignation of Rendina from Phymatrix and the Dasco Companies and the formation and operation of Rendina Companies, including competition between the Rendina Parties and the Phymatrix Parties; WHEREAS, the parties desire to enter into this Business Agreement on all of the other terms and conditions set forth below. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties hereto hereby acknowledge the accuracy of the above recitals and agree as follows: ARTICLE I CERTAIN DEFINITIONS SECTION 1.1 DEFINITIONS. Unless the context requires otherwise, the following terms shall have the meanings set forth below: "ACTION" means any action, suit, arbitration, inquiry, proceeding or investigation of any nature in any forum or jurisdiction. "AFFILIATE" means with respect to any specified Person, a Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. The term "control" (including correlative terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or to cause the direction of the management and policies of such Person, whether through the ownership of voting securities, ability to elect directors to such Person's board of directors or similar governing body, by contract, or otherwise; PROVIDED, HOWEVER, that any Person in which a specified Person owns less than twenty-five percent (25%) of such Person's capital stock shall not be deemed to be an Affiliate unless the specified Person has the power to elect a majority of such other Person's directors or similar governing body or has the power to control such other Person's operations and policies through contract or other agreement. "AGREEMENT" means this Business Agreement. "CLAIM" means any and all claims, actions, causes of action, or other written notice alleging potential liability. "DEVELOPMENT AGREEMENT" means a development agreement, project agreement, project development agreement, business development agreement or similar agreement for the development and/or construction of a Project. "DIRECT EXPENSES" means all direct out-of-pocket expenses paid to Third Parties by Phymatrix or the Dasco Companies in connection with a Shared Fee Project or a Rendina Project if (i) such expenses have been incurred or contractually committed as of the date hereof or (ii) are incurred with the Rendina Companies' written consent and the written consent of the development partnership (or the functional equivalent thereof) after the date hereof. Direct Expenses shall not include internal labor costs, overhead expenses, or other indirect expenses of Phymatrix or the Dasco Companies. "GAAP" means generally accepted accounting principles in effect in the United States of America from time to time. "GOVERNMENTAL ENTITY" means any government or any court, arbitral tribunal, administrative agency or commission or other governmental or regulatory authority or agency, federal, state, local or foreign. 2 "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business, results of operations or financial condition of a specified business or a Person, as the case may be. "PERSON" means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including a Governmental Entity. "PROJECT" means the construction and/or development of a medical real estate property. "PROJECT FEES" means all development fees, construction management fees and marketing/leasing fees attributable to a Project as set forth in a Development Agreement. "SUBSIDIARY" means, with respect to any Person, any corporation, limited liability company or partnership of which such Person owns, either directly or through its Subsidiaries or Affiliates, more than fifty percent (50%) of (i) the total combined voting power of all classes of voting securities of such corporation or (ii) the capital or profit interests therein in the case of a partnership. "THIRD PARTY" means with respect to any Person, any other Person who is not an Affiliate of such Person. SECTION 1.2 INTERPRETIVE PRINCIPLES. For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: (i) the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender; (ii) accounting terms not otherwise defined herein shall have the meanings assigned to them in accordance with GAAP; (iii) references herein to "Articles," "Sections," "Subsections," "Paragraphs," and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement; (iv) a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions; (v) the words "herein," "hereof," "hereunder," and other words of similar import refer to this Agreement as a whole and not to any particular provision; 3 (vi) the term "include" or "including" shall mean "including without limitation;" and (vii) the exhibits to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement. ARTICLE II AGREEMENT SECTION 2.1 AGREEMENT. The Rendina Parties on the one hand, and Phymatrix Parties on the other, shall, as between each other, share fees with respect to certain Projects and pursue certain other Projects on an exclusive basis on the applicable terms and conditions of this Agreement. SECTION 2.2 DASCO PROJECTS. Each Project listed on Exhibit A (the "Dasco Projects") shall be pursued subject to the terms and conditions of this Section 2.2. (a) As between the Rendina Parties and the Phymatrix Parties, the Dasco Companies shall have the exclusive right to pursue serving as the developer of each Dasco Project and the Dasco Companies shall have the right to receive one-hundred percent (100%) of all Project Fees with respect to Dasco Projects. The Rendina Companies shall have no claim to any of the Project Fees payable, or any benefit of any other nature, with respect to any Dasco Project and hereby waive absolutely and irrevocably all claims to such Project Fees and any other benefits of any nature. (b) Gosman shall have the right to allocate the equity interests in the general partner (or the functional equivalent thereof) with respect to the Dasco Projects and Rendina Parties shall have no claim to such interests. (c) The Rendina Parties agree not to compete to become the developer of, interfere in the Dasco Companies development of, or claim any interest in, any Dasco Project. SECTION 2.3 SHARED FEE PROJECTS. Each Project listed on Exhibit B (the "Shared Fee Projects") shall be pursued subject to the terms and conditions of this Section 2.3. (a) As between the Phymatrix Parties and the Rendina Parties, the Rendina Companies shall have the exclusive right to pursue serving as the developer of each Shared Fee Project, the Rendina Companies shall be entitled to twenty-five percent (25%) of the Project Fees actually received for each Shared Fee Project and the Rendina Companies and the Dasco Companies shall share equally all remaining Project Fees actually received for Shared Fee Projects. Project Fees for Shared Fee Projects shall be distributed in the following order of priority: (i) The Rendina Companies shall retain all Project Fees until Rendina Companies actually receives twenty-five (25%) of the 4 projected Project Fees provided for in the Development Agreement (the "Projected Project Fees"); (ii) thereafter the Rendina Companies shall remit to the Dasco Companies fifty percent (50%) of the remaining Project Fees actually received by the Rendina Companies with respect to such Shared Fee Projects within ten (10) business days of the actual receipt of such Project Fees;(1) (iii) if the sum total of all Project Fees actually received by the Rendina Companies ("Actual Project Fees") is greater or lesser than the Projected Project Fees either the Dasco Companies or the Rendina Companies, as the case may be, shall remit to the other party such amount so that the total payments received by each party pursuant to this Section 2.3(a) reflects the amount that the parties would have received had the Projected Project Fees equaled the Actual Project Fees. Any reconciliation payment required to be made by the Rendina Companies pursuant to this subsection shall be made within five (5) business days of actual receipt of the final Project Fee, and any reconciliation payment required to be made by the Dasco Companies pursuant to this subsection shall be made within five (5) business days of receipt of a request for payment from the Rendina Companies.(2) (iv) If the Rendina Companies return all or any portion of the Project Fees at any time to any Person, whether as a result of legal process or otherwise, the Dasco Companies shall within ten (10) business days of receipt of notice remit to the Rendina Companies fifty percent (50%) of the amount so returned not to exceed the amount of Project Fees received by the Dasco Companies. - ---------------- (1) By way of example, if the Development Agreement provides for $400,000 in Projected Fees with respect to a Project, the Rendina Companies shall be entitled to retain the first $100,000 of Project Fees received from such Project and thereafter, the remaining $300,000 shall be shared, as received, on an equal basis. (2) By way of example, if the Projected Projects Fees are $400,000 and the Actual Project Fees are $360,000, then the Rendina Companies shall be entitled to a total of $225,000, i.e. $90,000 (25% of $360,000) plus $135,000 (50% of the difference between $360,000 and $90,000). By way of further example, if the Projected Project Fees are $400,000 and the Actual Project Fees are $440,000 then the Rendina Companies shall be entitled to a total of $275,000, i.e. $110,000 (25% of $440,000) plus $165,000 (50% of the difference between $440,000 and $110,000). 5 (v) The Phymatrix Parties will look only to the Rendina Companies for Project Fees and any and all other claims with respect to Shared Fee Projects. The Phymatrix Parties shall not communicate with, nor make a claim against, any hospital, hospital system or any other Person with respect to a Shared Fee Project without the prior written consent of the Rendina Companies. (b) Rendina or his designees and Gosman or his designees shall share equally the equity interests in the general partner (or the functional equivalent thereof) with respect to Shared Fee Projects, PROVIDED, HOWEVER, that Rendina or his designees shall own all of the equity (including voting) interests in the controlling general partner of such Project, the Gosman interests shall be non-voting limited partner interests and Rendina shall have the sole discretion with respect to Project structure and negotiation and execution of the Development Agreement and all Project-related agreements. (c) The Rendina Parties on the one hand, and the Phymatrix Parties on the other, agree that they shall not circumvent the agreements set forth in this Section 2.3. (d) In the event that a closing of a construction loan to develop the Lauderdale Lakes Project or the Hialeah Project shall not have occurred within six (6) months after the execution of this Agreement, each such Project for which such construction loan has not closed shall no longer be considered a Shared Fee Project and each party shall have the right to pursue such Project in accordance with Section 2.5 of this Agreement. (e) GUARANTEE In the event that one or more of the Rendina Parties guarantees any debt or obligation relating to a Shared Fee Project (a "Guarantee"), then Phymatrix and the Dasco Companies shall also guarantee such debt or obligation on the same terms and conditions as the Rendina Parties in form and substance satisfactory to the lender with respect to such Shared Fee Project, PROVIDED, THAT, if Rendina provides a Guarantee, then in addition to Phymatrix and the Dasco Companies providing such a corresponding Guarantee, the equity interests of Gosman and his designees, if any, in the general partner (or functional equivalent thereof) of the relevant Project shall, pursuant to a written pledge agreement, commercially reasonable in form and substance, and applicable financing statements, each to be executed and delivered to Rendina simultaneously with the execution and delivery of such Guarantee, be pledged to Rendina to secure payment to the Phymatrix and the Dasco Company's Guarantee and such security interest shall be a valid and enforceable first priority security interest free of any claims, liens or encumbrances of any nature (the "Pledge"). The Rendina Parties shall notify the Phymatrix Parties in writing of the terms and conditions of any proposed Guarantee. The Phymatrix Parties shall irrevocably notify the Rendina Companies in writing within five (5) business days of receipt of such notice of the intent of the relevant Phymatrix Parties to provide the Guarantee and Pledge contemplated by this Section 2.3(e). The relevant Phymatrix Parties or Party will thereafter execute and deliver to 6 Rendina a Guarantee, and Gosman and his designees will execute and deliver to Rendina the pledge agreement and financing statements, all simultaneously with the execution of the corresponding Guarantee by the relevant Rendina Party or Parties. The Shared Fee Project to which a Guarantee relates shall be deemed to be a Rendina Project effective immediately if (i) the Phymatrix Parties decline to provide a Guarantee or Pledge required by this Section 2.3, or (ii) the Phymatrix Parties fail to notify irrevocably the Rendina Parties in writing within the five (5) business day notice period of their intent to provide such Guarantee. A Guarantee provided by any Phymatrix Party pursuant to this Section 2.3(e) shall be equal in rank with the corresponding Guarantee by a Rendina Party and as between each other, the relevant Phymatrix Parties and Rendina Parties providing the Guarantee shall each be liable for and shall pay to the other party or parties (in contribution or otherwise), either directly or by reimbursement, fifty percent (50%) of any amount due and payable under the Guarantee. Any payment required under this Section 2.3(e) shall be paid within five (5) business days of receipt of a written demand for payment. The Guarantees provided by the Rendina Parties on the one hand and the Phymatrix Parties on the other pursuant to this Section 2.3(e) shall be joint and several, PROVIDED, HOWEVER, that such Guarantees may be several with each side liable for fifty (50) percent of the total amount guaranteed if so permitted by the Person receiving the Guarantee. Nothing contained herein shall be construed to obligate any Rendina Party to provide any guarantee of any nature. SECTION 2.4 RENDINA PROJECTS. Each project listed on Exhibit C (the "Rendina Projects"), shall be pursued subject to the terms and conditions of this Section 2.4. (a) As between the Rendina Parties and the Phymatrix Parties, the Rendina Companies shall have the exclusive right to pursue serving as developer of each Rendina Project and shall have the right to receive one-hundred percent (100%) of all Project Fees with respect to Rendina Projects. The Phymatrix Parties shall have no claim to any of the Project Fees payable or any other benefits of any nature with respect to any Rendina Project and hereby waive absolutely and irrevocably all claims to any Project Fees and any other benefits of any nature. (b) Rendina shall have the right to allocate one-hundred percent (100%) of the equity interest in the general partner (or the functional equivalent thereof) with respect to the Rendina Projects and the Phymatrix Parties shall have no claim to such interests. (c) The Phymatrix Parties agree not to compete to become the developer of, interfere in the development of, or claim any interest in, any Rendina Project. SECTION 2.5 OTHER PROJECTS. Notwithstanding any other provision of this Agreement, the Phymatrix Parties and the Rendina Parties shall each have the right to pursue any medical real estate development project or opportunity or any other business opportunity or project not specifically identified as a Project on Exhibit A, B or C of this Agreement (including projects with hospital systems identified on Exhibits A, B or C of this Agreement) and each party hereby expressly disclaims any claim with respect to or interest in any such project or 7 opportunity, including any claim relating to any proprietary right, trademark, confidential information or any intellectual property right. SECTION 2.6 DIRECT EXPENSES. If the Rendina Companies execute a binding Development Agreement for a Rendina Project or a Shared Fee Project, the Rendina Companies shall on condition that the construction loan for such Rendina Project or Shared Fee Project closes and the loan proceeds are released from escrow, reimburse the Phymatrix Parties for reasonable Direct Expenses incurred with respect to such Project, PROVIDED, THAT, the (i) Rendina Companies receive invoices and other documentation evidencing such expenses and the payment thereof reasonably satisfactory to the Rendina Companies, and (ii) within ten (10) business days of this Agreement, the work product in the possession or control of Phymatrix or any Dasco Company as of the date of this Agreement and within ten (10) business days of the receipt of any work product received by the Phymatrix or any Dasco Company after the date of this Agreement, Phymatrix and the Dasco Companies assign in writing all right, title and interest in, and physically delivers to, the Rendina Companies all work product resulting from any Direct Expense for which Phymatrix or the Dasco Company seeks reimbursement. The failure of the Phymatrix Parties to satisfy the conditions set forth in clauses (i) and (ii) above shall constitute their irrevocable waiver of any claim for Direct Expenses with respect to such work product. Reimbursement of Direct Expenses shall be not be credited toward payment of any Project Fee required to be made to Phymatrix or the Dasco Companies pursuant to this Agreement. After the date of this Agreement, the Phymatrix Parties shall incur no Direct Expense for any Rendina Project or Shared Fee Project without the prior written approval of the Rendina Companies and the development partnership (or the functional equivalent thereof). The Phymatrix Parties hereby irrevocably authorize all Third Parties involved in the creation of work product for which Direct Expenses are sought to deliver such work product and related information to the Rendina Companies and otherwise deal directly with their Rendina Companies, and will in each instance upon request promptly confirm such authorization in writing. SECTION 2.7 NO REPRESENTATION. No representation or warranty is made by any party to this Agreement that a Development Agreement will be executed, or that the closing of a construction loan or other permanent financing arrangement will occur, for any Project described in this Section 2. SECTION 2.8 DURATION. If a Development Agreement has not been executed, nor the closing of a construction loan or other permanent financing arrangement occurred with respect to any Rendina Project or any Dasco Project within twenty (20) months from the date of this Agreement, then with respect to each such Project only, such Project shall no longer be considered a Rendina Project or a Dasco Project as the case may be, and all parties shall have the right to pursue such Project on the terms and conditions set forth in Section 2.5. 8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PHYMATRIX PARTIES Each of the Phymatrix Parties hereby, jointly and severally, represents and warrants to each of the Rendina Parties as follows: SECTION 3.1 ORGANIZATION. Phymatrix and each of the Dasco Companies is a corporation duly organized, validly existing and in good standing under the laws of the State of its incorporation and has the corporate power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is not being conducted or presently proposed to be conducted, except where the failure to be so organized, existing, and in good standing or to have such power and authority would not, individually or in aggregate, have a Material Adverse Effect on its business, assets, liabilities, results of operations or financial condition or any transaction contemplated by this Agreement. SECTION 3.2 AUTHORITY. Each of the Phymatrix Parties has the power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution, delivery and performance of this Agreement by Phymatrix and the Dasco Companies and the consummation by Phymatrix and the Dasco Companies of the transactions contemplated hereby have been duly authorized by their respective Boards of Directors and such minutes or other evidence of authorization has been delivered to the Rendina Parties, and no other corporate or other proceedings on the part of such parties are necessary to authorize this Agreement or the transactions contemplated hereby. Gosman has the legal capacity to execute this Agreement. This Agreement has been duly and validly executed and delivered by each of the Phymatrix Parties and (assuming this Agreement constitutes a valid and binding obligation of the Rendina Parties) constitutes a valid and binding agreement of each of the Phymatrix Parties, enforceable against such parties in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting creditors' rights generally from time to time in effect and to general equitable principles. SECTION 3.3 CONSENTS AND APPROVALS. Except where the failure to make any filing with, or to obtain any permit, authorization, consent or approval of, any Governmental Entity would not prevent or materially delay consummation of the transactions contemplated by this Agreement, or otherwise prevent or materially delay the performance by any Phymatrix Party of its obligations under this Agreement, no filing with, and no permit, authorization, consent or approval of, any Governmental Entity is necessary for the execution, delivery and performance of this Agreement by the Phymatrix Parties and the consummation of the transactions contemplated by this Agreement. SECTION 3.4 NO CONFLICT OR VIOLATION. Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) conflict with or result in any breach of any provisions of the Certificate or Articles of Incorporation, as the case may be, or the By-Laws of Phymatrix or the Dasco Companies, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) as default (or give rise to any right of termination, cancellation, vesting, payment, exercise, acceleration, suspension 9 or revocation) under, any of the terms, conditions or provisions of any note, bond, mortgage, deed of trust, security interest, indenture, license, contract, agreement, plan or other instrument or obligation to which any Phymatrix Party is a party or by which it or any of its properties or assets may be bound or affected, (iii) result in a violation or breach of any other duty or obligation owed by any Phymatrix Party to any other Person or by which such Phymatrix Party is bound, or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to any Phymatrix Party or any of its properties or assets, except, in the case of clauses (ii), (iii), and (iv), for violations, breaches, defaults, terminations, cancellations, accelerations, creations, impositions, suspensions or revocations that would not, individually or in the aggregate, have a Material Adverse Effect on the ability of any Phymatrix Party to perform its obligations under this Agreement, or impair the effectiveness of any waiver or release made by the Phymatrix Parties under this Agreement, without loss to the Rendina Parties. SECTION 3.5 LITIGATION. There is no Action (whether at law or equity, before or by any federal, state or foreign court, tribunal, commission, board, agency or instrumentality, or before any arbitrator) pending or, to the knowledge of any Phymatrix Party, threatened against or affecting any Phymatrix Party, the outcome of which, in the reasonable judgment of the Phymatrix Parties, is likely, individually or in the aggregate, nor is there any judgment, decree, injunction, rule, or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against any Phymatrix Party that, insofar as can reasonably be foreseen, would have a Material Adverse Effect on any Phymatrix Party, or would in any manner impair the ability of any Phymatrix Party to perform its obligations hereunder or in connection with the transactions contemplated by this Agreement. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE RENDINA PARTIES Each of the Rendina Parties, jointly and severally, represents and warrants to each of the Phymatrix Parties as follows: SECTION 4.1 ORGANIZATION. Each of the Rendina Companies is a corporation validly existing and in good standing under the laws of the state of its incorporation and has the corporate power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted or presently proposed to be conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not, individually or in aggregate, have a Material Adverse Effect on the business, assets, liabilities, results or operations or financial condition of the Rendina Parties or any transaction contemplated by this Agreement. SECTION 4.2 AUTHORITY. Each of the Rendina Companies has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution, delivery and performance of this Agreement by the Rendina Companies and the consummation by it of the transactions contemplated hereby have been duly authorized by their respective Board of Directors and evidence of such authorization has been delivered to the Phymatrix 10 Parties, and no other corporate or other proceedings on the part of the Rendina Companies are necessary to authorize this Agreement or the transactions contemplated hereby. Rendina has the legal capacity to execute this Agreement. This Agreement has been duly and validly executed and delivered by each of the Rendina Parties and (assuming this Agreement constitutes a valid and binding obligation of each of the Phymatrix Parties) constitutes a valid and binding agreement of each of the Rendina Parties, enforceable against such party in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting creditors' rights generally from time to time in effect and to general equitable principles. SECTION 4.3 CONSENTS AND APPROVALS. Except where the failure to make any filing with, or to obtain any permit, authorization, consent or approval of, any Governmental Entity would not prevent or materially delay consummation of the transactions contemplated by this Agreement, or otherwise prevent or materially delay the Rendina Parties' performance of its obligations under this Agreement, no filing with, and no permit, authorization, consent or approval of, any Government Entity is necessary for the execution, delivery and performance of this Agreement by the Rendina Parties and the consummation of the transactions contemplated by this Agreement. SECTION 4.4 NO CONFLICT OR VIOLATION. Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) conflict with or result in any breach of any provisions of the Certificate or Articles of Incorporation, as the case may be, or By-Laws of the Rendina Companies, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, vesting, payment, exercise, acceleration, suspension or revocation) under, any of the terms, conditions or provisions of any note, bond, mortgage, deed of trust, security interest, indenture, license, contract, agreement, plan or other instrument or obligation to which any Rendina Party is a party or by which such party or any of the Rendina Parties may be bound or affected, (iii) result in a violation or breach of any other duty or obligation owed by any Rendina Party to any other Person or by which such Rendina Party is bound, or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to any Rendina Party or any of its properties or assets, except in the case of clauses, (ii), (iii) and (iv) for violations, breaches, defaults, terminations, cancellations, accelerations, creations, impositions, suspensions or revocations that would not individually or in the aggregate, have a Material Adverse Effect on the ability of any Rendina Party to performs its obligations under this Agreement, or impair the effectiveness of any waiver or release made by the Rendina Parties under this Agreement, without loss to the Phymatrix Parties. SECTION 4.5 LITIGATION. There is no Action (whether at law or equity, before or by any federal, state or foreign commission, court, tribunal, board, agency or instrumentality, or before any arbitrator) pending or, to the knowledge of any Rendina Party, threatened against or affecting the Rendina Parties the outcome of which, in the reasonable judgment of the Rendina parties, is likely, individually or in the aggregate, nor is there any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against any Rendina Party that, insofar as can reasonably be foreseen, would have a 11 Material Adverse Effect or would in any manner impair the ability of the Rendina Parties to perform their obligations hereunder or in connection with the transactions contemplated by this Agreement. ARTICLE V ADDITIONAL AGREEMENTS SECTION 5.1 RELEASE. (a) Each of the Phymatrix Parties, collectively and individually, irrevocably waives and releases now and forever, and will not maintain or assert, any claims, counterclaims, setoffs or Actions of any kind or nature whatsoever, whether now known or unknown and whenever discovered against any Rendina Party, its directors, officers, employees (including the former employees of the Dasco Companies listed on Exhibit D hereto (the "Employees")), agents, attorneys, legal representatives (including Lawrence B. Juran, Mark Nussbaum and Lawrence B. Juran, P.A.), successors, or assigns, directly or indirectly arising out of, based upon, or in any manner connnected with, any Prior Related Event. (b) Each of the Rendina Parties, collectively and individually, irrevocably waives and releases now and forever, and will not maintain or assert, any claims, counterclaims, setoffs or Actions of any kind or nature whatsoever, whether now known or unknown and whenver discovered against any Phymatrix Party, its directors, officers, employees, agents, attorneys, legal representatives, successors, or assigns, directly or indirectly arising out of, based upon, or in any manner connected with, any Prior Related Event, PROVIDED, HOWEVER, that this Agreement shall not be construed to limit, restrict, modify or amend any right (i) of Rendina or any Employee to indemnification as a result of prior service as a director, officer, employee or agent of any Phymatrix Party subject to applicable law and the organizational documents of the Phymatrix Parties, (ii) of Rendina or any Employee to any benefit that now or hereafter may be due as a result of Rendina's or such Employee's relationship with any Phymatrix Party, including without limitation, unpaid wages, employee benefits, distribution of 401(k) account balances, unreimbursed expenses or any other employee benefit, or (iii) that Rendina may have relating to or arising from his ownership of shares of Phymatrix as a member of the class of shareholders generally; provided, however, that Rendina may not exercise such right in violation of Section 5.5 of this Agreement (c) As used herein, "Prior Related Event", shall mean any transaction, event, circumstance, action, failure to act, or occurrence of any sort or type related in any way to (i) the parties' business and emmployment activities prior to the date hereof, or (ii) relationships relating to the matters covered by this Agreement prior to the date hereof. The release contained herein shall not be construed to release any party from liability for any acts after the date hereof nor shall this release constitute an admission by any party of any liability for any matter or as a precedent upon which liability may be asserted. (d) This Section 5 shall not be construed to limit the force or effect of the Other Agreements (as defined in Article 8) 12 (e) If requested by any Rendina Party, any Phymatrix Party shall execute and deliver an individual release to any Person released pursuant to subsection (a) above and if requested by any Phymatrix Party, any Rendina Party shall execute and deliver an individual release to any Person released pursuant to Subsection (b) above. (f) Nothing contained herein shall amend, alter, restrict or affect in any manner any right or obligation with respect to indemnification or otherwise that a general partner of a Project may have based on law or the relevant Project documents and this Agreement shall not grant a general partner of a Project any additional indemnification rights. SECTION 5.2 FILES. The Phymatrix Parties agree at their sole expense to deliver to the Rendina Companies all files in the possession of or controlled by any Phymatrix Party relating to the Shared Fee Projects, the Rendina Projects and the projects or entities listed on Exhibit E within two (2) business days from the date hereof. The Phymatrix Parties agree to deliver to the Rendina Companies files in the possession of or controlled by any Phymatrix Party relating to the Phymatrix Projects necessary for any Rendina Party to perform its obligations or exercise its rights hereunder immediately upon the reasonable request of any Rendina Party. The Phymatrix Parties shall have the right at their own expense to copy any document delivered pursuant to this Section solely for the use of such party in the performance of its obligations and the exercise of its rights hereunder. SECTION 5.2 PUBLIC ANNOUNCEMENTS. (a) Each of the Phymatrix Parties on the one hand, and the Rendina Parties on the other, agrees that it will not issue any press release or otherwise make any public statement or respond to any press inquiry with respect to this Agreement or the transactions contemplated hereby without the prior approval of the other side (which approval will not be unreasonably withheld). Notwithstanding the above, each party may disclose the terms of this Agreement as may be required by law, provided, that the disclosing party informs and consults with the other party prior to such disclosure to the extent permitted by law and promptly informs the other party of the basis and nature of the required disclosure. (b) Notwithstanding subsection (a), the Phymatrix Parties on the one hand, and the Rendina Parties on the other hand, agree to cooperate to inform the partnerships, hospitals, physicians and other Persons customarily involved in Projects of the terms of this Agreement to the extent required or desirable for the relevant party to pursue a Phymatrix Project, Shared Fee Project or Rendina Project, as the case may be, including through the issuance of joint letters to such Persons, including the letters attached as Exhibit F as to Shared Fee Projects which shall be issued simultaneously with the execution of this Agreement. SECTION 5.4 NON-DISPARAGEMENT. Each Phymatrix Party on the one hand, and each Rendina Party on the other hand, agrees that it will not in any way, directly or indirectly, in public, in private, to any Person (including but not limited to any communications with the press or other media), criticize of disparage the performance, competency, or ability of a Rendina Party or 13 Phymatrix Party, as applicable, its subsidiaries or affiliates, or the officers, directors, employees, or agents, whether in their employment or personal capacities, at any time after the execution of this Agreement. SECTION 5.5 NO CAUSE OF ACTION. Rendina hereby agrees not to bring any claim, suit or cause of action, whether on an individual or class basis, Phymatrix or the Dasco Companies in his capacity as a shareholder of Phymatrix for any event or omission that occurred prior to June 16, 1998 of which Rendina was aware as of such date, provided, that, Rendina is expressly permitted to exercise all rights that Rendina may have relating to or arising from his ownership of shares of Phymatrix as a member of the class of shareholders generally, including any right that may result from a class action, claim, suit or cause of action against Pymatrix or the Dasco Companies brought or initiated by a shareholder of Phymatrix other than Rendina. SECTION 5.6 FURTHER ASSURANCE. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including using all reasonable efforts to obtain all necessary waivers, consents and approvals and to effect all necessary registrations and filings. In case at any time after the date of this Agreement any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers or directors of the parties, Gosman and Rendina shall take all such necessary action. Each Party shall use commercially reasonably best efforts to encourage the partnerships, hospitals and other relevant Persons not a party to this Agreement to cooperate with the implementation of this Agreement. ARTICLE VI INDEMNIFICATION SECTION 6.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The representations, warranties and covenants of each of the parties contained in this Agreement (or in any document delivered in connection herewith) shall be deemed to have been made on the date of this Agreement (except as otherwise provided therein), shall be deemed to be material and to have been relied upon, notwithstanding any investigation made by any party, shall survive indefinitely and, except as otherwise specifically provided in this Agreement, shall remain operative and in full force and effect. SECTION 6.2 INDEMNIFICATION. (a) Phymatrix and each of the Dasco Companies shall indemnify and hold harmless each Rendina Party and its Affiliates (other than as set forth in subsection (c)(ii) of this Section), officers, directors, stockholders, employees, agents and successors and assigns at all times after the date of this Agreement from and against: any and all loss, cost, liability, damage and expense (including legal and other expenses incident thereto) to the extent not covered by insurance (each a "Loss" and, collectively, "Losses") arising out of or resulting from (i) any 14 inaccuracy, misrepresentation or breach of any representation, warranty, covenant or agreement of such party under this Agreement, the exhibits hereto or other certificates, documents or instruments delivered in connection herewith, (ii) fees, expenses and other costs incurred in the defense of any cause of action or claim brought by, in the name of or on behalf of any Phymatrix Party with respect to any Prior Related Event or the negotiation, execution, or consummation of this Agreement; and (iii) claims, actions, suits, proceedings, demands, assessments, judgments, costs and expenses (including legal and other expenses incident thereto) incident to any of the foregoing. (b) The Rendina Companies shall indemnify and hold harmless each Phymatrix Party and its Affiliates (other than as set forth in subsection (c)(ii) of this Section), officer, directors, stockholders, employees, agents and successors and assigns at all times after the date of this Agreement from and against any Losses arising out of our resulting from (i) any inaccuracy, misrepresentation or breach of any representation, warranty, covenant or agreement of such party under this Agreement, the exhibits hereto or other certificates, documents or instruments delivered in connection herewith, and (ii) all claims, actions, suits, proceedings, demands, assessments, judgments, costs and expenses (including legal and other expenses incident thereto) incident to any of the foregoing. (c) Notwithstanding any other provision of this Section 6.2, nothing set forth herein shall (i) preclude any party from maintaining nor preclude any indemnification provided under this Section 6.2, with respect to any claim or action, alleging a breach of this Agreement against any other party hereto, or (ii) amend, alter, restrict or affect in any manner any right or obligation with respect to indemnification or otherwise that a general partner of a Project may have based on law or the relevant Project documents and this Agreement shall not grant a general partner of a Project any additional indemnification rights. SECTION 6.3 INDEMNIFICATION PROCEDURES. (a) If at any time a Person entitled to indemnity under Section 6.2 (the "INDEMNITEE") shall receive notice of any state of facts that may result in a Loss of the type described in Section 6.2, the Indemnitee shall promptly give written notice (a "NOTICE OF CLAIM") to the Person obligated to provide indemnity hereunder (the "INDEMNITOR") of the discovery of such potential or actual Loss. A Notice of Claim shall set forth (A) a brief description of the nature of the potential or actual Loss and (B) to the extent then feasible the total amount of Loss anticipated (including any costs or expenses which have been or may be reasonably incurred in connection therewith). Payment of the amount of Loss due the Indemnitee as set forth in a Notice of Claim shall be made by the Indemnitor no later than the thirtieth (30th) day after the date of the Notice of Claim (or such later date as the Indemnitor receives written notice that an actual Loss has occurred). The Indemnitee's failure to provide copies of documents or to furnish relevant data shall not constitute a defense (in whole or in part) to any claim by the Indemnitee against the Indemnitor for indemnification, except and only to the extent that such failure shall have caused or increased such liability or adversely affected the ability of the Indemnitor to defend against or reduce its liability. 15 (b) If the Indemnitor shall reject any Loss as to which a Notice of Claim is sent by the Indemnitee, the Indemnitor shall give written notice of such rejection to the Indemnitee within thirty (30) days after the date of receipt of the Notice of Claim. Upon such rejection, the parties shall attempt in good faith to resolve any disagreement. (c) If any Notice of Claim relates to any claim made against an Indemnitee by a third person, the Notice of Claim shall state the nature, basis and amount of such claim. The Indemnitor shall have the right, at its election, by written notice given to the Indemnitee to assume the defense of the claim as to which such notice has been given. Except as provided in the next sentence, if the Indemnitor so elects to assume such defense, it shall diligently and in good faith defend such claim and shall keep the Indemnitee reasonably informed of the status of such defense, and the Indemnitee shall cooperate fully with the Indemnitor in the defense of such claim and may participate at it own expense, provided that in the case of any settlement providing for remedies other than monetary damages for which indemnification is provided, the Indemnitee shall have the right to approve the settlement, which approval shall not be unreasonably withheld or delayed. If the Indemnitor does not so elect to defend any claim as aforesaid or shall fail to defend any claim diligently and in good faith (after having so elected), the Indemnitee may assume the defense of such claim and take such other action as it may elect to defend or settle such claim as it may determine in its reasonable discretion, provided that the Indemnitor shall have the right to approve any settlement, which approval will not be unreasonably withheld or delayed. ARTICLE VII REPRESENTATIVES The Rendina Parties hereby appoint Patrick DiSalvo or such other Person as Rendina may designate from time to time, as their representative with respect to any dispute, controversy, claim or disagreement between or among any of the parties hereto arising from, relating to or in connection with this Agreement ("Dispute"). The Phymatrix Parties hereby appoint Fred Leathers as their representative with respect to any Dispute. In the event of a Dispute, the representatives shall attempt in good faith to amicably resolve the Dispute within five (5) business days without the necessity of any formal legal proceeding. If the representatives have not resolved such Dispute within such five (5) business day period, either representative shall have the right to present the Dispute to the chief executive officers (or functional equivalent) of Phymatrix and the Rendina Companies, who shall meet (by conference telephone call or in person at a mutually agreeable site) within 72 hours after notification of such Dispute and attempt in good faith to resolve the Dispute within five (5) business days prior to initiation of any formal legal proceeding. This Article VII shall not prohibit any party from seeking a temporary injunction or other provisional order or relief at any time to protect its business interests, assets or to ensure enforcement of any possible claim. 16 ARTICLE VIII OTHER AGREEMENTS Notwithstanding any other provision of this Agreement, any agreement, contract or understanding that involves Gosman, Rendina, and/or any entity in which Rendina or Gosman is involved other than Dasco, Dasco West, Phymatrix or the Rendina Companies (the "Other Agreements") shall not be amended, modified, limited, altered or restricted in any way by this Agreement and all Other Agreements shall remain in full force and effect after execution of this Agreement. ARTICLE IX GENERAL PROVISIONS SECTION 9.1 NOTICES. All notices, claims, demands and other communications hereunder shall be in writing and shall be deemed given (a) in the case of a facsimile transmission, when received by recipient in legible form and sender has received an electronic confirmation of receipt of the transmission (provided that such transmission is received by 5:00 p.m. on a business day; otherwise, such transmission shall be deemed to have been received on the next business day); (b) in the case of delivery by a standard overnight carrier, upon the date of delivery indicated in the records of such carrier; or (c) in the case of delivery by hand, when delivered by hand addressed to the respective parties at the following addresses (or such other address for a party as shall be specified by like notice): If to the Rendina Parties, to: Bruce A. Rendina 222 Lakeview Avenue 17th Floor West Palm Beach, Florida 33401 Telefax: (561) 655-8168 with a copy to: Wilmer, Cutler & Pickering 2445 M Street, N.W. Washington, D.C. 20037 Attention: Russell J. Bruemmer, Esq. Telefax: (202) 663-6363 17 If to Phymatrix Parties: Phymatrix Corp. 777 S. Flagler Drive Suite 1000E West Palm Beach, FL 33401 Attention: Abe Gosman Telefax: (561) 833-7175 with a copy to: Fred Leathers 777 S. Flagler Drive Suite 1000E West Palm Beach, FL 33401 Telefax: 781-416-2776 and Michael J. Bohnen, Esq. Nutter, McClennen & Fish, LLP One International Place Boston, Massachusetts 02110-2699 Telefax: (617)-310-9285 SECTION 9.2 DESCRIPTIVE HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 9.3 ENTIRE AGREEMENT ASSIGNMENT. This Agreement (including the Exhibits hereto) (a) constitutes the entire agreement and supersedes all other prior agreements and understandings (other than those contained in the Other Agreements which shall remain in full force and effect) written and oral, among the parties or any of them, with respect to the subject matter hereof, including, without limitation, any transaction between or among the parties hereto and (b) shall not be assigned by operation of law or otherwise. Notwithstanding the preceding sentence, the Phymatrix Parties shall have the right to assign on a pass-through basis their beneficial interest in amounts due to the Phymatrix Parties under Sections 2.3 and 2.6 of this Agreement, PROVIDED, HOWEVER, that the assignee or assignees of such beneficial interests shall not have any rights hereunder other than the right to receive from the Phymatrix Parties payments made by the Rendina Parties to the Phymatrix Parties hereunder, as and when received, and the Rendina Parties shall only be required to deal with the Phymatrix Parties with respect to the matters set forth herein. Nothing contained herein shall be construed as granting any Phymatrix Party the right to delegate any duty or obligation under this Agreement, which duties and obligations shall 18 remain in full force and effect notwithstanding any assignment of beneficial interests pursuant to this Section 9.3. SECTION 9.4 GOVERNING LAW. The laws of the State of Florida, excluding its choice of law principles, shall govern the relationship among the parties and disputes, differences, controversies, or claims directly or indirectly arising out of, relating to, or having a connection with this Agreement, including those relating to the validity, interpretation, construction, performance, breach, enforceability or termination of this Agreement and duties based on tort, contract or statutory concepts. SECTION 9.5 RELATIONSHIP OF THE PARTIES. Except to the extent specifically provided herein, each party is acting independently and this Agreement shall not create any joint venture, partnership, relationship, obligation, fiduciary duty or other duty between the Phymatrix Parties on the one hand and the Rendina Parties on the other, including an obligation to inform any party of any business opportunity. SECTION 9.6 WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.7 NO PUNITIVE DAMAGES. Notwithstanding anything to the contrary contained in this Agreement, the Rendina Parties on the one hand, and the Phymatrix Parties on the other, each acknowledge and agree that to the extent permitted by law there shall be no punitive damages awarded by any court, tribunal or administrative or other proceeding arising out of any dispute between or among any of the parties (including, without limitation, any dispute alleged between or among any parties based on alleged fraudulent, willful or dishonest conduct by any party), it being the express intent of all parties to this Agreement to completely and irrevocably waive any right to obtain punitive damages in connection with any such proceeding. Each party acknowledges that prior to agreeing to the foregoing provision it has consulted with its counsel as to the consequences of such provision. SECTION 9.8 DRAFTING. Each party acknowledges that its legal counsel participated in the preparation of this Agreement. The parties therefore stipulate that the rule of construction that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement to favor any party against the other. SECTION 9.9 EXPENSES. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby and thereby shall be paid by the party incurring such expenses except as otherwise provided herein. SECTION 9.10 AMENDMENT. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 19 SECTION 9.11 COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. This Agreement shall become effective when each party hereto shall have received counterparts thereof signed by all of the other parties hereto. SECTION 9.12 SEVERABILITY; VALIDITY; PARTIES IN INTEREST. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity of unenforceability of the other Agreement shall be deemed to be unenforceable by reason of its extent, duration, scope or otherwise, then the parties contemplate that the court making such determination shall reduce such extent, duration, scope or other provision and shall enforce it in its reduced form for all purposes contemplated by this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any person not a party to this Agreement any rights or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 9.12 ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable damage would occur in the event that any provision of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled at law or in equity. [This space is intentionally left blank] 20 IN WITNESS WHEREFORE, each party hereto has executed or caused this Agreement to be executed on its behalf by its duly authorized representative, all as of the date first above written. PHYMATRIX CORP. /s/ ABRAHAM D. GOSMAN ----------------------------------- By: Abraham D. Gosman Title: Chairman and CEO DASCO DEVELOPMENT CORPORATION /s/ ABRAHAM D. GOSMAN ----------------------------------- By: Abraham D. Gosman Title: Chairman and CEO DASCO DEVELOPMENT WEST, INC. /s/ ABRAHAM D. GOSMAN ----------------------------------- By: Abraham D. Gosman Title: Chairman and CEO ABRAHAM D. GOSMAN /s/ ABRAHAM D. GOSMAN ----------------------------------- Abraham D. Gosman THE RENDINA COMPANIES, INC. /s/ BRUCE A. RENDINA ----------------------------------- By: Bruce A. Rendina Title: Chief Executive Officer 21 THE RENDINA COMPANIES WEST, INC. /s/ BRUCE A. RENDINA ----------------------------------- By: ------------------------------- Title: ----------------------------- BRUCE A. RENDINA /s/ BRUCE A. RENDINA ----------------------------------- Bruce A. Rendina 22 EX-10.16 8 EXHIBIT 10.16 Exhibit 10.16 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT made as of the 27 day of January, 1997 between PHYMATRIX CORP., a Delaware corporation (the "Company"), and James M. Hogan, M.D. (the "Employee"). WHEREAS, the Company believes it is in the Company's best interest to employ Employee, and Employee desires to be employed by this Company; and WHEREAS, the Company and Employee desire to set forth the terms and conditions on which Employee shall be employed by and provide services to the Company. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. Employment. The Company hereby employs Employee and Employee hereby accepts such employment, all upon the terms and conditions hereinafter set forth. In accepting such employment, Employee represents and warrants that he is not under any restrictions in the performance of the duties contemplated under this Agreement by a non-compete or similar agreement, and has never been debarred or excluded from participation in any federal or state health care program. 2. Term. Unless sooner terminated pursuant to the provisions of this Agreement, the initial term of employment under this Agreement shall be for a period of three (3) years commencing on March 17, 1997 (the "Effective Date") and ending on the third (3rd) anniversary of the Effective Date. The term of employment under this Agreement shall thereafter be automatically renewed upon the then existing terms and conditions of this Agreement, for successive periods of one (1) year commencing upon the expiration of the initial term of employment under this Agreement or any renewal term and ending on the first (1st) anniversary of the commencement of such renewal term unless either the Company or Employee provides the other with written notice of its election to not renew the term of employment under this Agreement at least sixty (60) days, but no more than one hundred eighty (180) days, prior to the expiration of the then existing term of this Agreement (the initial three (3) year term and all successive one (1) year renewal terms of employment are collectively referred to herein as the "Employment Period"). 3. Salary. Employee shall be entitled to receive a salary from the Company during the Employment Period at the rate of Five Hundred Thousand ($500,000) Dollars per annum (the "Salary"). The Salary shall be payable in equal installments in accordance with the normal payroll policies of the Company (which policies may be changed by the Company from time to time in its sole discretion), but in no event less frequently than monthly, and shall be subject to all appropriate withholding taxes. 4. Benefits; Bonuses. The Salary provided for in Section 3 shall be in addition to such benefits and bonus programs as the Company, in its sole and absolute discretion, shall from time to time provide to the Company's executive officers, including, without limitation, a car allowance equal to Six Hundred ($600) Dollars per month, and an annual performance bonus in an amount to be determined by the Board of Directors. Such benefits and bonus programs are subject to change from time to time as determined by the Board of Directors of the Company. 5. Options. The Company shall grant to Employee options to acquire One Hundred Thousand (100,000) shares of its common stock (the "Shares"), subject to the vesting requirements set forth below, at an option exercise price equal to the closing price per share of its common stock on the Effective Date (the "Options"). Such Options shall be granted to Employee on the Effective Date, and will be issued pursuant to a plan or plans adopted by the Company and approved by its shareholders, which plan or plans shall contain such other terms, conditions and restrictions as are customary for stock option plans of companies in the business of the Company including, without limitation, provisions for the acceleration of exercisability of all granted but unvested options in the event of a change in control of the Company. The Options shall not be immediately exercisable upon the date of grant, but shall vest and become exercisable by Employee in equal one-third (1/3) increments upon each of the first three (3) anniversaries of the Effective Date of this Agreement. The Options shall not be exercisable subsequent to the date ten (10) years after their grant to Employee. Employee shall have no rights to receive any ownership interests in the Company other than the ownership interests in the Company acquired as a result of exercising the Options provided for pursuant this Section 5 (or any other options or stock grants as may be granted to Employee from time to time by the Board of Directors of the Company, in its sole and absolute discretion). 6. Duties. During the Employment Period, Employee agrees to serve exclusively as Chief Medical Officer of the Company until such time as the Company finalizes its organizational structure for the Company in the New York/New Jersey/Connecticut area. Employee shall exercise such powers and comply with and perform such directions and duties in relation to the business and affairs of the Company as are customarily and ordinarily exercised and performed by such executive officer and as may from time to time be vested in 2 or requested by the Board of Directors of the Company, and shall use his best efforts to improve and expand the business of the Company. Notwithstanding any other term or provision to the contrary contained herein, in no event shall Employee be obligated to perform any act which would constitute or require the violation of any federal, state or local law, rule, regulation, ordinance or the like. Employee shall at all times report to, and his activity shall at all times be subject to the direction and control of, the Board of Directors of the Company as well as the President of the Company, which officer shall act as the immediate supervisor of Employee. Employee agrees to devote his entire business time, energy and skill to the service of the Company and shall perform his duties in a good faith, trustworthy and businesslike manner, in compliance with the laws of the United States of America and all other political subdivisions, all for the purpose of advancing the interests of the Company. Employee shall at no time engage in any other business activity whether or not such activity is pursued for gain, profit or other pecuniary advantage. Notwithstanding the foregoing, provided the same shall not interfere with the performance by Employee of his duties under this Agreement and shall not violate the terms and provisions of any other provision of this Agreement (including, but not limited to, Section 14 of this Agreement), Employee may invest his personal assets in businesses where the form or manner of such investment will not require services on the part of Employee and in which his participation is solely that of a passive investor and/or serve on the board of directors or as an officer of, or as a volunteer for, charitable, civic or community organizations. 7. Location of Company Headquarters. Unless otherwise agreed to in writing by Employee, the parties hereby agree that Employee shall perform his duties primarily from New York. 8. Business Expenses. Consistent with the Company's policies as in effect from time to time (including, but not necessarily limited to, a satisfactory itemized accounting for such expenditures), Employee shall be reimbursed for ordinary and necessary expenses incurred in promoting the business of the Company. 9. Confidentiality. (a) In the course of this employment, the Company may disclose or make known to Employee, and Employee may be given access to or may become acquainted with, certain information, trade secrets or both, all relating to or useful in the business of the Company (collectively "Information") and which the Company considers proprietary and desires to maintain confidential. As a material inducement to the Company in entering this Agreement, Employee covenants and agrees that during the term of this Agreement and at all times thereafter, Employee shall not in any manner, either directly or indirectly, divulge, 3 disclose or communicate to any person or firm, except to or for the Company's benefit as directed by the Company, any of the Information which he may have acquired in the course of or as an incident to his employment by the Company, the parties agreeing that such information affects the successful and effective conduct of the business and goodwill of the Company, and that any breach of the terms of this Section is a material breach of this Agreement. Notwithstanding the foregoing, nothing in this Section 9 shall preclude Employee from disclosing Information pursuant to judicial order or Information which has been made public through the release or disclosure by persons other than Employee. (b) All equipment, documents, memoranda, reports, records, files, materials, samples, books, correspondence, lists, computer software, other written and graphic records, and the like (collectively, the "Materials"), affecting or relating to the business of the Company, which Employee shall prepare, use, construct, observe, possess or control shall be and remain the Company's exclusive property or in the Company's exclusive custody, and must not be removed from the premises of the Company or given to any person or entity except as directed by the Company in writing. Promptly upon termination of this Agreement for any reason, or completion of the tasks or duties assigned pursuant hereto, the Materials, Information and all copies thereof in the custody or control of Employee shall be delivered promptly to the Company. Employee acknowledges that all documents and equipment relating to the business of the Company, in addition to all Information and Materials, whether prepared by Employee or otherwise coming into Employee's possession, are owned by and constitute the exclusive property of the Company or in the Company's exclusive custody, and all such documents and equipment must not be removed from the premises of the Company except as directed by the Company in writing. (c) The covenants of Employee set forth in this Section 9 are separate and independent covenants for which valuable consideration has been paid, the receipt, adequacy and sufficiency of which are acknowledged by Employee, and have also been made by Employee to induce the Company to enter into this Agreement. Each of the aforesaid covenants may be availed of, or relied upon, by the Company in any court of competent jurisdiction, and shall form the basis of injunctive relief and damages including expenses of litigation (including, but not limited to, reasonable attorney's fees upon trial and appeal) suffered by the Company arising out of any breach of the aforesaid covenants by Employee. The covenants of Employee set forth in this Section 9 are cumulative to each other and to all other covenants of Employee in favor of the Company contained in this Agreement and shall survive the termination of this Agreement for the purposes intended. Should any covenant, term or condition in this Section 9 become or be declared invalid or unenforceable by a court of competent jurisdiction, then the parties request that such court judicially modify such 4 unenforceable provision consistent with the intent of this Section 9 so that it shall be enforceable as modified. 10. Events of Termination by the Company. This Agreement may be terminated by the Company: (a) If after thirty (30) days written notice to Employee requesting his resignation, the Company has not received such resignation, the Company may terminate this Agreement without cause, effective immediately upon delivery of written notice to Employee by the Company. In the event of a termination of this Agreement pursuant to this Section 10(a), Employee's Salary shall continue to be paid for the greater of (i) twelve (12) months, or (ii) the remainder of the Employment Period. All payments made pursuant to this Section shall be made in accordance with the normal payroll policies of the Company but in no event less frequently than monthly and subject to the appropriate withholding taxes; (b) With cause, effective immediately upon delivery of written notice to Employee by the Company, provided, however, that if such cause is of the type described in clause (iv) below and susceptible to being cured, Employee shall have a period of ten (10) days after delivery of written notice to Employee to effect such cure or such longer period of time as may be required for such cure, provided Employee has commenced such cure within such ten (10) days and is diligently prosecuting such cure. A termination shall be deemed to be "with cause" if the Company determines that Employee has; (i) misappropriated the assets or opportunities of the Company; (ii) been convicted of a felony involving violence, dishonesty, conversion, theft or misappropriation of property of another, controlled substances, moral turpitude or the regulatory good standing of the Company; (iii) abused drugs or alcohol in a manner which prevents Employee from performing his duties in the manner provided herein; or (iv) willfully and continually failed to perform any of his material duties in the manner provided herein or willfully and continually failed or refused to perform any of the material duties properly assigned to him by the Company in accordance with Section 6 hereof for any reason other than disability or breaches any of his other material obligations under this Agreement. 5 11. Events of Termination by Employee. This Agreement may be terminated by Employee in the event of the failure of the Company to pay any sums due or grant any Options to be granted hereunder to Employee or perform substantially any of its other duties and obligations required to be performed or observed under this Agreement, but only after written notice has been given by Employee to the Company, provided, however, that the Company shall have a period of ten (10) days from delivery of such notice within which to cure the same or such longer period of time as may be required for such cure, provided the Company has commenced such cure within such ten (10) days and is diligently prosecuting such cure. This Agreement may also be terminated by Employee in the event of (i) a change of control in the Company, or (ii) a material change in Employee's title, responsibilities, Salary or benefits. 12. Other Termination of this Agreement. This Agreement shall immediately terminate upon the concurrence of any of the following events: (a) The death of Employee; or (b) The "disability" of Employee as such term is defined in the Company's long term disability insurance coverage. 13. Effects of Termination. Upon the termination of the Agreement: (a) Employee's duties shall cease as of the effective date of termination, provided, however, that Employee will in all events of termination be responsible for arranging for the smooth transition of duties to appropriate independent contractors and/or employees of the Company; provided, however, that such transition period shall not exceed one (1) month after termination nor require more than forty (40) hours of Employee's time per week. In the event that the Company shall request Employee to provide transitional assistance after the effective date of termination, Employee shall be paid an hourly rate, based upon an 8 hour work day, a 2,080 hour work year and his then current Salary, based upon time sheets submitted by Employee specifying the services performed and the amount of time expended. (b) With respect to any termination other than pursuant to Section 10(a) or Section 11 of this Agreement, payments made on account of Employee's Salary shall cease upon the effective date of termination; any amounts due on account of Employee's Salary for account of services performed prior to the effective date of termination which have not previously been paid will be paid (pro rata through the effective date of termination) within thirty (30) days following termination. 6 (c) All expenses which are properly reimbursable to Employee pursuant to Section 8 will be promptly reimbursed following termination. (d) All other benefits and/or entitlements to participate in bonus programs, if any, will cease as of the effective date of termination, subject to Employee's rights to continue medical insurance coverage at his own expense as provided by applicable law or written Company policy; provided, however, that all policies of insurance relating solely to Employee shall be assigned to Employee within thirty (30) days following termination, provided that such assignment shall be at no cost or expense to the Company, and provided further that such assignment shall state that it is made subject to the terms and conditions of the policy(ies). (e) The rights, privileges, benefits, remedies and interests of the Company and Employee under Section 5 of this Agreement shall be governed by the terms and provisions of Section 5. 14. Non-Competition and Soliciting. (a) Employee acknowledges that he has performed services or will perform services hereunder, and will acquire knowledge and proprietary information, which will directly affect the business of the Company to be conducted throughout the United States. Accordingly, the parties deem it necessary to provide protective non-competition and non-solicitation provisions in this Agreement. (b) Employee agrees with the Company that: (i) Employee shall not, without the prior written consent of the Company, which consent shall be within the sole and exclusive discretion of the Company, within the Tri-State area (New York, New Jersey and Connecticut) (the "Area"), either directly or indirectly, perform services or duties for a physician practice management company in any capacity, whether as an owner, shareholder, consultant, director, officer, manager, supervisor or employee of any entity; and (ii) Employee shall not solicit any employee of the Company (whether or not such employment is full-time, part-time, or is pursuant to a written contract) other than his personal secretary for the purpose of having such employee perform services for another company located in the Area. (c) The covenants of Employee set forth in Section 14 shall commence upon the Effective Date of this Agreement and continue through the date of termination of the 7 Employment Period for a period of twelve (12) months following a termination pursuant to Section 10(b) or 12(b) of this Agreement, or any election by Employee not to renew the term of the Employment Period pursuant to Section 2 of this Agreement. Notwithstanding the foregoing, the covenants of Employee referred to in this Section 14 shall be extended for a period time equal to the period of time during which Employee shall be in violation of such covenants and/or the pendancy of any proceedings brought by the Company to enforce the provisions of such covenants. (d) The covenants of Employee set forth in this Section 14 are separate and independent covenants for which valuable consideration has been paid, the receipt, adequacy and sufficiency of which are acknowledged by Employee, and have also been made by Employee to induce the Company to enter into this Agreement. Each of the aforesaid covenants may be availed of, or relied upon, by the Company in any court of competent jurisdiction, and shall form the basis of injunctive relief and damages including expenses of litigation (including, but not limited to, reasonable attorney's fees upon trial and appeal) suffered by the Company arising out of any breach of the aforesaid covenants by Employee. The covenants of Employee set forth in this Section 14 are cumulative to each other and to all other covenants of Employee in favor of the Company contained in this Agreement and shall survive the termination of this Agreement for the purposes intended. Should any covenant, term or condition in this Section 14 become or be declared invalid or unenforceable by a court of competent jurisdiction, then the parties request that such court judicially modify such unenforceable provision consistent with the intent of this Section 14 so that it shall be enforceable as modified. 15. Entire Agreement. This Agreement represents the entire understanding and agreement between the parties with respect to the subject matter hereof, and supersedes all other negotiations, understandings and representations (if any) made by and between such parties. 16. Amendments. The provisions of this Agreement may not be amended, supplemented, waived or changed orally, but only by a writing signed by the party as to whom enforcement of any such amendment, supplement, waiver or modification is sought and making specific reference to this Agreement. 17. Assignments. The Company shall have the right to assign all of its rights and obligations under this Agreement to any person or entity which purchases all or substantially all of the assets of the Company or with which the Company merges or consolidates and, upon such assignment, this Agreement shall be binding upon and inure to the benefit of such assign and the Company shall be released and discharged from all duties and obligations under this 8 Agreement. Employee shall execute such instruments as shall be reasonably requested by the Company to evidence such release. Employee shall have no right to assign or delegate any rights or obligations under this Agreement. 18. Binding Effect. All of the terms and provisions of this Agreement, whether so expressed or not, shall be binding upon, inure to the benefit of, and be enforceable by the parties and their respective administrators, executors, legal representatives, heirs, successors and permitted assigns. 19. Severablilty. If any part of this Agreement or any other Agreement entered into pursuant hereto is contrary to, prohibited by or deemed invalid under applicable law or regulation, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given full force and effect so far as possible. 20. Survival. Notwithstanding anything to the contrary herein, the provisions of Sections 5, 9, 13, 14 and 15 through 27 shall survive and remain in effect in accordance with their respective terms in the event this Agreement or any portion hereof is terminated. 21. Notices. All notices, requests, consents and other communications required or permitted under this Agreement shall be in writing (including telex and telegraphic communication) and shall be (as elected by the person giving such notice) hand delivered by messenger or courier service, telecommunicated, or mailed (airmail if international) by registered or certified mail (postage prepaid), return receipt requested, addressed to: If to Employee: James M. Hogan, M.D. 300 E. 40th Street - Apt. 31P New York, New York 10016 If to the Company: With a Copy to: PhyMatrix Corp. PhyMatrix Corp. Suite 1000E, Phillips Point Suite 1000E, Phillips Point West Palm Beach, Florida 33402 West Palm Beach, Florida 33402 Attn: President Attn: General Counsel 9 or to such other address as any party may designate by notice complying with the terms of this Section. Each such notice shall be deemed delivered (a) on the date delivered if by personal delivery, (b) on the date telecommunicated if by telegraph, (c) on the date of transmission with confirmed answer back if by telex or telecopy, and (d) on the date upon which the return receipt is signed or delivery is refused or the notice is designated by the postal authorities as not deliverable, as the case may be, if mailed. 22. Waivers. The failure or delay of any party at any time to require performance by another party of any provision of this Agreement, even if known, shall not affect the right of such party to require performance of that provision or to exercise any right, power or remedy hereunder, and any waiver by any party of any breach of any provision of this Agreement should not be construed as a waiver of any continuing or succeeding breach of such provision, a waiver of the provision itself, or a waiver of any right, power or remedy under this Agreement. No notice to or demand on any party in any case shall, of itself, entitle such party to any other or further notice or demand in similar or other circumstances. 23. Enforcement Costs. If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorney's fees, court costs and all expenses even if not taxable as court costs (including, without limitation, all such fees, costs and expenses incident to appeals and other post-judgment proceedings), incurred in that action or proceeding, in addition to any other relief to which such party or parties may be entitled. Attorney's fees shall include, without limitation, paralegal fees, investigative fees, administrative costs, sales and use taxes and all other charges billed by the attorney to the prevailing party. 24. Remedies Cumulative. Except as otherwise expressly provided herein, no remedy herein conferred upon any party is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. No single or partial exercise by any party of any right, power or remedy hereunder shall preclude any other or further exercise thereof. 25. Governing Law. This Agreement and all transactions contemplated by this Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Florida without regard to principles of conflicts of laws. 10 26. Supervening Law. The Company and Employee recognize that this Agreement is subject to applicable state, local and federal laws and regulations. The Company and Employee further recognize that the Agreement shall be subject to amendments in such laws and regulations and to new legislation such as federal or state economic stabilization programs or health insurance programs. Any provisions of law that invalidate, or are otherwise inconsistent with the terms of this Agreement or that would cause any party to be in violation of law, shall be deemed to have superseded the terms of this Agreement, provided, however, that the parties shall exercise their best efforts to accommodate the terms and intent of this Agreement to the greatest extent possible consistent with requirements of law. 27. Captions. The captions in this Agreement are for convenience and reference only and in no way define, describe, extend or limit the scope of intent of this Agreement or the intent of any provision contained in this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PHYMATRIX CORP. By: /s/ Abraham D. Gosman -------------------------------- Name: Abraham D. Gosman Title: President /s/ James M. Hogan ------------------------------------ Name: James M. Hogan M.D. 1/27/97 11 EX-21 9 EX-21 EXHIBIT 21
STATE OF COMPANY INCORPORATION TRADE NAMES (IF ANY) - ---------------------------------------- ------------------------ ------------------------------------ Clinical Studies, Ltd. Delaware Clinical Studies, Charlotte Clinical Marketing, Ltd. Delaware PhyMatrix Diagnostic Delaware Imaging, Inc. PhyMatrix Management Florida Company, Inc. PhyMatrix Corp. Delaware Breathco Incorporated Florida Breathco CCC - Lithotripsy, Inc. Florida CCC Indiana Lithotripsy, Inc. Florida CCC National Lithotripsy, Florida Inc. CCC Rehab, Inc. Florida DASCO Development Florida Corporation DASCO Development West, California Inc. First Choice Health Care Delaware Services, Inc. First Choice Health Care Delaware Services of Fort Lauderdale, Inc. First Choice Home Cares, Delaware Inc. First PhyNet, Inc. Delaware
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STATE OF COMPANY INCORPORATION TRADE NAMES (IF ANY) - ---------------------------------------- ------------------------ ------------------------------------ First PhyNet, LLC Delaware InfuMatrix, Inc. f/k/a CCC Florida Infusion, Inc. Lithotripsy America, Inc. Florida Nutrichem, Inc. Maryland Infucor Oncology Therapies, Inc. Delaware Oncology Therapies of Florida America, Inc. PhyMatrix of Brooklyn, Inc. Delaware PhyMatrix of Central of Delaware Georgia, Inc. PhyMatrix Diagnostic Delaware Imaging, Inc. PhyMatrix Diagnostic Delaware Imaging Northeast, Inc. PhyMatrix Management Florida Company, Inc. PhyMatrix of Manatee Delaware County, Inc. PhyMatrix Mid-Atlantic Delaware Management, Inc. PhyMatrix Network Delaware Management, Inc. PhyMatrix of New Jersey, Delaware Inc. PhyMatrix Northeast, Inc. Delaware (f/k/a Physicians Choice, Inc.) PhyMatrix Physician Delaware Management, Inc.
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STATE OF COMPANY INCORPORATION TRADE NAMES (IF ANY) - ---------------------------------------- ------------------------ ------------------------------------ PhyMatrix Pulmonary Florida Network, Inc. PhyMatrix Urology Network, Delaware Inc. Physicians Consultant and Florida Management Corporation of North Carolina Physicians Consultant and Florida Management Corporation Physicians Consultant and New York Management Corporation of New York Pinnacle Associates, Inc. Georgia Urology Consultants of South Florida Florida, Inc. Atlanta Radiation Care, Inc. Delaware Oncology Therapies of Atlanta Charlotte Radiation Care, Inc. Delaware Oncology Therapies of Charlotte Chattanooga Radiation Care, Delaware Oncology Therapies of Inc. Chattanooga College Park Radiation Care, Delaware Oncology Therapies of Inc. College Park Computerized Tomography Georgia Center, Inc. Falls Church Radiation Care, Delaware Oncology Therapies of Inc. Falls Church North Atlanta Radiation Care, Delaware Oncology Therapies of Inc. North Atlanta North Fulton Radiation Care, Delaware Oncology Therapies of Inc. North Fulton
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STATE OF COMPANY INCORPORATION TRADE NAMES (IF ANY) - ---------------------------------------- ------------------------ ------------------------------------ Orlando Radiation Care, Inc. Delaware Oncology Therapies of Orlando Rockville Radiation Care, Inc. Delaware Oncology Therapies of Rockville Vista Radiation Care, Inc. Delaware Oncology Therapies of Vista Waldorf Radiation Care, Inc. Delaware Oncology Therapies of Waldorf
-4- EX-23.1 10 EX-23.1 [LOGO] Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (File Nos. 333-53317, 333-38995 and 333-31973), Form S-4 (File No. 333-09187) and Form S-8 (File Nos. 333-41297, 333-03853 and 333-41177) of our report dated March 19, 1999 (except for Note 23, for which the date is April 22, 1999) relating to the financial statements appearing in PhyMatrix Corp.'s Annual Report on Form 10-K for the year ended January 31, 1999. We also consent to the incorporation by reference of our report dated March 19, 1999 relating to the financial statement schedule, which appears in such Annual Report on Form 10-K. We also consent to the references to us under the headings "Experts" and "Selected Financial Data" in such Registration Statement. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts April 28, 1999 EX-27 11 EX-27
5 U.S. DOLLARS 3-MOS 12-MOS 3-MOS 12-MOS JAN-31-1998 JAN-31-1998 JAN-31-1999 JAN-31-1999 NOV-01-1997 FEB-01-1997 NOV-01-1998 FEB-01-1998 JAN-31-1998 JAN-31-1998 JAN-31-1999 JAN-31-1999 1 1 1 1 49,536 49,536 10,137 10,137 0 0 0 0 105,680 105,680 16,626 16,626 (48,428) (48,428) (1,350) (1,350) 0 0 0 0 129,046 129,046 150,077 150,077 57,575 57,575 13,846 13,846 (13,280) (13,280) (2,822) (2,822) 378,160 378,160 252,851 252,851 42,656 42,656 38,892 38,892 100,000 100,000 100,000 100,000 0 0 0 0 0 0 0 0 312 312 329 329 211,723 211,723 105,571 105,571 378,160 378,160 252,851 252,851 81,234 281,179 61,777 291,278 81,234 281,179 61,777 291,278 0 0 0 0 0 0 0 0 71,024 256,282 100,436 328,798 0 0 0 0 1,630 4,775 2,752 8,005 8,580 20,122 (41,411) (45,525) 2,738 9,823 (10,051) (11,549) 5,842 10,299 (31,361) (33,976) 0 0 0 0 0 0 45,232 96,784 0 0 0 0 5,842 10,299 (76,593) (130,760) 0.19 0.35 (2.29) (3.91) 0.19 0.35 (2.29) (3.91)
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