SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 6, 1997
PHYMATRIX CORP.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-27568 65-0617076
-------- --------- ----------
(State of incorporation (Commission (IRS Employer
or organization) File Number) Identification No.)
Phillips Point, Suite 1000E
777 South Flagler Drive, West Palm Beach, FL 33401
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 655-3500
-----------------
N/A
----------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisition or Disposition of Assets
------------------------------------
Effective July 15, 1997, PhyMatrix Corp., a Delaware corporation (the
"Company"), entered into the Amended and Restated Agreement and Plan of Merger
(the "Merger Agreement") by and among the Company, PhyMatrix Acquisition I,
Inc., a Delaware corporation ("PhyMatrix Acquisition"), Clinical Studies Ltd., a
Delaware corporation ("CSL"), 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 1993 Qualified
Sub-Chapter S Trust. Pursuant to the Merger Agreement, PhyMatrix Acquisition, a
wholly-owned subsidiary of PhyMatrix, will merge with and into CSL (the
"Acquisition"), and CSL will become a wholly-owned subsidiary of PhyMatrix. CSL
is a site management organization conducting clinical research for
pharmaceutical companies and clinical research organizations at 22 centers
located in 11 states.
PhyMatrix currently anticipates that, subject to the satisfaction of
certain remaining conditions to closing set forth in the Merger Agreement, the
Acquisition will be consummated on or about October 14, 1997. The Acquisition
will be treated for accounting purposes as a pooling of interests.
The purchase price for CSL will be paid to the stockholders of CSL in
shares of PhyMatrix Common Stock. The number of shares of PhyMatrix Common Stock
to be issued in the Acquisition is based upon the average last reported sale
price per share for the five business days preceding the business day prior to
the closing of the Acquisition (the "Last Reported Sale Price"). Based upon the
current market price of PhyMatrix Common Stock (the closing price of PhyMatrix
Common Stock on October 1, 1997 was $15.625), PhyMatrix currently anticipates
that it will issue approximately 5.2 million shares of Common Stock under the
Merger Agreement to the stockholders of CSL. If the Last Reported Sale Price is
less than $13.50 or greater than $16.50, the Merger Agreement provides that the
number of shares to be issued to the stockholders of CSL would increase or
decrease, respectively. If the Last Reported Sale Price is $12.00 or less, each
of PhyMatrix and CSL has the option to terminate the Merger Agreement.
Following the Acquisition, PhyMatrix has agreed to use its best efforts
to register under the Securities Act of 1933, as amended, the resale of the
shares of PhyMatrix Common Stock acquired in the Acquisition.
In connection with the Acquisition, the management of PhyMatrix has
agreed to recommend Michael T. Heffernan, the Chief Executive Officer of CSL,
for election to the Board of Directors of PhyMatrix, and PhyMatrix and Mr.
Heffernan expect to enter into an employment agreement relating to Mr.
Heffernan's continued services as Chief Executive Officer of CSL.
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<PAGE>
Item 7. Financial Statements and Exhibits.
---------------------------------
(a) Financial statements of business acquired.
Included as a part of this Report are:
(i) Combined financial statements of CSL as of and for the years
ended December 31, 1996 and December 31, 1995 and Independent
Auditors' Report.
(ii) Combined financial statements of CSL as of and for the year
ended December 31, 1994 and Independent Auditors' Report.
(b) Pro forma financial information.
Included as a part of this Report are:
(i) The Company's Unaudited Pro Forma Combined Balance Sheet as
of July 31, 1997, Unaudited Pro Forma Combined Statements of
Operations for the Six Months ended July 31, 1997, the year
ended January 31, 1997 and the years ended December 31, 1995
and December 31, 1994, respectively.
(c) Exhibits.
The following exhibits are filed herewith.
+
2.1 Amended and Restated Agreement and Plan of Merger dated as of
July 15, 1997 by and among the Company, PhyMatrix Acquisition
I, Inc., a Delaware corporation ("PhyMatrix Acquisition"),
Clinical Studies Ltd., a Delaware corporation ("CSL"), 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 1993 Qualified Sub-Chapter S Trust.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Sansiveri, Kimball & McNamee, L.L.P.
27.1 Financial Data Schedule
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<PAGE>
CLINICAL STUDIES LTD.
AND CLINICAL MARKETING LTD.
COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
INDEPENDENT AUDITORS' REPORT
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 1
COMBINED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995:
Combined Balance Sheets 2
Combined Statements of Operations 3
Combined Statements of Stockholders' Equity 4
Combined Statements of Cash Flows 5
Notes to Combined Financial Statements 6-15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
[LETTERHEAD] -----------------------------------------------------------------------------------------------
[LOGO Deloitte & Touche LLP] 125 Summer Street Telephone: (617) 261-8000
Boston, Massachusetts 02110-1617 Facsimile: (617) 261-8111
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Clinical Studies Ltd. And Clinical Marketing Ltd.
Providence, RI
We have audited the accompanying combined balance sheets of Clinical Studies
Ltd. ("CSL") and Clinical Marketing Ltd. ("CML") (collectively the "Companies")
as of December 31, 1996 and 1995, and the related combined statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of Clinical Studies Ltd. and
Clinical Marketing Ltd. as of December 31, 1996 and 1995, and the results of
their combined operations and their combined cash flows for the years then ended
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
May 28, 1997
- ---------------
Deloitte Touche
Tohmatsu
International
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<PAGE>
CLINICAL STUDIES LTD. AND CLINICAL MARKETING LTD.
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,428,276 $3,595,454
Contract receivables (net of allowance for contract
adjustments of $278,000 and $236,000 in 1996
and 1995, respectively) 5,897,469 2,210,028
----------- ----------
Total current assets 7,325,745 5,805,482
----------- ----------
PROPERTY AND EQUIPMENT:
Furniture and office equipment 407,892 255,425
Medical equipment 343,138 285,249
Vehicles 12,758 12,758
----------- ----------
Total 763,788 553,432
Less accumulated depreciation and amortization (302,019) (178,669)
----------- ----------
Property and equipment, net 461,769 374,763
----------- ----------
INTANGIBLE ASSETS, Net 7,257,298 --
----------- ----------
OTHER ASSETS 141,546 99,949
----------- ----------
TOTAL $15,186,358 $6,280,194
=========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 90,069 $ 44,581
Accounts payable and accrued expenses 1,707,955 1,432,086
Deferred revenue 1,182,224 1,940,180
----------- ----------
Total current liabilities 2,980,248 3,416,847
----------- ----------
LONG-TERM DEBT-Less current portion 7,317,740 104,484
----------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock: Clinical Studies Limited, no par value-
authorized, 1,000 shares; issued
and outstanding, 100 shares 100 100
Clinical Marketing Limited, no par value-
authorized, 8,000 shares; issued
and outstanding, 235 shares in 1996 and
200 shares in 1995 627,840 200
Additional paid-in capital 120,000 120,000
Retained earnings 4,140,430 2,638,563
----------- ----------
Total stockholders' equity 4,888,370 2,758,863
----------- ----------
TOTAL $15,186,358 $6,280,194
=========== ==========
</TABLE>
See notes to combined financial statements.
-2-
<PAGE>
CLINICAL STUDIES LTD. AND CLINICAL MARKETING LTD.
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
REVENUE $18,040,124 $13,351,843
OPERATING EXPENSES 14,738,292 10,444,639
----------- -----------
INCOME FROM OPERATIONS 3,301,832 2,907,204
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 75,833 42,242
Interest expense (144,206) (18,271)
----------- -----------
Total other income (expense) (68,373) 23,971
----------- -----------
NET INCOME $ 3,233,459 $ 2,931,175
=========== ===========
</TABLE>
See notes to combined financial statements.
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<PAGE>
CLINICAL STUDIES LTD. AND CLINICAL MARKETING LTD.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CSL CML
No Par No Par
Value Value Additional Retained Total
CSL Common CML Common Paid-in Earnings Stockholders'
Shares Stock Shares Stock Capital (Deficit) Equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 100 $100 -- $ -- $120,000 $ (72,612) $ 47,488
Issuance of common stock -- -- 200 200 -- -- 200
Net income -- -- -- -- -- 2,931,175 2,931,175
Dividends -- -- -- -- -- (220,000) (220,000)
--- --- --- -------- -------- ---------- ---------
BALANCE, DECEMBER 31, 1995 100 100 200 200 120,000 2,638,563 2,758,863
Issuance of common stock (see Note 5) -- -- 35 627,640 -- -- 627,640
Net income -- -- -- -- -- 3,233,459 3,233,459
Dividends -- -- -- -- -- (1,731,592) (1,731,592)
--- --- --- -------- -------- ---------- ---------
BALANCE, DECEMBER 31, 1996 100 $100 235 $627,840 $120,000 $4,140,430 $4,888,370
=== ==== === ======== ======== ========== ==========
</TABLE>
See notes to combined financial statements.
-4-
<PAGE>
CLINICAL STUDIES LTD. AND CLINICAL MARKETING LTD.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,233,459 $ 2,931,175
Adjustments to reconcile net income to net cash (used for) provided by
operating activities:
Depreciation and amortization 237,078 92,992
Issuance of common stock as compensation 627,640 --
Increase (decrease) in cash from:
Contract receivables (3,687,441) (1,995,853)
Other assets (41,597) (86,016)
Accounts payable and accrued expenses 275,869 1,131,453
Deferred revenue (757,956) 1,882,780
----------- -----------
Net cash (used for) provided by operating activities (112,948) 3,956,531
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Amount paid for acquired operations (3,200,000) --
Purchase of equipment, net (210,356) (211,400)
----------- -----------
Net cash used for investing activities (3,410,356) (211,400)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving bank line-of-credit, net 3,132,300 --
Payments on:
Note payable (2,750) (1,144)
Obligations under capital leases (41,832) (36,135)
Dividends to stockholders (1,731,592) (220,000)
Issuance of common stock ` -- 200
----------- -----------
Net cash provided by (used for) financing activities 1,356,126 (257,079)
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,167,178) 3,488,052
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,595,454 107,402
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,428,276 $ 3,595,454
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION-Interest payments $ 121,082 $ 18,000
=========== ===========
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
CSL issued $3,950,000 of notes payable in 1996 in connection with
acquisitions. CSL accrued $221,025 of contingent payments in 1996 in
connection with acquisitions. CML issued 35 shares of common stock as
compensation in 1996 at a value of $627,640
</TABLE>
See notes to combined financial statements.
-5-
<PAGE>
CLINICAL STUDIES LTD. AND CLINICAL MARKETING LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESSES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Businesses-Clinical Studies Ltd. ("CSL") performs clinical
research studies sponsored by pharmaceutical companies and managed by
contract research organizations. CSL enrolls patients, administers
medications and submits data to sponsors for analysis. CSL operates in Rhode
Island, Massachusetts, Florida, Arizona and Pennsylvania.
Clinical Marketing Ltd. ("CML"), which began operations on September 1,
1995, provides advertising and mixed media promotion services, primarily for
CSL.
CSL and CML have common owners.
Principles of Combination-The combined financial statements include the
accounts of CSL and CML (collectively the "Companies"). All significant
intercompany accounts and transactions are eliminated in combination.
Property and Equipment-Property and equipment are recorded at cost. Capital
lease property and equipment is recorded at the lower of fair market value
at the inception of the lease or the present value of the minimum lease
payments required. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the related assets
or, in the case of capital lease property and equipment and leasehold
improvements, over the lesser of the life of the lease or the estimated
useful life of the asset, as follows:
Life
Furniture and office equipment 5 years
Medical equipment 5 years
Vehicles 4 years
Intangible Assets-Intangible assets consist primarily of goodwill,
noncompete agreements and trained workforces acquired in the purchase of
clinical site operations during 1996. The purchase price in excess of net
assets acquired (goodwill) is amortized on a straight-line basis over twenty
years. The Company evaluates the carrying value of goodwill based upon
current and anticipated net income and undiscounted cash flows, and
recognizes an impairment when it is probable that such estimated future net
income and/or cash flows will be less than the carrying value of goodwill.
Measurement of the amount of impairment, if any, is based upon the
difference between carrying value and fair value. The costs allocated to
noncompete agreements and the trained workforces are amortized on a
straight-line basis over five and three years, respectively. Accumulated
amortization amounted to approximately $114,000 for all intangible assets at
December 31, 1996. There were no intangible assets recorded through 1995.
-6-
<PAGE>
1. NATURE OF BUSINESSES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Income Taxes-The Companies, with the consent of their stockholders, have
elected to be treated as S Corporations as provided under the Internal
Revenue Code (the "Code"), whereby income taxes are the responsibility of
the stockholders. Accordingly, the Companies' combined statements of
operations do not include provisions for income taxes. Dividends are
primarily intended to reimburse stockholders for income tax liabilities
incurred.
Revenue Recognition-CSL generates revenue based on contracts to perform
clinical studies. Generally, these contracts specify the fees to be received
as services are provided to patients enrolled in the studies. Revenues are
recognized as patient visits are conducted and such services are provided.
Costs related to the studies are expensed as incurred. Payments received
prior to providing services are recorded as deferred revenue.
CML generates revenue, primarily from CSL, based upon reimbursement of
actual advertising and marketing expenses incurred plus a markup. Such
revenue is eliminated in the combined financial statements.
Cash and Cash Equivalents-Cash and cash equivalents include demand deposits
held at financial institutions and short-term investments purchased with
remaining maturities of three months or less.
Use of Estimates-Preparation of the Companies' 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
balance sheet dates. The primary estimates underlying the Companies'
combined financial statements include allowances for contract adjustments,
deferred revenue, useful lives of long-lived assets and the amount of future
earnings of acquisitions having contingent earnouts payable. Management
bases its estimates on certain assumptions, which they believe are
reasonable in the circumstances, and while actual results could differ from
those estimates, management does not believe that changes in those
assumptions in the near term would have a material effect on the Companies'
combined financial position or results of operations.
During 1996, the Companies revised their estimate of future employee
benefits. Based on an analysis of actual employee activities, management
revised their estimate of accrued nonvesting sick-pay benefits. The revision
resulted in an increase in net income for the year ended December 31, 1996
of approximately $190,000.
Risks and Uncertainties-The Companies' businesses could be impacted by the
failure of key customers, increasing competition in the pharmaceutical drug
testing industry, federal and state legislation in the area of
pharmaceutical drug testing and the departure of key trial investigators.
Also, for a number of clinical trial programs, the Companies believe that
industry protocols have resulted in final settlement of contract receivables
being prolonged due to delays in the finalization of the testing program and
data analysis. Changes in these areas could adversely impact the Companies'
operations in the future.
-7-
<PAGE>
1. NATURE OF BUSINESSES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Business and Credit Concentrations-The Companies are involved in the
performance of clinical research trials for pharmaceutical companies and
contract research organizations. Credit is granted without collateral to
these customers. During the year ended December 31, 1996, revenue from three
customers represented 21%, 12% and 11% of combined revenue. During the year
ended December 31, 1995, revenue from one customer represented 35% of
combined revenue. The Companies' largest ten customers accounted for 65% of
total accounts receivable at December 31, 1996, of which two customer
balances represented 14% and 13%. No other customer balances exceeded 10% of
total accounts receivable at December 31, 1996.
Accounting Pronouncements--Effective January 1, 1996, the Companies adopted
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," and SFAS No. 123, "Accounting for Stock-Based Compensation."
In accordance with the provisions of SFAS No. 123, the Companies elected to
account for stock-based compensation under the provisions of APB 25. The
adoption of SFAS Nos. 121 and 123 did not have a material impact on the
Companies' combined financial statements.
2. CONTRACT RECEIVABLES
Contract receivables consisted of the following at December 31:
1996 1995
Contracts in progress:
Billed $ 678,445 $ --
Unbilled 5,497,024 2,446,028
Less: allowance for contract adjustments (278,000) (236,000)
---------- -----------
$5,897,469 $2,210,028
========== ===========
Substantially all of the Companies' contracts are subject to final
adjustment upon close-out of the contracts with customers. Management
estimates that such adjustments, if any, will not be materially different
than the allowance recorded.
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<PAGE>
3. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
1996 1995
Revolving bank line-of-credit $3,132,300 $ --
Acquisition notes payable 3,950,000 --
Acquisition earnouts payable 221,025 --
Other note payable 8,203 10,953
Capital lease obligations 96,281 138,112
---------- -----------
Total 7,407,809 149,065
Less current portion 90,069 44,581
---------- -----------
Long-term portion $7,317,740 $ 104,484
========== ===========
Revolving Bank Line-of-Credit-On October 1, 1996, CSL entered into a
$5,000,000 revolving line-of-credit agreement with a bank. Interest, payable
monthly, is computed at 1/4% above the bank's base rate (7.86% at
December 31, 1996). Such agreement is collateralized by a security interest
in all assets and the stock of both CSL and CML. The agreement expires on
September 30, 1999. In connection with this line-of-credit agreement, CSL is
subject to certain restrictive loan covenants, which provide for, among
other things, the maintenance of certain financial ratios. The most
restrictive financial covenants are the requirement to combined net income
of $100,000 per quarter and maintain a minimum net worth of $2.45 million at
all times.
Acquisition Notes Payable-In connection with the acquisitions during 1996
(see Note 8), CSL issued uncollateralized promissory notes with maturity
dates as follows:
Amount Due Date
$ 250,000 January 1, 1998
500,000 January 1, 1999
1,000,000 November 2, 1999
2,000,000 October 3, 2001
100,000 August 31, 2001
100,000 August 31, 2000
Interest on all acquisition notes payable is paid quarterly in arrears at an
annual interest rate of 7%.
In the event of a public offering of its shares by the Companies, these
notes are convertible into common stock at the option of the note holders.
-9-
<PAGE>
3. LONG-TERM DEBT (CONTINUED)
Acquisition Earnouts Payable-In connection with one of the business
acquisitions in 1996 (see Note 8), minimum earnout payments of $221,025 were
established in the purchase agreement and have been accrued in the
accompanying combined financial statements. These minimum payments are due
as follows:
Year Amount
1997 $ 40,000
1998 42,000
1999 44,100
2000 46,305
2001 48,620
--------
Total $221,025
========
Other Note Payable-CSL has a note payable, collateralized by a vehicle, with
a financing company. Such note requires monthly payments of approximately
$300 for principal and interest through September 1999 and is collateralized
by the vehicle.
Scheduled maturities of the note payable at December 31, 1996 are as
follows:
Year Amount
1997 $2,978
1998 3,225
1999 2,000
------
Total $8,203
======
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<PAGE>
3. LONG-TERM DEBT (CONTINUED)
Capital Leases-CSL leases certain equipment under capital leases. At
December 31, 1996 and 1995 the cost of this equipment was $210,000.
Accumulated amortization at December 31, 1996 and 1995 was approximately
$126,000 and $84,000, respectively. The future minimum lease payments under
the capital leases, together with the present value of the net minimum lease
payments as of December 31, 1996, are as follows:
Year Amount
1997 $ 55,943
1998 47,974
1999 2,811
2000 1,727
--------
Net minimum lease payments 108,455
Less amount representing interest 12,174
--------
Present value of net minimum lease payments 96,281
Less current portion 47,091
--------
Long-term portion of obligation under capital lease $ 49,190
========
4. EMPLOYEE BENEFIT PLAN
The Companies participate in a profit-sharing plan (the "plan") for all
employees which qualifies under Section 401(k) of the Code. The plan covers
all employees who have completed six months of service and have atttained
age twenty-one. The Companies allow eligible employees to contribute up to
15% of their compensation and the Companies may match up to 20% of the
employees' first 5% of covered compensation. The Companies may elect to make
additional contributions at the discretion of the Board of Directors. The
Companies made contributions to the plan of approximately $14,500 and
$34,000 for the years ended December 31, 1996 and 1995, respectively.
5. RELATED-PARTY TRANSACTIONS
Included in operating expenses are discretionary management fees paid or
accrued to the principal shareholders of CSL for management-related
services. Approximately $987,000 and $1,700,000 of such management fees were
incurred for the years ended December 31, 1996 and 1995, respectively, and
are included in operating expenses.
A key 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.
-11-
<PAGE>
5. RELATED-PARTY TRANSACTIONS (CONTINUED)
In June of 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 $627,640
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.
6. COMMITMENTS
Operating Leases-The Companies lease office space under renewable operating
leases expiring through the year 2004. Such operating leases require the
payment of monthly rent and certain operating expenses.
As of December 31, 1996, the lease agreements require approximate annual
lease payments as follows:
Year Amount
1997 $1,113,000
1998 1,203,000
1999 1,153,000
2000 827,000
2001 472,000
Thereafter 318,000
----------
Total $5,086,000
==========
Total rent expense was approximately $820,000 and $598,000 for the years
ended December 31, 1996 and 1995, respectively.
7. PROFIT-SHARING AGREEMENT
CSL has a profit-sharing agreement with a consultant to the Company. Such
agreement provides for payments to be made to the individual based on 10% of
income of the sites in existence at June 15, 1996, before taxes and certain
management fees paid to officers of CSL, for the year. Amounts charged to
expenses related to such agreements totaled approximately $314,000 and
$433,000 for 1996 and 1995, respectively (see Note 10).
Under the same agreement, in the event that a majority interest in the
common stock of CSL is sold by CSL's stockholders, CSL is obligated to pay
to the former consultant an amount up to a combined total of 10% of the
consideration received by the stockholders.
-12-
<PAGE>
8. ACQUISITONS
All acquisitions have been accounted for using the purchase method of
accounting, and operations of the acquired businesses have been included in
the accompanying combined financial statements from their respective dates
of acquisition. The excess of purchase price over the fair value of the net
assets acquired is allocated to goodwill, noncompete covenants and trained
workforces. Most purchase agreements provide for contingent payments based
on targeted annual income of the acquired business, for a period of up to
five years. Any such future payments are generally capitalized as goodwill
when paid.
On August 31, 1996, CSL acquired the business and certain assets of a single
site clinical research company in Sarasota, Florida for $300,000 plus
contingent consideration based on profitability measures over the next five
years. The purchase price consisted of $100,000 of cash and the issuance of
two subordinated promissory notes of $100,000 each. The contingent payments
will equal 15% of the increase in adjusted income before tax, of the
acquired business, over the prior year's amount. In no event shall the
contingent payments be less than $221,025. The full amount of the minimum
payments was accrued for at the date of the acquisition.
On October 4, 1996, CSL acquired the business and certain assets of a
multi-site clinical research company in Pennsylvania for $6,850,000 plus
contingent consideration based on profitability measures over the next five
years. The purchase price consisted of $3,100,000 of cash and the issuance
of two subordinated promissory notes of $2,000,000 and $1,750,000,
respectively. The contingent payments will equal 15% of the excess of
adjusted income before tax over $2,000,000 per year for five years and, in
the case of an initial public offering of the Companies' stock, $750,000 of
such stock.
The cost of the acquisitions was preliminarily allocated on the basis of the
estimated fair value of the assets acquired and the liabilities assumed.
This allocation resulted in goodwill of $6,966,000, noncompete agreements of
$355,000 and trained workforces of $50,000.
9. STOCK OPTIONS
In 1996, the Board of Directors of CSL (the "Board") adopted the 1996 Equity
Incentive Plan, under which incentive and nonqualified options to purchase
up to 10 shares of CSL's common stock may be granted over a ten-year period
to directors, officers, employees and consultants. All option grants, prices
and vesting periods are determined by the Board. Incentive stock options may
be granted at a price not less than fair market value on the date of grant,
as determined by the Board.
-13-
<PAGE>
9. STOCK OPTIONS (CONTINUED)
A summary of stock option activity is as follows:
Weighted
Number Average
of Exercise
Options Price
Outstanding at December 31, 1995 -- $ --
Granted 2.31 147,597
-------- --------
Outstanding at December 31, 1996 2.31 147,597
-------- --------
Exercisable at December 31, 1996 $0.634 $147,597
======== ========
The following table sets forth information regarding options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Exercisable
-------------------------
Options Outstanding Weighted
- --------------------------------------------------------- Average
Weighted Weighted Exercise
Average Average Number Price for
Number of Exercise Remaining Exercise Currently Currently
Options Price Life Price Exercisable Exercisable
<S> <C> <C> <C> <C> <C>
2.31 $147,597 9 years $147,597 0.634 $147,597
</TABLE>
CSL uses the intrinsic value method to measure compensation expense
associated with grants of stock options to employees. Because the option
exercise price significantly exceeds the estimated fair value of the
Company's stock at the grant date, the weighted average fair value of
options granted in 1996 was $0. Accordingly, had CSL used the fair value
method to measure compensation, reported net income (before distributions)
would not have changed for 1996.
The fair value of options on their grant date was measured using the
Black-Scholes option pricing model. Key assumptions used to apply this
pricing model are as follows:
1996
Risk-free interest rate 5.5%
Expected life of option grants 10 years
Expected volatility of underlying stock --
Expected dividend payment rate, as a percentage of the stock
price on the date of grant --
The option pricing model used was designed to value readily tradeable stock
options with relatively short lives. The options granted to employees are
not tradeable and have contractual lives of up to ten years. However,
management believes that the assumptions used to value the options and the
model applied yield a reasonable estimate of the fair value of the grants
made under the circumstances.
-14-
<PAGE>
10. SUBSEQUENT EVENTS
On January 1, 1997, CSL and CML merged operations into one Delaware
Subchapter S Corporation, also named Clinical Studies Ltd. Each share of CSL
and CML was converted to 5,324.53 shares and 1,562.27 shares, respectively,
of the new entity.
On March 12, 1997, the shareholders of CSL signed a letter of intent to
exchange the stock of CSL for stock of PhyMatrix Corp. ("PhyMatrix"), a
publicly traded company. The purchase price will be determined based on the
average five-day trading price of the PhyMatrix stock prior to closing, less
any closing adjustments. The transaction is subject to the approval and the
satisfaction of certain conditions.
On April 9, 1997, CSL acquired the business and certain assets of
Neuropsychiatric Services of Greater Washington, Inc. for $725,000 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 Company is in negotiations to settle its obligations to a consultant
under a profit-sharing agreement (see Note 7). On April 23, 1997, CSL
received a letter of understanding from the consultant proposing to settle
the obligations under his profit-sharing agreement. Under the terms of the
proposed settlement, the consultant would receive $2.5 million in cash and a
promissory note for approximately $2,000,000.
* * * * * *
-15-
<PAGE>
CLINICAL STUDIES, LTD.
FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
FOR THE YEAR ENDED
DECEMBER 31, 1994 AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
Sansiveri, Kimball & McNamee, L.L.P.
------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
BUSINESS CONSULTANTS
Michael A. DeCataldo
M. Douglas Fay
Joseph H. Kimball, Jr.
Stephen P. Massed
John J. McNamee
John L. Pucci
Jerry A. Sansiveri
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Clinical Studies Ltd.:
We have audited the accompanying balance sheet of Clinical Studies Ltd. as of
December 31, 1994, and the related statements of operations and deficit and cash
flows for the year then ended. This financial statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Clinical Studies Ltd. as of
December 31, 1994, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying
supplemental schedule is presented for the purpose of additional analysis and is
not a required part of the basic consolidated financial statements. Such
information has been subjected to the auditing procedures applied in the audits
of the basic consolidated financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.
/s/ Sansiveri, Kimball & McNamee, L.L.P.
April 14, 1997 (except for Note 7,
which is dated April 23, 1997)
55 Dorrance Street, Providence, RI 02903-2220 o Providence o Newport o Westerly
401/331-0500, Fax 401/331-9040, E-Mail: [email protected]
Member of Division for CPA Firms/AICPA, SEC Practice Section and
Associated Regional Accounting Firms.
<PAGE>
CLINICAL STUDIES LTD.
BALANCE SHEET
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
-ASSETS-
- --------------------------------------------------------------------------------
CURRENT ASSETS (Notes 2 and 5):
Cash and cash equivalents ................................ $ 107,402
Accounts receivable-contracts ............................ 214,175
---------
Total current assets ................................. 321,577
---------
PROPERTY AND EQUIPMENT - At cost (Note 2):
Furniture and office equipment ........................... 87,379
Medical equipment ........................................ 27,612
Leasehold improvements ................................... 4,800
---------
Total ................................................ 119,791
Less accumulated depreciation and amortization ........... 42,542
---------
Property and equipment, net ............................ 77,249
LEASED PROPERTY UNDER CAPITAL LEASE - Less accumulated
amortization of $43,134 (Notes 2 and 6) .................. 155,935
OTHER ASSET - Deposits ..................................... 13,933
---------
TOTAL ................................................ $ 568,694
=========
- --------------------------------------------------------------------------------
-LIABILITIES AND STOCKHOLDERS' EQUITY-
- --------------------------------------------------------------------------------
CURRENT LIABILITIES:
Current portion of obligation under capital lease
(Note 4) ............................................... $ 35,460
Accounts payable - trade ................................. 86,420
Deferred revenue ......................................... 57,400
Accrued liabilities:
Payroll and payroll taxes .............................. 118,284
Consulting fees ........................................ 95,929
---------
Total current liabilities ............................ 393,493
OBLIGATION UNDER CAPITAL LEASE - Less current portion
(Note 4) ................................................. 127,713
---------
COMMITMENTS (Note 4)
STOCKHOLDERS' EQUITY:
Common stock - no par value; authorized 1,000 shares;
issued and outstanding, 100 shares .................... 100
Additional paid in capital (Notes 4 and 6) .............. 120,000
Deficit ................................................. (72,612)
---------
Total stockholders' equity .......................... 47,488
---------
TOTAL ............................................... $568,694
=========
See notes to financial statement.
<PAGE>
- --------------------------------------------------------------------------------
CLINICAL STUDIES LTD.
STATEMENT OF OPERATIONS AND RETAINED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REVENUE (Note 5) ................................................ $ 4,921,285
OPERATING EXPENSES .............................................. 5,019,282
-----------
LOSS FROM OPERATIONS ............................................ (97,997)
-----------
OTHER INCOME (DEDUCTION):
Interest income ............................................... 461
Interest expense .............................................. (1,166)
-----------
Other deduction, net ........................................ (705)
-----------
NET LOSS ......................................................... (98,702)
RETAINED EARNINGS, JANUARY 1, 1994 ............................... 26,090
-----------
DEFICIT, DECEMBER 31, 1994 ....................................... $ (72,612)
===========
See notes to financial statement.
- --------------------------------------------------------------------------------
<PAGE>
CLINICAL STUDIES LTD.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
RECONCILIATION OF CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss ........................................................ $ (98,702)
Noncash expenses and revenue included in net income -
depreciation and amortization ................................. 58,851
Changes in operating assets and liabilities:
Accounts receivable ........................................... (29,427)
Accounts payable and accrued expenses ......................... 209,870
Deferred revenue .............................................. (221,065)
----------
NET CASH USED BY OPERATING ACTIVITIES ............................ (80,473)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment ......................................... (73,916)
Payments received on notes receivable - shareholder ........... 70,000
Payments received on notes receivable - other ................. 90,000
----------
NET CASH PROVIDED BY INVESTING ACTIVITIES ....................... 86,084
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on obligations under capital leases .................. (35,896)
Payments on note payable - stockholder ........................ (21,000)
Payments on note payable - related party ...................... (39,780)
----------
NET CASH USED BY FINANCING ACTIVITIES ........................... (96,676)
----------
DECREASE IN CASH AND CASH EQUIVALENTS ........................... (91,065)
CASH AND CASH EQUIVALENTS, JANUARY 1, 1994 ...................... 198,467
----------
CASH AND CASH EQUIVALENTS, DECEMBER 31, 1994 .................... $ 107,402
==========
See notes to financial statements.
<PAGE>
CLINICAL STUDIES LTD.
NOTES TO FINANCIAL STATEMENT
---------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
----------
Clinical Studies Ltd. (the Company) performs clinical research studies
sponsored by pharmaceutical companies and clinical research organizations
(sponsors). The Company enrolls patients, administers medications and
submits data to the sponsors for analysis. The Company operates in Rhode
Island, Massachusetts, Florida, Arizona, and Pennsylvania.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include demand deposits held at financial
institutions and short-term investments with original maturities of less
than three months.
Accounts Receivable - Contracts
-------------------------------
Accounts receivable - contracts represents amounts owed to the Company by
sponsors for work performed in accordance with contracts with such
sponsors.
Deferred Revenue
----------------
Deferred revenue represents payments received in advance by the Company for
performing work in accordance with contracts with sponsors.
Revenue Recognition
-------------------
The company generates revenue based on contracts it enters into to perform
clinical studies. Generally these contracts specify a fee to be received
for patients enrolled in the study. Revenues are recognized as patient
visits are conducted. Costs related to the studies are generally expensed
as incurred. Payments received in excess of revenue recognized are reported
as deferred revenue.
<PAGE>
Depreciation and Amortization
Depreciation and amortization of equipment, leasehold improvements, and
leased property under capital leases are computed using the straight-line
method over 5 to 7 years, 31-1/2 years, and 5 years, respectively, for
financial reporting purposes. Accelerated methods of depreciation and
amortization are used for income tax purposes.
Income Taxes
------------
The Company, with the consent of its stockholders, has elected to be
treated as an S Corporation as provided under the Internal Revenue Code,
whereby income taxes are the liability of the stockholders. Accordingly,
the accompanying balance sheet does not include a liability for Federal or
state taxes and the statement of operations and retained deficit does not
include a provision for such income taxes.
Employee Benefit Plans
----------------------
As of January 1, 1995, the Company began participating in a profit sharing
plan for all employees. Such plan qualifies under section 401(k) of the
Internal Revenue Code. The profit sharing plan covers all employees who
have completed six months of service and have attained age twenty-one. The
Company allows eligible employees to contribute up to 15% of their
compensation and the Company may match up to 20% of the employee's
contribution for the first 5% of covered compensation. In addition, the
Company may elect to make additional contributions at the discretion of the
Board of Directors.
Estimates
---------
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 balance sheet.
Actual results could differ from those estimates.
Advertising
-----------
The Company expenses its advertising costs in the period in which such
costs are incurred.
2. SHORT-TERM FINANCING ARRANGEMENT
The Company has a line-of-credit agreement with a bank. The line-of-credit
has maximum available borrowings of $175,000 and requires monthly payment
of interest at the bank's prime rate plus 1%. Such note requires a 5%
compensating cash balance and is
2
<PAGE>
collateralized by all business assets and the personal guarantees of a
stockholder and an officer of the Company. As of December 31, 1994, the
Company had no outstanding borrowings on such line of credit.
On October 1, 1996, the Company entered into a $5,000,000 revolving
line-of-credit agreement with a bank. Interest, payable monthly, is
computed at .25% above the bank's base rate. Such agreement is
collateralized by a security interest in all assets and the stock of
Clinical Studies Ltd. and Clinical Marketing Ltd., a company related
through common ownership. The agreement expires on September 30, 1999. In
connection with this line-of-credit agreement, Clinical Studies Ltd. is
subject to certain restrictive covenants, which provide for, among other
things, the maintenance of certain financial ratios. The most restrictive
financial covenants are the requirement to earn combined net income of
$100,000 per quarter and maintain a net worth of $2.45 million at all
times.
3. RELATED PARTY TRANSACTIONS
Management fees consist of amounts paid for management related services to
a stockholder and an officer of the Company who is related to the
stockholders. Approximately $802,000 of such management fees were incurred
for the year ended December 31, 1994.
4. COMMITMENTS
Operating Leases
----------------
The Company leases office space under various operating leases that expire
at varying dates through the year 1999. Such operating leases require the
payment of monthly rent and certain operating expenses.
As of December 31, 1994, the lease agreements require approximate annual
base rental payments as follows:
Year Amount
------ ------
1995 ........................................ $161,000
1996 ........................................ 165,000
1997 ........................................ 136,000
1998 ........................................ 143,000
1999 ........................................ 111,000
Rent expense for the year ended December 31, 1994 was approximately
$305,000.
3
<PAGE>
Capital Lease
-------------
The Company leases certain equipment under a capital lease. The future
minimum lease payments under the capital lease, together with the present
value of the net minimum lease payments as of December 31, 1994 are as
follows:
Year Amount
---- ------
1995 ............................................ $53,133
1996 ............................................ 53,133
1997 ............................................ 53,133
1998 ............................................ 45,163
-------
Net minimum lease payments ...................... 204,562
Less amount representing interest ............... 41,389
-------
Present value of net minimum lease payments ..... 163,173
Less current portion ............................ 35,460
-------
Long-term portion of obligation under
capital lease ................................. $127,713
========
Consulting Agreement
--------------------
The Company has an agreement with a consultant whereby for consideration
paid in the amount of $120,000, the consultant is to receive up to 10% of
income, before taxes and certain management fees paid to officer of the
Company for the year. The payment is limited to that percentage of net
income (as specified in the agreement) of sites in existence on June 15,
1996. In the event that a majority interest in the Company is sold, such
consultant is entitled up to 10% of the proceeds of the sale.
Contingent Obligations
----------------------
As of December 31, 1995, in the event that a majority interest in the
common stock of Clinical Studies Ltd. is sold by the Company's
stockholders, Clinical Studies Ltd. is obligated to pay to one of its
officers and another party an amount up to a combined total of 15% of the
consideration received by the stockholders. Alternatively, in the event
that Clinical Studies Ltd. registers a class of its equity securities under
the Securities Act of 1933, the officer of Clinical Studies Ltd. will be
entitled to receive 5% of such class of equity securities.
5. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash in the bank in
excess of FDIC insurance limits and
4
<PAGE>
accounts receivable - contracts. As of December 31, 1994, the Company has
approximately $69,000 in the bank in excess of FDIC insurance limits. These
funds are on deposit with a high credit quality financial institution.
Management believes that credit risk with respect to accounts receivable -
contracts is limited due to the large number of customers comprising the
Company's customer base and the credit worthiness of its customer base. The
Company has not experienced any significant credit losses.
At December 31, 1994, two customers accounted for 100% of accounts
receivable - contracts.
Contract revenue associated with three pharmaceutical companies accounted
for approximately 59% of revenue for the year ended December 31, 1994.
6. SUPPLEMENTAL CASH FLOW INFORMATION
The accompanying statement of cash flows excludes the effect of the
following noncash transactions:
o During 1994, the lease of certain equipment resulted in an asset and
obligation under capital lease of approximately $199,000;
o During 1994, the Company entered into an agreement whereby a consultant
receives 10% of the net profits of the company in exchange for
consideration of $120,000. This consideration was an amount of a
liability which was due to such consultant. The effect of this
transaction was an increase of additional paid in capital and a reduction
of deferred revenue of $120,000.
7. SUBSEQUENT EVENTS
Clinical Marketing Ltd., a company owned by a shareholder and a relative of
another shareholder of Clinical Studies, Ltd., began operations on
September 1, 1995 and provides advertising and mixed media promotion
services for the Company.
On August 31, 1996, the Company acquired the business and certain assets of
a single site clinical research company in Sarasota, Florida for $300,000
plus contingent consideration based on profitability measures over the next
five years. The contingent payments will equal 15% of the increase in
adjusted income before tax, of the acquired business, over the prior year's
amount. In no event shall the contingent payments be less than $221,025.
5
<PAGE>
On October 4, 1996, the Company acquired the business and certain assets of
a multi-site clinical research company in Pennsylvania for approximately
$6,850,000 plus contingent consideration based on profitability measures
over the next five years. The contingent payments will equal 15% of the
excess of adjusted income before tax over $2,000,000.
On January 1, 1997, the Company and Clinical Marketing Ltd. merged
operations into one Delaware Subchapter S Corporation, also named Clinical
Studies Ltd. Each share of the Company and Clinical Marketing Ltd. was
converted to 5,324.53 shares and 1,562.27 shares, respectively, of the new
entity.
On March 12, 1997, the shareholders of the Company signed a letter of
intent to sell Clinical Studies Ltd. to PhyMatrix Corp. (PhyMatrix), a
publicly traded company. The purchase price will be determined based on the
average five-day trading price of the PhyMatrix stock prior to closing,
less any closing adjustments. The transaction is subject to the approval
and the satisfaction of certain conditions.
On April 9, 1997, the Company acquired the business and certain assets of
Neuropsychiatric Services of Greater Washington, Inc. for $725,000 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%.
On April 23, 1997, the Company received a letter of understanding from a
former consultant (see Note 4) to settle the obligations under his
profit-sharing agreement. Under the terms of the proposed settlement, the
former consultant will receive $2.5 million in cash and a promissory note
for approximately $2,000,000.
6
<PAGE>
Schedule
--------
CLINICAL STUDIES LTD.
SCHEDULE OF OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
Payroll .................................................. $1,548,800
Management fees .......................................... 802,000
Consulting fees .......................................... 742,280
Advertising .............................................. 482,315
Rent ..................................................... 305,647
Office expense ........................................... 179,303
Payroll taxes ............................................ 131,598
Employee benefits ........................................ 133,354
Travel and entertainment ................................. 95,461
Telephone ................................................ 96,598
Insurance ................................................ 29,159
Professional fees ........................................ 73,467
Depreciation and amortization ............................ 58,851
Patient travel ........................................... 97,572
Postage .................................................. 30,425
Utilities ................................................ 27,625
Supplies ................................................. 98,742
Dues and subscriptions ................................... 3,409
Taxes .................................................... 14,247
Administrative ........................................... 42,500
Repairs and maintenance .................................. 3,867
Donations ................................................ 1,905
Education ................................................ 3,808
Licenses and fees ........................................ 5,592
Miscellaneous ............................................ 10,757
-----------
Total .................................................... $5,019,282
==========
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The merger is to be accounted for in accordance with the pooling of interests
method of accounting pursuant to APB Opinion No. 16. The pooling of interests
method of accounting assumes that PhyMatrix Corp. ("PhyMatrix") and Clinical
Studies, Ltd. and Clinical Marketing Ltd. (collectively "CSL") have been merged
since their inception, and the historical consolidated financial statements for
periods prior to consummation of the merger are restated as though the companies
have been combined since January 1, 1994. Accordingly, the accompanying
Unaudited Pro Forma Combined Financial Information gives effect to the
transaction in accordance with pooling of interests accounting.
The following Unaudited Pro Forma Combined Statements of Operations for the six
months ended July 31, 1997 and the years ended December 31, 1994 and 1995 and
January 31, 1997 have been prepared to reflect the merger with CSL as if it had
been completed on January 1, 1994. Adjustments have been made as described to
record income tax expense on CSL's historical Statements of Operations. The
Unaudited Pro Forma Combined Balance Sheet at July 31, 1997 gives effect to the
merger with CSL as if such merger had occurred on July 31, 1997.
The Unaudited Pro Forma Combined Financial Information has been prepared based
on the audited and unaudited historical financial statements of PhyMatrix and
CSL, which statements are included herein. The Unaudited Pro Forma Combined
Financial Information is not indicative of the results that would have occurred
if the acquisition of CSL had occurred on the dates indicated or which may be
realized in the future.
The Unaudited Pro Forma Combined Financial Information should be read in
conjunction with (i) PhyMatrix' consolidated historical financial statements and
related notes contained in the annual, quarterly and other reports filed by
PhyMatrix with the Securities and Exchange Commission, (ii) CSL's audited
historical combined financial statements for the years ended December 31, 1994,
1995 and 1996, and (iii) CSL's unaudited historical combined financial
statements for the six months ended July 31, 1997.
The Unaudited Pro Forma Combined Financial Information has been prepared in
accordance with generally accepted accounting principles. These principles
require management to make extensive use of estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
Unaudited Pro Forma Combined Statements of Operations are not necessarily
indicative of future operating results.
<PAGE>
PRO FORMA COMBINED BALANCE SHEETS
As of July 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
PhyMatrix Clinical Pro Forma
Corp. Studies Adjustments Combined
----- ------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 58,638,326 $ 744,772 $ (10,150,000)(A) $ 49,233,098
Receivables:
Accounts receivable, net of allowances 48,949,768 7,631,640 56,581,408
Other receivables 3,440,009 - 3,440,009
Notes receivable 2,364,537 - 2,364,537
Prepaid expenses and other current assets 5,538,993 - - 5,538,993
--------- --------- --------- -----------
Total current assets 118,931,633 8,376,412 (10,150,000) 117,158,045
Property, plant and equipment, net 40,214,895 631,317 40,846,212
Notes receivable 7,884,700 - 7,884,700
Goodwill, net 84,355,699 7,708,913 92,064,612
Management service agreements, net 56,078,028 - 56,078,028
Investment in affiliates 3,517,934 - 3,517,934
Other assets (including restricted cash) 12,400,247 200,293 - 12,600,540
--------- --------- --------- -----------
$323,383,136 $16,916,935 $ (10,150,000) $ 330,150,071
Total assets ========= =========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of debt and capital leases $ 3,522,190 $ 87,091 $ 3,609,281
Accounts payable 7,449,454 664,297 8,113,751
Accrued compensation 1,002,940 417,882 1,420,822
Accrued and other current liabilities 12,353,045 1,603,125 478,000 (B) 14,434,170
--------- --------- --------- -----------
Total current liabilities 24,327,629 2,772,395 478,000 27,578,024
Long-term debt and capital leases, less current
portion 7,863,224 9,019,191 16,882,415
Convertible subordinated debentures 100,000,000 - 100,000,000
Other long term liabilities 11,759,706 - 11,759,706
Deferred tax liability - -
Minority interest 1,854,455 - - 1,854,455
--------- --------- --------- -----------
Total liabilities 145,805,014 11,791,586 478,000 158,074,600
Commitments and contingencies
Shareholders' equity:
Common stock 239,269 627,940 867,209
Additional paid in capital 169,160,700 120,000 169,280,700
Retained earnings 8,178,153 4,377,409 (10,628,000)(A)(B) 1,927,562
--------- --------- --------- -----------
Total shareholders' equity 177,578,122 5,125,349 (10,628,000) 172,075,471
--------- --------- --------- -----------
Total liabilities and shareholders' equity $323,383,136 $16,916,935 $ (10,150,000) $ 330,150,071
============ =========== ============ ===========
</TABLE>
<PAGE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Six Months Ended July 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Clinical Pro Forma
PhyMatrix Studies Adjustments Combined
--------- ------- ----------- ---------
(C) (D)
<S> <C> <C> <C> <C>
Net revenues from services $ 69,961,529 $13,128,176 $ 83,089,705
Net revenue from management service agreements 75,685,223 - - 75,685,223
----------- ----------- ----------- -------------
Total revenue 145,646,752 13,128,176 - 158,774,928
----------- ----------- ----------- -------------
Operating costs and administrative expenses:
Cost of affiliated physician management services 33,534,991 - 33,534,991
Salaries, wages and benefits 33,811,558 5,320,912 39,132,470
Professional fees 3,140,177 1,114,546 4,254,723
Supplies 19,719,512 180,932 19,900,444
Utilities 1,877,154 230,295 2,107,449
Depreciation and amortization 4,533,310 323,684 4,856,994
Rent 6,521,290 635,456 7,156,746
Other 28,797,025 4,401,509 - 33,198,534 (E)
Total operating costs and ----------- ----------- ----------- -------------
administrative expenses 131,935,017 12,207,334 - 144,142,351
----------- ----------- ----------- -------------
Operating income 13,711,735 920,842 - 14,632,577
-
Interest expense, net 1,382,600 291,363 1,673,963
Income from investment in affiliates (412,985) - - (412,985)
----------- ----------- ----------- -------------
Income before provision for income taxes 12,742,120 629,479 - 13,371,599
Income tax expense 4,545,904 - 251,792 (F) 4,797,696
----------- ----------- ----------- -------------
Net income (loss) $ 8,196,216 $ 629,479 $(251,792) $ 8,573,903
=========== =========== =========== =============
Net income per weighted average share $ 0.34 $ 0.29
----------- ------------
Weighted average number of shares outstanding (I) 23,863,289 29,108,722
=========== =============
</TABLE>
<PAGE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Clinical
PhyMatrix Studies Adjustments
Year Ended Year Ended Year Ended
January 31, December 31, January 31, Combined
1997 1996 1997 Pro Forma
--------- ------- ----------- ---------
(C) (D)
<S> <C> <C> <C> <C>
Net revenues from services $ 99,773,277 $ 18,040,124 $ 117,813,401
Net revenue from management service agreements 90,187,458 - - 90,187,458
---------- ---------- ---------- ----------
Total revenue 189,960,735 18,040,124 - 208,000,859
---------- ---------- ---------- ----------
Operating costs and administrative expenses:
Cost of affiliated physician management services 42,245,211 - 42,245,211
Salaries, wages and benefits 52,313,062 6,037,786 58,350,848 (E)
Professional fees 4,119,161 3,202,688 7,321,849 (E)
Supplies 26,939,628 263,277 27,202,905
Utilities 2,562,328 306,156 2,868,484
Depreciation and amortization 7,144,588 237,875 7,382,463
Rent 7,653,298 865,514 8,518,812
Provision for bad debt 4,607,888 - 4,607,888
Other 22,534,066 3,824,996 - 26,359,062 (E)
---------- ---------- ---------- ----------
Total operating costs and
administrative expenses 170,119,230 14,738,292 - 184,857,522
---------- ---------- ---------- ----------
Operating income 19,841,505 3,301,832 23,143,337
Interest expense, net 1,288,837 68,373 1,357,210
Interest expense, shareholder 369,366 - 369,366
Income from investment in affiliates (709,295) - - (709,295)
---------- ---------- ---------- ----------
Income before provision for income taxes 18,892,597 3,233,459 22,126,056
Income tax expense 6,836,066 - 1,293,385 (F) 8,129,451
---------- ---------- ---------- ----------
-
Net income (loss) $ 12,056,531 $ 3,233,459 $(1,293,385) $ 13,996,605
=========== ========== ========== ==========
Net income per weighted average share $ 0.54 $ 0.50
----------- ==========
Weighted average number of shares outstanding (I) 22,511,448 27,756,881
=========== ==========
</TABLE>
<PAGE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Year Ended December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Clinical Combined
PhyMatrix Studies Pro Forma
--------- ------- ---------
(C) (D)
<S> <C> <C> <C>
Net revenues from services $ 48,360,716 $ 13,351,843 $ 61,712,559
Net revenue from management service agreements 22,372,566 - 22,372,566
----------- ----------- ----------
Total revenue 70,733,282 13,351,843 84,085,125
----------- ----------- ----------
Operating costs and administrative expenses:
Cost of affiliated physician management services 9,655,973 - 9,655,973
Salaries, wages and benefits 29,708,554 3,832,215 33,540,769
Salaries, wages and benefits - related party 2,267,891 - 2,267,891
Professional fees 2,571,459 1,895,438 4,466,897 (E)
Professional fees - related party 273,941 - 273,941
Supplies 11,864,514 252,848 12,117,362
Utilities 1,307,564 191,191 1,498,755
Depreciation and amortization 3,862,519 92,992 3,955,511
Rent 4,043,465 598,679 4,642,144
Rent - related party 459,732 - 459,732
Earnout payment 1,271,000 - 1,271,000
Provision for closure loss 2,500,000 - 2,500,000
Provision for bad debt 744,111 - 744,111
Other 5,409,676 3,581,276 8,990,952 (E)
Other - related party 728,116 - 728,116
----------- ----------- ----------
Total operating costs and
administrative expenses 76,668,515 10,444,639 87,113,154
----------- ----------- ----------
Operating income (loss) (5,935,233) 2,907,204 (3,028,029)
-
Interest expense, net 3,144,027 (23,971) 3,120,056
Interest expense, shareholder 1,708,174 - 1,708,174
Minority interest 806,637 - 806,637
Income from investment in affiliates (569,156) - (569,156)
----------- ----------- ----------
Income (loss) before provision for income taxes (11,024,915) 2,931,175 (8,093,740)
Income tax expense (G) - - -
----------- ----------- ----------
-
Net income (loss)(H) $(11,024,915) $ 2,931,175 $ (8,093,740)
============ ========== ===========
</TABLE>
<PAGE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Year Ended December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Clinical Pro Forma
PhyMatrix Studies Combined
---------- ---------- ---------
(C) (D)
<S> <C> <C> <C>
Net revenues from services $2,446,821 $4,921,285 $7,368,106
Net revenue from management service agreements - - -
---------- ---------- ----------
Total revenue 2,446,821 4,921,285 7,368,106
---------- ---------- ----------
Operating costs and administrative expenses:
Cost of affiliated physician management services - -
Salaries, wages and benefits 1,207,750 1,813,752 3,021,502
Salaries, wages and benefits - related party 934,200 - 934,200
Professional fees 58,665 815,747 874,412(E)
Professional fees - related party 253,995 - 253,995
Supplies 404,911 278,045 682,956
Utilities 77,416 124,223 201,639
Depreciation and amortization 107,387 58,851 166,238
Rent 56,244 305,647 361,891
Rent - related party 192,242 - 192,242
Other 53,665 1,623,017 1,676,682(E)
Other - related party 249,316 - 249,316
---------- --------- ---------
Total operating costs and administrative expenses 3,595,791 5,019,282 8,615,073
---------- --------- ---------
Operating loss (1,148,970) (97,997) (1,246,967)
-
Interest expense, net 95,069 705 95,774
Minority interest 52,698 - 52,698
---------- --------- ---------
Loss before provision for income taxes (1,296,737) (98,702) (1,395,439)
Income tax expense (G) - - -
---------- --------- ---------
Net loss (H)
$(1,296,737) $(98,702) $(1,395,439)
=========== ========= ===========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
A. To record estimated transaction expenses and the one-time costs to buy out
a consulting contract as shown below:
<TABLE>
<CAPTION>
Clinical
Studies PhyMatrix Total
------------------ ------------------- --------------------
<S> <C> <C> <C>
Legal $ 200,000 $300,000 $ 500,000
Accounting 200,000 175,000 375,000
Investment Banking 3,600,000 325,000 3,925,000
Other 250,000 100,000 350,000
------------------ ------------------- --------------------
Subtotal transaction expenses 4,250,000 900,000 5,150,000
------------------ ------------------- --------------------
CNS Consulting (1) 5,000,000 0 5,000,000
================== =================== ====================
Total $9,250,000 $900,000 $10,150,000
================== =================== ====================
</TABLE>
(1) Represents buyout of consulting contract.
NOTE: The transaction will be accounted for using the pooling of interests
method of accounting and, therefore, these transaction expenses and the
one-time costs to buy out a consulting contract will be recorded as a
one-time charge on PhyMatrix' Statement of Operations during the
quarter in which the transaction closes.
B. Represents the estimated remaining dividends to be paid in connection with
CSL's shareholders' S corporation tax liability for the period ended July
31, 1997.
C. Derived from the audited combined statements of operations of PhyMatrix for
the period from June 24, 1994 (inception) to December 31, 1994 and the year
ended December 31, 1995 and the audited consolidated statement of
operations for the year ended January 31,1997, and the unaudited six months
ended July 31, 1997. In January 1996, the Company changed its fiscal year
end from December 31, to January 31.
D. Derived from the audited combined statements of operations of CSL for the
years ended December 31, 1994, 1995 and 1996, including certain
reclassifications to conform to the PhyMatrix presentation and the
unaudited six months ended July 31, 1997. The audited combined financial
statements of CSL for the years ended December 31, 1994, 1995 and 1996 are
attached as Annex D.
<PAGE>
E. The following items reflect noncontinuing charges incurred by CSL during
the respective periods:
<TABLE>
<CAPTION>
Six
Months
Year Ended Ended
------------------------------------------------------
December 31, December 31, December 31, July 31,
1994 1995 1996 1997
--------------- -------------- --------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Salaries expense related to the equity interest $ - $ - $ 628,000 $ -
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.
Consulting fees based on a profit sharing 120,000 433,000 314,000 -
arrangement. The profit sharing arrangement was
terminated during 1997.
Management fees paid to the principal shareholders 802,000 1,700,000 987,000 907,000
of CSL
--------------- -------------- --------------- -------------
Total nonrecurring items 922,000 2,133,000 1,929,000 907,000
After tax impact of nonrecurring items 922,000 2,133,000 1,157,400 544,200
PhyMatrix pro forma net income (loss) (1,395,439) (8,093,740) 13,996,605(1) 8,573,903
PhyMatrix pro forma net income (loss) adjusted for $ (473,439) $(5,960,740) $15,154,005 $9,118,103
nonrecurring items
PhyMatrix pro forma EPS adjusted for nonrecurring - - $0.55 $0.31
items(I)
</TABLE>
(1) Represents the PhyMatrix pro forma net income
for the year ended January 31, 1997.
F. Represents an adjustment of $1,293,385 and $251,792 during the year ended
January 31, 1997 and the six months ended July 31, 1997 for income taxes on
the adjusted CSL net income at an estimated tax rate of 40%. No income
taxes were provided in the historical financial statements of CSL because
CSL had elected to be treated as an S Corp.
G. Provisions for income taxes have not been reflected for the years ended
December 31, 1994 and 1995 because there is no taxable income on a combined
basis.
H. Prior to January 23, 1996 (date of PhyMatrix' initial public offering),
there were no outstanding shares of Common Stock and, accordingly, no
earnings per share.
I. Pro forma combined weighted average number of shares outstanding includes
5,245,433 shares estimated to be issued to the stockholders of CSL
pursuant to the merger. The actual shares to be issued will be determined
based on the average closing price of the Common Stock for the five
business days prior to the merger.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHYMATRIX CORP.
By: /s/ Frederick R. Leathers
---------------------------------
Frederick R. Leathers,
Chief Financial Officer
Date: October 6, 1997
-4-
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Item
- ----------- -----------------------------------
2.1 Amended and Restated Agreement and Plan of Merger
dated as of July 15, 1997 by and among the Company,
PhyMatrix Acquisition I, Inc., a Delaware corporation
("PhyMatrix Acquisition"), Clinical Studies Ltd., a
Delaware corporation ("CSL"), 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 1993 Qualified Sub-Chapter S Trust.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Sansiveri, Kimball & McNamee, L.L.P.
27.1 Financial Data Schedule
-5-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Among
CLINICAL STUDIES LTD., PHYMATRIX CORP.,
DR. MICHAEL ROTHMAN, DR. WALTER BROWN,
MICHAEL T. HEFFERNAN, RONALD PHILLIPS AS TRUSTEE
OF THE ALEXANDER ROTHMAN 1993 QUALIFIED
SUB-CHAPTER S TRUST AND AS TRUSTEE OF THE
JULIE ROTHMAN 1993 QUALIFIED SUB-CHAPTER S TRUST
AND PHYMATRIX ACQUISITION I, INC.
With Respect to the Merger of
PHYMATRIX ACQUISITION I, INC.
With and Into
CLINICAL STUDIES, LTD.
July 15, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I THE MERGER 1
1.1 Execution, Filing and Effective Time 1
1.2 Constituent and Surviving Corporations; Effect of Merger 2
1.3 Certificate of Incorporation and Bylaws 2
1.4 Officers and Boards of Directors 2
1.5 Conversion of Stock and Other Securities of the 2
Constituent Corporations
1.6 Exchange of Shares 4
1.7 Dissenting Shares 6
ARTICLE II CLOSING 6
2.1 The Closing Date 6
2.2 The Closing 6
2.3 Filing Certificate of Merger 6
2.4 Payment of Deductible Expenses 7
ARTICLE III REPRESENTATIONS AND WARRANTIES 7
OF THE COMPANY
3.1 Organization and Qualification 7
3.2 The Subsidiaries of the Company 7
3.3 Capitalization 7
3.4 Corporate Power and Authority 8
3.5 No Violation 8
3.6 Financial Statements 9
3.7 Books and Records 9
3.8 Absence of Undisclosed Liabilities 9
3.9 Conduct of Business Since the Balance Sheet Date 10
3.10 Tangible Properties 11
3.11 Premises 12
3.12 Licenses and Permits 12
3.13 Company Proprietary Assets 13
3.14 Outstanding Commitments 14
3.15 Litigation 14
-i-
<PAGE>
3.16 Compliance with Law 15
3.17 Labor and Employee Relations 16
3.18 Certain Employees 16
3.19 Employee Benefits 16
3.20 Insurance 18
3.21 Transactions with Affiliates 18
3.22 Taxes 18
3.23 Brokers 19
3.24 Environmental Laws 19
3.25 Accounts Receivable 20
3.26 SEC Filings 21
3.27 Disclosure 21
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF ACQUISITION AND PHMX 21
4.1 Organization 21
4.2 Power and Authority 22
4.3 No Violation 22
4.4 SEC Reports 22
4.5 Broker 22
4.6 Proxy Statement 23
4.7 Disclosure 23
4.8 Form S-3 23
ARTICLE V COVENANTS OF THE COMPANY 23
5.1 Best Efforts Cooperation 23
5.2 Access 24
5.3 Insurance 24
5.4 Compliance with Laws 24
5.5 Keeping of Books and Records 24
5.6 Conduct of Business 24
5.7 Litigation 26
5.8 Continued Effectiveness of Representations and Warranties 26
5.9 No Negotiations 26
5.10 Monthly Statements; Daily Census 27
5.11 Covenant Not To Compete 27
5.12 Non-Disturbance Agreements 27
5.13 Further Assurances 27
5.14 Certain Agreements 28
5.15 Pension, Profit Sharing and other Retirement Plans 28
-ii-
<PAGE>
ARTICLE VI COVENANTS OF ACQUISITION AND PHMX 28
6.1 Best Efforts Cooperation 28
6.2 Registration of PHMX Common Stock 28
6.3 Special Report on Form 8-K 28
ARTICLE VII MUTUAL COVENANTS 29
7.1 General Covenants 29
7.2 Proxy Statement 29
7.3 Shareholder Approval 30
7.4 Public Announcements 30
7.5 Confidentiality 31
7.6 Additional Covenants of the Founders,
Mr. Heffernan and the Trustee 31
ARTICLE VIII CONDITIONS TO ACQUISITION'S OBLIGATIONS 32
8.1 Representations and Warranties True 32
8.2 Performance 32
8.3 Consents 32
8.4 No Material Adverse Change 32
8.5 No Actions, Suits or Proceedings 32
8.6 Opinion of Counsel 33
8.7 Accountants 33
8.8 SEC Determination of Pooling of Interests 33
8.9 Approval of Acquisition and Its Counsel 33
8.10 Closing Documents 33
8.11 Fairness Opinion 34
8.12 Corporate Approvals 34
8.13 Dissenting Shareholders 34
8.14 Minimum Net Worth 34
8.15 Mendels Release 35
ARTICLE IX CONDITIONS TO THE COMPANY'S OBLIGATIONS 35
9.1 Representations and Warranties to be True and Correct 35
9.2 No Actions, Suits or Proceedings 35
9.3 Opinion of Acquisition's Counsel 35
9.4 Performance 35
-iii-
<PAGE>
9.5 Closing Documents 35
9.6 Approval of the Company and their Counsel
9.7 No Material Adverse Change 36
9.8 Employees of the Company 36
ARTICLE X MUTUAL CONDITIONS 36
10.1 No Injunctions or Restraints; Illegality 36
10.2 Pooling of Interests 36
10.3 Shareholder Agreement 36
10.4 Registration of Merger Consideration Post-Closing 37
10.5 No Material Adverse Economic Event 37
ARTICLE XI SURVIVAL 37
ARTICLE XII INDEMNIFICATION 38
12.1 Indemnification by the Company, the Founders, the
Trustee and Mr. Heffernan 38
12.2 Indemnification by PHMX 39
12.3 Indemnification Procedures 40
12.4 Indemnification Concerning Mendels 41
ARTICLE XIII TERMINATION 41
13.1 Termination 41
13.2 Effect of Termination 42
ARTICLE XIV MISCELLANEOUS 43
14.1 Certain Definitions 43
14.2 Notices 47
14.3 Entire Agreement 48
14.4 Modifications and Amendments 49
14.5 Waivers and Consents 49
14.6 Assignment 49
14.7 Parties in Interest 49
14.8 Governing Law 50
14.9 Jurisdiction and Service of Process 50
14.10 Severability 50
14.11 Interpretation 50
14.12 Headings and Captions 50
-iv-
<PAGE>
14.13 Choice of Remedies and Enforcement 51
14.14 Expenses 51
14.15 Counterparts 51
EXHIBITS
1.1 - Certificate of Merger
8.6 - Opinion of Counsel of the Company
9.3 - Opinion of Acquisition's Counsel
9.8 - Employees of the Company
10.3 - Shareholder Agreement
10.4 - Registration Agreement
SCHEDULES
3.1 - Organization and Qualification
3.2 - The Subsidiaries of the Company
3.3 - Capitalization
3.5 - No Violation
3.6 - Financial Statements
3.9 - Conduct of Business Since the Balance Sheet Date
3.10(a) - Tangible Properties
3.10(b) - Tangible Properties -- Valuation
3.11 - Premises
3.12(a) - Licenses
3.12(b) - Permits
3.13 - Company Propriety Assets
3.14 - Outstanding Commitments
3.15 - Litigation
3.16 - Compliance with Law
3.18 - Certain Employees
3.19 - Employee Benefits
3.20 - Insurance
3.21 - Transactions with Affiliates
3.22 - Taxes
3.23 - Brokers
3.24 - Environmental Matters
3.25 - Accounts Receivable
4.3 - SEC Reports
4.5 - Broker
</TABLE>
-4-
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger is made
and entered into effective as of July 15, 1997 by and among PhyMatrix Corp., a
Delaware corporation ("PHMX"), PhyMatrix Acquisition I, Inc., a Delaware
corporation ("Acquisition"), Clinical Studies, Ltd., a Delaware corporation (the
"Company"), Dr. Michael Rothman, a resident of Newton Lower Falls, Massachusetts
("Rothman"), Dr. Walter Brown, a resident of Tiverton, Rhode Island ("Brown,"
and collectively with Rothman, the "Founders"), Michael T. Heffernan, a resident
of Hingham, Massachusetts ("Heffernan") and Ronald Phillips as Trustee of The
Alexander Rothman 1993 Qualified Sub-Chapter S Trust and as Trustee of The Julie
Rothman 1993 Qualified Sub-Chapter S Trust (in his capacity as Trustee of each
aforesaid trust, and not individually, the "Trustee").
BACKGROUND
A. The Company is a site management organization conducting
clinical research for pharmaceutical companies and for clinical research
organizations (collectively, with all activities incidental thereto, the
"Business") at 20 centers located in eight states (the "Centers").
B. Pursuant to the Merger, the holders of shares of common
stock, par value $.0001 per share, of the Company (the "Company Common Stock")
will receive shares of PHMX common stock, par value $.01 per share (the "PHMX
Common Stock"), in the manner set forth in Article I of this Agreement and upon
the terms and conditions otherwise set forth in this Agreement.
C. The Board of Directors of each of the Company and
Acquisition has determined that the Merger is fair and in the best interests of
their respective stockholders, has approved and adopted this Agreement and the
transactions contemplated hereby and has resolved to recommend to the
stockholders of their respective corporations that they approve this Agreement
and the Merger.
NOW, THEREFORE, in consideration of the foregoing premises and
of the mutual agreements hereinafter contained, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
1.1 Execution, Filing and Effective Time. On the Closing Date
(as hereinafter defined) and subject to the terms and conditions hereinafter set
forth, the parties hereto agree to cause the Merger to be consummated by filing
with the Delaware Secretary of State a Certificate of Merger (the "Certificate
of Merger") in the form set forth in Exhibit 1.1 hereto, duly executed and
acknowledged by the Company, and taking all such further actions as may be
required by law to make the Merger effective. The Merger shall become effective
when the Certificate of Merger is so filed in accordance with the Delaware
General Corporation Law (the
<PAGE>
"Delaware Law"), and the time at which the Merger becomes effective is referred
to herein as the "Effective Time."
1.2 Constituent and Surviving Corporations; Effect of Merger.
The Company and Acquisition shall be the constituent corporations in the Merger,
and the Company shall be the surviving corporation in the Merger (in such
capacity, the Company is sometimes hereinafter referred to as the "Surviving
Corporation"). At the Effective Time, the Merger shall have the effect set forth
in Section 259 of the Delaware Law.
1.3 Certificate of Incorporation and Bylaws. At the Effective
Time, the Certificate of Incorporation of Acquisition shall be the Certificate
of Incorporation of the Surviving Corporation and the By-laws of Acquisition as
in effect at the Effective Time shall constitute the By-laws of the Surviving
Corporation.
1.4 Officers and Boards of Directors.
(a) At the Effective Time, each of the members of the Board of
Directors and each of the officers of the Company immediately prior to the
Effective Time shall resign or be removed from office and, concurrently with
such removal or resignation, the directors and officers of Acquisition shall
become the directors and officers of the Surviving Corporation, each to serve in
accordance with the By-laws of the Surviving Corporation until his successor is
duly elected and qualified.
(b) Prior to the Effective Time, the management of PHMX will
recommend Mr. Heffernan for election to the Board of Directors of PHMX.
1.5 Conversion of Stock and Other Securities of the Constituent
Corporations. At the Effective Time, without any action on the part of the
holder thereof:
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time that is not then held in the treasury of
the Company shall be cancelled and extinguished and be converted into the right
to receive, upon surrender to the Surviving Corporation of the Certificate (as
defined herein) representing such share, such shares of PHMX Common Stock as set
forth below (the "Merger Consideration"):
(i) Each share of Company Common Stock shall be
converted into a right to receive such number of shares of PHMX Common
Stock equal to the Aggregate Share Pool (as defined herein) divided by
the total number of shares of Company Common Stock outstanding
immediately prior to the Closing on a fully diluted basis, taking into
account all shares of Company Common Stock issuable upon exercise of
the Employee Stock Options (as defined herein) whether or not such
Employee Stock Options are currently vested.
-2-
<PAGE>
(ii) The "Aggregate Share Pool" shall be determined
based upon the average last reported sale price of PHMX Common Stock as
quoted on Nasdaq (as defined herein) for the five (5) business days
preceding the last business day prior to the Closing (the "Average
Closing Price Per Share" or "ACPPS") in accordance with the following
terms:
(x) if the Average Closing Price Per Share
is greater than Sixteen Dollars and Fifty Cents ($16.50), the
Aggregate Share Pool shall equal Eighty-Seven Million Eight
Hundred Forty-Four Thousand Six Hundred Thirty-Eight
(87,844,638) divided by the ACPPS;
(y) if the Average Closing Price Per Share
is greater than or equal to Thirteen Dollars and Fifty Cents
($13.50) and less than or equal to Sixteen Dollars and Fifty
Cents ($16.50), the Aggregate Share Pool shall equal Five
Million Eight Hundred Sixty-Six Thousand Six Hundred
Sixty-Seven (5,866,667) minus the quotient of 8,955,362
divided by the ACPPS; or
(z) if the Average Closing Price Per Share
is less than Thirteen Dollars and Fifty Cents ($13.50), then
the Aggregate Share Pool shall equal Seventy Million Two
Hundred Forty-Four Thousand Six Hundred Thirty-Eight
(70,244,638) divided by the ACPPS.
(b) Each share of the common stock, $.01 par value, of
Acquisition issued and outstanding immediately prior to the Effective Time shall
be converted into the right to receive, upon the surrender to the Surviving
Corporation of the certificate representing such share, one (1) fully paid and
nonassessable share of common stock of the Surviving Corporation (i.e., one
share of Company Common Stock), which shares of the Surviving Corporation
thereupon shall constitute all of the issued and outstanding shares of capital
stock of the Surviving Corporation.
(c) As soon as practicable following the date of this
Agreement, but in no event later than thirty (30) days following the Effective
Time, the Board of Directors of the Surviving Corporation (or, if appropriate,
any committee administering the Stock Plan (as defined below)) shall adopt such
resolutions or take other actions as may be required to effect the following:
(i) adjust the terms of all outstanding employee
stock options to purchase Company Common Stock ("Employee Stock
Options") granted under the Clinical Studies 1996 Equity Incentive Plan
(the "Stock Plan"), to provide that, at the Effective Time, each
Employee Stock Option outstanding immediately prior to the Effective
Time shall be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such Employee Stock
Option, the same number of shares of PHMX Common Stock as the holder of
such Employee Stock Option would have been entitled
-3-
<PAGE>
to receive pursuant to the Merger had such holder exercised such
Employee Stock Option in full immediately prior to the Effective Time
at a price per share equal to the exercise price per share of each
Employee Stock Option immediately prior to the Merger divided by the
Conversion Rate (as defined herein).
(d) As soon as practicable after the Effective Time, but in no
event later than thirty (30) days following the Effective Time, PHMX shall
deliver to the holders of Employee Stock Options appropriate notices setting
forth such holders' rights pursuant to the Stock Plan and the agreements
evidencing the grants of such Employment Stock Options appropriate notices
setting forth such holders' rights pursuant to the Stock Plan and the agreements
evidencing the grants of such Employee Stock Options shall continue in effect on
the same terms and conditions (subject to the adjustments required by this
Section 1.5 after giving effect to the Merger). PHMX shall comply with the terms
of the Stock Plan and ensure, to the extent required by, and subject to the
provisions of, such Stock Plan, that the Employee Stock Options which qualified
as ISOs prior to the Effective Time continue to qualify as ISOs after the
Effective Time.
(e) PHMX shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of PHMX Common Stock for delivery
upon exercise of the Employee Stock Options for delivery upon purchase as
provided in paragraph (c) above assumed in accordance with this Section 1.5.
With respect to those individuals who subsequent to the Merger will be subject
to the reporting requirements under Section 16(a) of the Exchange Act, where
applicable, PHMX shall administer the Stock Plan assumed pursuant to this
Section 1.5 in a manner that complies with Rule 16b-3 promulgated under the
Exchange Act to the extent the Stock Plan complied with such rule prior to the
Merger.
1.6 Exchange of Shares.
(a) At the Closing and on behalf of the Company Shareholders
(as defined herein), the Company shall deliver to PHMX certificates representing
all of the outstanding shares of Company Common Stock (the "Certificates") and a
schedule including the address and social security or taxpayer identification
number of each holder of a Certificate (each a "Company Shareholder").
(b) No later than fifteen (15) days following the receipt of a
Certificate following the Effective Time, PHMX shall instruct its transfer agent
(the "Exchange Agent") to deliver to each of the Company Shareholders, as
applicable, a certificate representing that number of whole shares of PHMX
Common Stock to which such Company Shareholder shall have become entitled
pursuant to the provisions of Article I hereof. Simultaneously therewith, the
PHMX shall deliver a check representing the amount of cash in lieu of any
fractional share that such Company Shareholder has the right to receive pursuant
to the provisions of Article I hereof. The Certificate(s) so surrendered shall
forthwith be canceled. No interest will be paid or accrued on the cash paid in
lieu of any fractional share to holders of Certificates.
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(c) No dividends or other distributions declared after the
Effective Time with respect to PHMX Common Stock shall be paid to the holder of
any unsurrendered Certificate until the holder thereof shall surrender such
Certificate in accordance with this Article I. After the surrender of a
Certificate in accordance with this Article I, the record holder thereof shall
be entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
PHMX Common Stock represented by such Certificate after the Effective Time.
(d) If any certificate representing shares of PHMX Common Stock
is to be issued in a name other than that in which the Certificate surrendered
in exchange therefor is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form for transfer, and that the person requesting such exchange shall pay to the
PHMX in advance any transfer or other taxes required by reason of the issuance
of a certificate representing shares of PHMX Common Stock in any name other than
that of the registered holder of the Certificate surrendered, or required for
any other reason, or shall establish to the satisfaction of the PHMX that such
tax has been paid or is not payable.
(e) After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the shares of Company Common Stock
which were issued and outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates representing such shares are presented
for transfer to the PHMX, they shall be canceled and exchanged for certificates
representing shares of PHMX Common Stock as provided in this Article I.
(f) Notwithstanding anything to the contrary contained herein,
no certificates or scrip representing fractional shares of PHMX Common Stock
shall be issued upon the surrender for exchange of Certificates, no dividend or
distribution with respect to PHMX Common Stock shall be payable on or with
respect to any fractional share and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a stockholder of
PHMX. In lieu of the issuance of any such fractional shares, PHMX shall pay to
each former Company Shareholder who otherwise would be entitled to receive a
fractional share of PHMX Common Stock (after taking into account all shares of
PHMX Common Stock into which such stockholder's shares of Company Common Stock
were converted pursuant to Article I) an amount in cash (rounded to the nearest
whole cent) determined by multiplying (i) the Average Closing Price Per Share by
(ii) the fraction of a share of PHMX Common Stock which such holder would
otherwise be entitled to receive pursuant to Section 1.5 hereto.
(g) None of PHMX, Acquisition, the Company, the Exchange Agent
or any other person shall be liable to any former holder of shares of the
Company Common Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
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(h) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
PHMX, the posting by such person of a bond in such amount as PHMX may determine
is reasonably necessary as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the shares of PHMX Common Stock
and cash in lieu of any fractional share deliverable in respect thereof pursuant
to this Agreement.
1.7 Dissenting Shares. Notwithstanding Section 1.5(a), shares
of Company Common Stock outstanding immediately prior to the Effective Time that
are held by a holder who has not voted in favor of the Merger or consented
thereto in writing and who has demanded appraisal for such shares in accordance
with the Delaware Law shall not be converted into a right to receive the Merger
Consideration, unless such holder fails to perfect or withdraws or otherwise
loses such holder's right to appraisal under the Delaware Law. If, after the
Effective Time, such holder fails to perfect or withdraws or loses his right to
appraisal, such shares shall be treated as though they had been converted as of
the Effective Time into a right to receive the Merger Consideration, without
interest.
ARTICLE II
CLOSING
2.1 The Closing Date. Subject to the satisfaction or waiver of
each of the conditions contained in Articles VIII, IX and X of this Agreement,
the closing of the Merger and the other transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Nutter, McClennen &
Fish, LLP, One International Place, Boston, Massachusetts at 10:00 a.m. on a
date agreeable to the parties within five (5) business days after the
satisfaction or waiver of all conditions to Closing set forth in Articles VIII,
IX and X, or on such other date or at such other location or time as may be
agreed upon by the parties (such date and time being called the "Closing Date"),
but in no event later than the Termination Date (as defined in Section 13.1(d)).
2.2 The Closing. At the Closing, the Company, Acquisition and
PHMX shall each deliver to each other, as applicable, such certificates,
instruments, documents and opinions as are set forth in Articles VIII, IX and X,
each of which shall be fully executed and completed, as appropriate.
2.3 Filing Certificate of Merger. Contemporaneous with the
Closing, the duly executed Certificate of Merger shall be filed with the
Delaware Secretary of State.
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2.4 Payment of Deductible Expenses. At the Closing, upon
presentation of appropriately detailed invoices by the Company, PHMX shall pay
to the applicable parties all Deductible Expenses incurred by the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company, each of the Founders, the Trustee and Mr.
Heffernan hereby represent and warrant to Acquisition and PHMX as follows:
3.1 Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company is qualified, or is in the process of
qualifying, to do business as a foreign corporation in each jurisdiction where
it is required to be so qualified and each such jurisdiction and the status of
its qualification is set forth on Schedule 3.1 hereto. As of the Closing Date,
the Company will be qualified to do business as a foreign corporation in each
jurisdiction where it is required to be so qualified. The Company has previously
furnished to PHMX true and complete copies of its Certificate of Incorporation
and By-laws, as amended to date.
3.2 The Subsidiaries of the Company. Except as set forth on
Schedule 3.2, Clinical Marketing, Ltd., a Delaware corporation (the
"Subsidiary"), is the Company's sole subsidiary corporation. The Subsidiary is
qualified to do business as a foreign corporation in each jurisdiction where it
is required to be so qualified. All issued and outstanding shares of the
Subsidiary are duly authorized, validly issued, fully paid and nonassessable and
the Company is the sole owner of all such issued and outstanding shares. There
are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights or other contracts or
commitments that require the Subsidiary to issue, sell or otherwise cause to
become outstanding any of its capital stock or other securities. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation or similar rights with respect to the Subsidiary. There are no
stockholders' agreements, voting trusts, proxies or other agreements or
understandings with respect to the voting or ownership of the capital stock of
the Subsidiary. The Company does not control directly or indirectly or have any
direct or indirect equity participation in any corporation, partnership, joint
venture, trust or other business association other than the Subsidiary.
3.3 Capitalization. The authorized capital stock of the Company
consists of 1,000,000 shares of Company Common Stock of which 900,039.51 shares
are outstanding. All of the outstanding shares of the capital stock of the
Company have been validly issued and are fully paid and nonassessable. Except as
set forth in Schedule 3.3, there are no outstanding options, warrants, rights,
or other agreements or commitments obligating the Company to issue or sell
shares of its capital stock or any securities or obligations convertible into or
exchangeable
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for any shares of its capital stock. Schedule 3.3 is a true and correct summary
of the exercise or conversion price, vesting schedule and amount of underlying
securities, with respect to all such options, warrants, rights, agreements or
commitments or securities or obligations convertible into or exchangeable for
shares of the Company's capital stock and attached to such Schedule are all
plans and agreements relating thereto. The Company has no obligation to register
any shares of its capital stock under the Securities Act (as defined herein).
Except as set forth on Schedule 3.3, the Company is not obligated directly,
indirectly or contingently to purchase or redeem any shares of its capital
stock.
3.4 Corporate Power and Authority. The Company and its
Subsidiary have full corporate power and authority to carry on the Business and
any other activities related thereto as now being conducted and to own, operate
and lease their properties in the places where such Business or other activities
related thereto are now conducted and such properties are now owned, leased or
operated. This Agreement, the Merger and the other transactions contemplated
hereby have been duly and unanimously approved by the Board of Directors of the
Company. The Company has full corporate power and authority to enter into this
Agreement and to consummate the Merger and the other transactions contemplated
hereby, and this Agreement and each of the other agreements to be executed and
delivered by the Company in connection herewith constitute the legal, valid and
binding obligations of the Company enforceable against it in accordance with
their respective terms.
3.5 No Violation. Neither the execution and delivery of this
Agreement and the other documents and instruments contemplated hereby and the
consummation of the Merger and the other transactions contemplated hereby, nor
the performance of this Agreement and such other documents and instruments in
compliance with the terms and conditions hereof and thereof, except as set forth
in Schedule 3.5, will (i) violate, conflict with or result in any breach of any
trust agreement, charter document, by-law, judgment, decree, order, statute or
regulation applicable to the Company or its Subsidiary, (ii) require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Authority (as defined herein) (other than filing the
Certificate of Merger with the Delaware Secretary of State), (iii) violate,
conflict with or result in a breach, default or termination or give rise to any
right of termination, cancellation or acceleration of the maturity of any
payment date of any obligation of the Company or its Subsidiary or increase or
otherwise affect the obligations of the Company or its Subsidiary under any Law
or Permit (each as defined herein) or any of the terms, conditions or provisions
of any mortgage, indenture, note, license, agreement or other instrument or
obligation related to the Company or its Subsidiary or to the Company's ability
to consummate the Merger and the other transactions contemplated hereby, except
for such defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents, in form and substance satisfactory to PHMX,
have been or will be obtained in writing and provided to PHMX at or prior to the
Closing, (iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company or its Subsidiary, or (v) result in the
creation of any Claim (as defined herein) upon or against the properties of the
Company or its Subsidiary.
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3.6 Financial Statements. The Company has previously furnished
to PHMX the following financial statements of the Company which are attached
hereto in Schedule 3.6: (i) financial statements as of and for the year ending
December 31, 1994 audited by Sansivieri, Kimball and McNamee, and for the years
ending December 31, 1995 and 1996, audited by Deloitte & Touche LLP, consisting
of balance sheets, statements of income, statements of retained earnings and
statements of cash flows, and (ii) financial statements as of and for the three
months ended March 31, 1997, prepared internally by the Company, consisting of a
balance sheet and income statement (collectively, the "the Company Financial
Statements"). The balance sheet of the Company dated March 31, 1997 and included
among the Company Financial Statements is referred to herein as the "Balance
Sheet." All the Company Financial Statements were prepared from the books and
records of the Company, which books and records are complete and correct. The
Company Financial Statements fairly present the financial position of the
Company as of the dates thereof and the results of the Company's operations for
the periods presented therein, as the case may be, all in conformity with GAAP
(as defined herein), consistently applied, subject, in the case of the financial
statements for the three months ended March 31, 1997, to normal year-end
adjustments.
3.7 Books and Records. The books of account, minute books,
stock record books, and other records of the Company and its Subsidiary, all of
which have been made available to PHMX, are complete and correct and have been
maintained in accordance with sound business practices and the requirements of
Section 13(b)(2) of the Exchange Act (as defined herein) (regardless of whether
or not the Company or its Subsidiary is subject to that Section), including the
maintenance of an adequate system of internal controls. The minute books of the
Company and its Subsidiary contain accurate and complete records of meetings
held of, and corporate action taken by, the stockholders, the Boards of
Directors and committees of the Boards of Directors of the Company and its
Subsidiary, and all corporate action requiring approval of the Board of
Directors or the stockholders of either the Company or its Subsidiary has been
so approved and confirmed, as required by the by-laws of each and by Delaware
Law, and such approval and confirmation has been so noted in such minute books.
As of the Closing Date, all of the books and records referenced in this Section
3.7 will be in the possession of the Company.
3.8 Absence of Undisclosed Liabilities. Except as set forth or
reserved against in the Balance Sheet as of March 31, 1997 (the "Balance Sheet
Date") included in the Company Financial Statements and except as set forth on
Schedule 3.9, the Company (i) did not have as of the Balance Sheet Date any
liability or obligation of any nature, whether accrued, absolute, contingent, or
otherwise and whether due or to become due, including, without limitation,
liabilities that may become known or arise after the date hereof and which
relate to transactions entered into or any state of facts existing on or before
the Balance Sheet Date which would be required under GAAP to be shown in such
balance sheet or referenced in the notes thereto, and (ii) has not incurred
since the Balance Sheet Date any such liability or obligation except in the
Ordinary Course of Business (as defined herein).
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3.9 Conduct of Business Since the Balance Sheet Date. Since the
Balance Sheet Date, except as set forth on Schedule 3.9, there has been no
Material Adverse Change (as hereinafter defined) with respect to the Company,
and no such Material Adverse Change is threatened, contemplated or anticipated.
(As used herein, the term "Material Adverse Change" shall mean, with respect to
the Company, a material adverse change in the financial condition (including,
but not limited to, net worth and working capital), results of operations,
assets, liabilities, business or prospects of the Company or its Subsidiary,
and, with respect to any other Person, a material adverse change in the
financial condition (including, but not limited to, net worth and working
capital), results of operations, assets, liabilities, business prospects of such
Person). Since the Balance Sheet Date, except as set forth on Schedule 3.9,
neither the Company nor its Subsidiary has taken or agreed to take any action
that would obligate the Company or its Subsidiary to have:
(a) taken any action or entered into or agreed to enter into
any transaction, agreement or commitment other than in the Ordinary
Course of Business;
(b) entered into or agreed to enter into any transaction,
agreement or commitment, or suffered the occurrence of any event or
events (i) that has interfered or is reasonably likely to interfere
with the normal and usual operations of the Business of the Company or
its Subsidiary or (ii) that, singly or in the aggregate, has resulted
or is reasonably likely to result in a Material Adverse Change with
respect to the Company;
(c) incurred any indebtedness for borrowed money, or assumed,
guaranteed, endorsed or otherwise become responsible for the
obligations of any other Person, (except to endorse checks for
collection for deposit in the Ordinary Course of Business), or made any
loan or advance to any Person;
(d) mortgaged, pledged, or otherwise encumbered, or, other than
in the Ordinary Course of Business, sold, transferred or otherwise
disposed of, any of the properties or assets of the Company or its
Subsidiary, including any cancelled, released, hypothecated or assigned
indebtedness owed to the Company or its Subsidiary, or any Claims held
by the Company or its Subsidiary;
(e) made any investment of a capital nature or entered into a
commitment for such investment either by purchase of stock or
securities, contributions to capital, property transfer or otherwise,
or by the purchase of any property or assets of any other Person;
(f) declared, set aside, or paid any dividend or other
distribution (whether in cash, stock or property, or any combination
thereof) in respect of the capital stock of the Company, or redeemed or
otherwise acquired, directly or indirectly, any shares of capital stock
of the Company;
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(g) paid any long-term liability, otherwise than in accordance
with its terms;
(h) paid any bonus compensation to any officer, director,
stockholder or employee of the Company or its Subsidiary or otherwise
increased the compensation paid or payable to any of the foregoing;
(i) sold, assigned or transferred any Proprietary Assets or
other intangible assets;
(j) entered into any material agreement, contract, lease,
indenture or commitment (whether written or oral) or any amendment,
waiver or modification to any existing agreement, contract, lease,
indenture or commitment (whether written or oral);
(k) contracted with or committed to any third party (i) to sell
any capital stock of the Company, (ii) to sell any assets of the
Company or its Subsidiary other than in the Ordinary Course of
Business, (iii) to effect any merger, consolidation or other
reorganization of the Company or its Subsidiary, or (iv) to enter into
any agreement with respect thereto; or
(l) paid any expenses or fees of counsel, accountants or
consultants for services in preparation for or in connection with this
Agreement or the transactions contemplated hereunder.
3.10 Tangible Properties. Schedule 3.10(a) contains a true and
complete list of all fixed assets, fixtures, furnishings, furniture, office
supplies, computer hardware and software, automobiles, tools, machinery,
equipment, spare parts and other tangible personal property owned or leased by
the Company or its Subsidiary (the "Tangible Personal Property"). Except as
listed on Schedule 3.10(a) with respect to leased Tangible Personal Property,
the Company and its Subsidiary have good and marketable title free and clear of
all Claims to the Tangible Personal Property owned by the Company or its
Subsidiary. With respect to any Tangible Personal Property leased by the Company
or its Subsidiary, all leases, conditional sale contracts, franchises or
licenses pursuant to which the Company or its Subsidiary may hold or use (or
permit others to hold or use) such Tangible Personal Property are valid and in
full force and effect, and there is not under any of such instruments any
existing default or event of default or event which with notice or lapse of time
or both would constitute such a default; and the Company's or its Subsidiary's
possession and use of such property has not been disturbed and no claim has been
asserted against the Company or its Subsidiary adverse to their rights in such
leasehold interests. All Tangible Personal Property is adequate and usable for
the purposes for which it is currently used and each item of Tangible Personal
Property, whether owned or leased, is in good operating condition, reasonable
wear and tear excepted, and has been properly maintained and repaired. The
Tangible Personal Property comprises all the equipment necessary for the
continuing operation of the Centers in the manner in which they have been
operated to
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date. Each item of Tangible Personal Property is listed on Schedule 3.10(b) with
its book value and such value is true and correct.
3.11 Premises. The real property and the leases described on
Schedule 3.11 represent all the real property leased or subleased (the "Leased
Premises") and real property leases and subleases (the "Leases") entered into or
assumed by the Company or its Subsidiary, and the descriptions of such Leased
Premises and Leases are true and complete. Each Lease is in full force and
effect, and there is not under any of the Leases any existing default or event
of default or event which with notice or lapse of time or both would constitute
such a default. Each Lease conveys good and marketable leasehold title to the
leased real estate purported to be conveyed thereunder, is enforceable by the
Company or its Subsidiary which is the lessee thereunder, provides exclusive
possession of the Leased Premises leased thereunder, and, subject to the receipt
of non-disturbance agreements with respect to such Leases, following the Merger
will continue to be enforceable in accordance with its terms. The Company or its
Subsidiary which is the lessee of each respective Leased Premises has the right
to use its respective Leased Premises in accordance with the terms of each
respective Lease free and clear of all Claims. Each of the Leased Premises is
adequately maintained, fully equipped with all necessary utilities and is in
reasonably satisfactory condition and repair, consistent with the uses to which
it is presently being put or intended to be put. To the Company's Knowledge, all
structures, improvements and fixtures on the Leased Premises and the current
uses of the Leased Premises conform in all material respects to any and all
Laws, the failure to conform with which would have a material adverse effect on
the Company. To the Company's Knowledge, there is no violation of any material
covenant, restriction or other agreement or understanding, oral or written,
affecting or relating to title or use of any Leased Premises. The Company has
received no notice of any pending or threatened condemnation or similar
proceedings or assessments affecting any of the Leased Premises, nor to the best
of the Company's Knowledge is any such condemnation or assessment contemplated
by any Governmental Authority. The Company has delivered to PHMX true and
correct copies of all Leases, as amended to date. Neither the Company nor its
Subsidiary owns or has any ownership interest in any real property.
3.12 Licenses and Permits. Schedule 3.12(a) lists all licenses,
permits, pending applications, consents, approvals and authorizations of or from
any Governmental Authority held by the Company, the Subsidiary and each
physician employed by or under contract with the Company or its Subsidiary (each
a "Licensed Party") or used in or otherwise necessary for the conduct of the
Business (collectively, the "Permits") together with any conditions imposed
thereon. The Company and its Subsidiary have complied with all conditions and
requirements imposed by the Permits and neither the Company nor its Subsidiary
has received any notice of, or has any reason to believe, that any appropriate
authority intends to cancel, terminate or suspend any of the Permits or that
valid grounds for such cancellation, termination or suspension exist. Except as
set forth on Schedule 3.12(b), no other licenses, permits, consents, approvals
or authorizations of or from any Governmental Authority other than the Permits
are necessary to operate the Business. The Company, its Subsidiary and each
Licensed Party own or have the
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right to use the Permits in accordance with the terms thereof without any
conflict or alleged conflict or infringement with the rights of others and
subject to no Claim. Each Permit is and immediately after the Merger will be
valid and in full force and effect and no Permit will be subject to termination
or be terminated or adversely affected by the Merger.
3.13 Company Proprietary Assets.
(a) Schedule 3.13 identifies and provides a brief description
of all Proprietary Assets (as hereinafter defined) owned or licensed to, or
otherwise used by, the Company, including, without limitation, any
pharmaceutical product utilized in the conduct of the Company's Business as well
as any plan or system utilized by the Company regarding the standards and
methods of operating the Business (collectively, the "Company Proprietary
Assets"). Schedule 3.13 lists each Person for which the Company has provided
services in connection with the Business since December 31, 1994 and provides
for each such client, the name, address, telephone number and name of contact.
Schedule 3.13 lists each trademark and service mark owned by or licensed to, or
otherwise used by, either Company and states with respect to each such trademark
or service mark, whether it is registered with the U.S. Patent and Trademark
Office or any state Governmental Agency. Except as set forth in Schedule 3.13,
the Company has good, valid and marketable title to all of the Company
Proprietary Assets identified therein, free and clear of all Encumbrances, and
have a valid right to use all such Company Proprietary Assets. Except as set
forth in Schedule 3.13, the Company is not obligated to make any payment to any
person or entity for the use of any Company Proprietary Asset. Except as set
forth in Schedule 3.13, neither Company nor its Subsidiary has developed jointly
with any other Person any Company Proprietary Asset with respect to which such
other Person has any rights.
(b) The Company has taken reasonably prudent steps to protect
and maintain the confidentiality and secrecy of all Company Proprietary Assets
(except Company Proprietary Assets whose value would be unimpaired by public
disclosure) and otherwise to maintain and protect the value of all Company
Proprietary Assets.
(c) To the best of the Company's Knowledge, none of the Company
Proprietary Assets infringes or conflicts with any Proprietary Asset owned or
used by any other Person. The Company is not infringing, misappropriating or
making any unlawful use of, and the Company has not at any time infringed,
misappropriated or made any unlawful use of, or received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To the Knowledge of the Company, no
other Person is infringing, misappropriating or making any unlawful use of, and
no Proprietary Asset owned or used by any other person or entity infringes or
conflicts with, any Company Proprietary Asset.
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(d) The Company Proprietary Assets constitute all the
Proprietary Assets necessary to enable the Companies to conduct the Business in
the manner in which the Business has been and is being conducted. Except as set
forth in Schedule 3.13: (i) neither Company nor its Subsidiary has licensed any
of the Company Proprietary Assets to any Person, and (ii) neither Company has
entered into any contract, agreement, covenant not to compete, or other
arrangement limiting its ability to exploit fully any of its Company Proprietary
Assets or to transact business in any market or geographical area or with any
Person.
3.14 Outstanding Commitments.
(a) Schedule 3.14 sets forth a list of all material existing
contracts, agreements, leases, subleases, commitments, licenses and franchises
(collectively, the "Contracts"), whether written or oral, to which the Company
or its Subsidiary is a party or which relate to the Business. The Company has
delivered or made available to PHMX true, correct and complete copies of all
written Contracts and Schedule 3.14 contains an accurate and complete
description of all Contracts which are not in writing. All of the Contracts are
in full force and effect. The Company and its Subsidiary which is a party to and
each other party to each of the Contracts have performed all the obligations
required to be performed by them to date, and there is not under any of the
Contracts any existing default or event of default or event which with notice or
lapse of time or both would constitute such a default. Neither the Company nor
its Subsidiary has (i) any present expectation or intention of not fully
performing all its obligations under each of the Contracts to which it is a
party or (ii) any Knowledge of any breach or anticipated breach by any other
party to any of the Contracts. None of the Contracts has been terminated or
notice of termination given with respect thereto, no notice has been given by
any party thereto of any alleged default thereunder by any party thereto, and
neither the Company nor its Subsidiary is aware of any intention or right of any
party to any Contract to default another party to any Contract. There exists no
actual or, to the Knowledge of the Company, threatened termination, cancellation
or limitation of the business relationship of the Company or its Subsidiary with
any party to any Contract.
(b) Each Contract to which the Company or its Subsidiary is a
party concerning Clinical Trials provides for indemnification of the Company and
its Subsidiary with respect to potential actions, suits, claims or proceedings
at law or in equity before any Governmental Authority or arbitration tribunal
based upon the administration of any pharmaceutical or other forms of therapy
incident to the Clinical Trials, consistent with industry practice.
3.15 Litigation. Except as set forth on Schedule 3.15, there is
no (i) action, suit, claim, proceeding or investigation pending or, to the best
of the Company's Knowledge, threatened against or affecting the Company or its
Subsidiary (whether or not the Company or its Subsidiary is a party or
prospective party thereto), at law or in equity, or before or by any
Governmental Authority, (ii) pending or, to the best of the Company's Knowledge,
threatened
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arbitration proceeding relating to the Company or its Subsidiary or (iii)
governmental inquiry, to the best of the Company's Knowledge, pending or
threatened against or involving the Company or its Subsidiary, and there is no
basis for any of the foregoing. Except as set forth on Schedule 3.15, neither
the Company nor its Subsidiary has received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to the
prospects, financial condition, operations, property or affairs of the Business.
Except as set forth on Schedule 3.15, there are no outstanding orders, writs,
judgments, injunctions or decrees of any Governmental Authority or arbitration
tribunal against, involving or affecting the Company or its Subsidiary, and to
the Company's Knowledge there are no facts or circumstances which may result in
institution of any action, suit, claim or legal, administrative or arbitration
proceeding or investigation against, involving or affecting the Company or its
Subsidiary, their assets or properties, or the Merger or the transactions
contemplated hereby. Neither the Company nor its Subsidiary is in default with
respect to any order, writ, injunction or decree known to or served upon it from
any court or of any Governmental Authority. Except as set forth on Schedule
3.15, there is no action, suit or proceeding by the Company or its Subsidiary or
their affiliates pending or to the Company's Knowledge threatened against
others. Except as set forth on Schedule 3.15, none of the following has occurred
with respect to any the Company or its Subsidiary:
(a) Neither the Company nor its Subsidiary nor, to their
Knowledge, any employee thereof, has been convicted in a criminal
proceeding or has been named or is a subject of a criminal,
governmental or other regulatory investigatory proceeding (excluding
traffic violations);
(b) Neither the Company nor its Subsidiary nor, to their
Knowledge, any employee thereof, has been or is the subject of any
order, judgment or decree of any Governmental Authority or other
regulatory body permanently or temporarily enjoining, barring,
suspending or limiting it or any such person from engaging in any type
of business or professional practice or activities; or
(c) Neither the Company nor its Subsidiary nor, to their
Knowledge, any employee thereof, has been found by a court of competent
jurisdiction in a civil action or by any Governmental Authority or
other regulatory body to have violated any Law.
3.16 Compliance with Law. Neither the Company nor its
Subsidiary is subject to any judgment, order, writ, injunction or decree of any
Governmental Authority or arbitration tribunal. Except as set forth in Schedule
3.16, the Company and its Subsidiary has complied in all material respects with
and is not in default under, all Laws applicable to it, its operations,
properties, assets, products and services, the failure to comply with which
would have a material adverse effect on the Company or its Subsidiary. There is
no existing Law, and the Company is not aware of any proposed Law, which would
prohibit or materially restrict the Surviving
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Corporation and its Subsidiary from, or otherwise materially adversely affect
the Surviving Corporation and its Subsidiary in, conducting the Business. Except
as set forth on Schedule 3.16, the Company has obtained, and as of the Closing
will have obtained, all requisite approvals and consents of, and made all
requisite filings with all Governmental Authorities and other third parties
which are necessary to be obtained or made to (i) permit the conduct of the
Business, (ii) permit the valid execution, delivery and performance by the
Company of this Agreement, including without limitation the Merger, and (iii)
prevent any Permit or agreement relating to the Business from terminating prior
to its scheduled termination as a result of the consummation of the transactions
contemplated hereby.
3.17 Labor and Employee Relations. Neither the Company nor its
Subsidiary is a party to or bound by any collective bargaining agreement with
any labor organization, group or association covering any of its employees, and
the Company has no Knowledge of any attempt to organize any of their employees
by any person, unit or group seeking to act as their bargaining agent. There are
no pending or, to the Company's Knowledge, threatened charges (by employees,
their representatives or governmental authorities) of unfair labor practices or
of employment discrimination or of any other wrongful action with respect to any
aspect of employment of any employee of the Company or its Subsidiary.
3.18 Certain Employees. Set forth on Schedule 3.18 is a list of
the names of all of the physicians, employees and consultants employed by or
under contract with the Company or its Subsidiary in connection with the
Business, together with the title or job classification of each such person and
his or her current compensation. Except as set forth on Schedule 3.18, none of
such persons has (i) an employment agreement, contract or understanding, whether
oral or written, with the Company or its Subsidiary which is not terminable on
thirty (30) days or less notice by the Company or its Subsidiary without cost or
other liability to the Company or its Subsidiary or (ii) a non-competition,
non-disclosure and/or non-solicitation agreement or understanding with the
Company or its Subsidiary, whether written or oral, and all such employment and
other agreements are set forth in Schedule 3.18 hereto. No person listed on
Schedule 3.18 has indicated that he or she intends to terminate his or her
employment with the Company or its Subsidiary or seek a material change in his
or her duties or status. Each person listed on Schedule 3.18 who is required to
be licensed by applicable state law in order to perform his or her duties is so
licensed. Set forth on Schedule 3.18 is the amount, if any, of any severance
liability of the Company or its Subsidiary with respect to each person listed on
Schedule 3.18.
3.19 Employee Benefits. Set forth on Schedule 3.19 is an
accurate and complete list of all plans within the meaning of the Employee
Retirement Income Security Act of 1974, as amended, 29 U.S.C. Section 1001 et
seq. ("ERISA") including, without limitation, all pension plans within the
meaning of ERISA Section 3(2)(A) ("Pension Plans"), deferred compensation, stock
purchase, stock option, incentive, bonus, vacation, severance, disability,
hospitalization, medical insurance, life insurance, fringe benefit, and other
employee benefit
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plans within the meaning of ERISA Section 3(1) ("Welfare Plans"), and all
obligations, customary practices or programs and arrangements, whether formal or
informal, oral or written, and whether or not legally enforceable which the
Company, its Subsidiary or any entity that, together with the Company and/or its
Subsidiary would be treated as a single employer under Code Section 414 or ERISA
Section 4001(b) (an "ERISA Affiliate") sponsors, maintains, participates in,
contributes to or is obligated to contribute to or under which past or present
employees, directors, contractors, service providers, agents and representatives
of the Company, its Subsidiary or ERISA Affiliate(s) may be entitled to benefits
or the Company, its Subsidiary ERISA Affiliate(s) may have any liability
(collectively, the "Plans"). Through the Closing Date, all such Plans shall be
maintained by the Company or its Subsidiary in full force and effect. Neither
the Company, its Subsidiary nor any ERISA Affiliate contributes, has contributed
or has ever been required to contribute, to any plan subject to Title IV of
ERISA or to any multiemployer plan, as defined in section 3(37) or section
4001(a)(3) of ERISA and no withdrawal liability has been or may be assessed
under Title IV of ERISA against the Company, its Subsidiary or ERISA
Affiliate(s) based on circumstances existing on or prior to the Closing Date.
Each Plan has been established and administered in accordance
with its terms and in full compliance with the applicable provisions of the
Code, ERISA and other applicable laws, rules and regulations, and all
obligations of the Company, its Subsidiary and ERISA Affiliate(s) with respect
to each Plan have been satisfied. Each Plan which is intended to be qualified
within the meaning of section 401(a) of the Code is so designated on Schedule
3.19 and is so qualified and has received a favorable determination letter from
the IRS with respect to its qualification and no event has occurred which would
cause the loss of such qualification. Each Plan which is intended to meet the
requirements for tax-favored treatment under Subchapter D of Chapter 1 of
Subtitle A of the Code meets such requirements in all material respects.
With respect to each Plan, no actions, suits or claims (other
than claims for benefits in the ordinary course) are pending or threatened, and
no facts or circumstances exist which could give rise to any such actions, suits
or claims. No reportable event (as defined in ERISA Section 404 and its
regulations) has occurred. Neither the Company, its Subsidiary or the Founders
has engaged in a prohibited transaction, as defined under section 4975 of the
Code or section 406 of ERISA, with respect to any Plan, and, to the Company's
Knowledge, no fiduciary with respect to any Plan has breached any fiduciary duty
to such Plan under Part 4 of Title I of ERISA or other applicable law. No event
has occurred and no condition exists that has subjected or would subject the
Company, its Subsidiary or ERISA Affiliate(s) to any tax, fine or penalty
imposed by the Code, ERISA or other applicable law. All required contributions
have been made timely by the Company to each of the Plans and there is no
funding deficiency with respect to any of the Plans. All required insurance
premiums or other funding obligations have been timely made in full with respect
to the Plans. Each Plan may be amended or terminated in accordance with its
terms without obligation or liability, other than those obligations and
liabilities for which specific assets have been set aside or reserved for on the
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balance sheet as of the Balance Sheet Date included in the Financial Statements
of the Company and those obligations and liabilities reflected by the terms of
the Plan documents. There are no unfunded obligations under any Plan providing
benefits to employees of the Company, its Subsidiary or ERISA Affiliate(s)
during employment or after termination of their employment. The consummation of
the Merger will not result in the payment, vesting or acceleration of any
benefit.
3.20 Insurance. The Company is, and will be through the Closing
Date, adequately insured with responsible insurers in respect of their
properties, assets and business against risks normally insured against by
companies in similar lines of business under similar circumstances. Schedule
3.20 correctly describes (by type, carrier, policy number, limits, premium and
expiration date) the insurance coverage carried by the Company and its
Subsidiary with respect to the Business, which insurance will remain in full
force and effect with respect to all events occurring prior to the Closing. The
Company and its Subsidiary (i) have not failed to give any notice or present any
claim under any such policy or binder in due and timely fashion, (ii) have not
received notice of cancellation or non-renewal of any such policy or binder,
(iii) are not aware of any threatened or proposed cancellation or non-renewal of
any such policy or binder and (iv) have not received notice of and are not
otherwise aware of any insurance premiums which will be materially increased in
the future. There are no outstanding claims under any such policy which have
gone unpaid for more than forty-five (45) days, or as to which the insurer has
disclaimed liability.
3.21 Transactions With Affiliates. Except as set forth in
Schedule 3.21 hereto and only with respect to transactions giving rise to
current or contingent liabilities of the Company or its Subsidiary, no current
or former holder of 5% or more of any class of capital stock of the Company or
its Subsidiary at the time such transaction was entered into, or any director,
officer or employee of the Company or its Subsidiary, or member of the family of
any such person, or any corporation, partnership, trust or other entity in which
any such person, or any member of the family of any such person, has an interest
or is an officer, director, trustee, partner or holder of any equity interest,
is a party to any transaction with the Company or its Subsidiary, including any
contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from, or
otherwise requiring payments or involving other obligations to or from.
3.22 Taxes. The Company and its Subsidiary have filed all Tax
returns and reports required to be filed, including, without limitation, returns
and estimated returns and have paid in full all taxes shown due thereon and all
estimated Tax when due (together with all interest, penalties, assessments and
deficiencies assessed in connection therewith due through the date hereof,
whether or not shown on any Tax return). Neither the Company nor its Subsidiary
is required to pay any other Tax except as shown in such Tax returns, reports
and information filings. All such returns, reports and information filings
required to be filed, including any amendments to date, have been prepared in
good faith and without negligence or
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misrepresentation and were correct and complete in all material respects. The
Company and its Subsidiary has either paid or, in accordance with GAAP applied
consistently with prior periods, adequately provided for, by reserves or other
proper accounting treatment shown in the records and books of account, its
liability for all Tax of every kind, for the current tax year and for all prior
years. The Company has no Knowledge of any proposed or threatened assessment or
reassessment of any Taxes. In addition, at the date hereof, the Company and its
Subsidiary have deducted and remitted all withholding tax or source deductions
when due to the appropriate governmental authority as required by Law or the
Company and its Subsidiary have adequately provided for such deductions by
reserves or other proper accounting treatment their books and records of
account. Neither the Company nor its Subsidiary (i) has executed any waiver to
extend, or otherwise taken or failed to take any action that would have the
effect of extending, the applicable statute of limitations with respect to its
Tax liabilities, (ii) is a "consenting corporation" within the meaning of
Section 341(f) of the Code, (iii) has been a member of any consolidated group
(other than with the Company and its Subsidiary) for Tax purposes or (iv) does
not have, or will fail to have, all records and information necessary for the
timely and accurate filing of any Tax returns due after the date hereof,
including any returns due after the Closing Date which relate to the period
prior to the Closing Date. Except as disclosed in Schedule 3.22, the Company has
been at all times taxable as a Subchapter S Corporation under the Code and has
filed all Tax returns consistent with this characterization. The Subsidiary is a
"Qualified Subchapter S Subsidiary" as defined under Section 1361(b)(3)(B) of
the Code, and the Company elected to treat the Subsidiary as such.
3.23 Brokers. Except as set forth on Schedule 3.23, no agent,
person or firm acting on behalf of the Company and its Subsidiary or under their
authority is or will be entitled to a financial advisory fee, brokerage
commission, finder's fee or like payment in connection with the transactions
contemplated hereby.
3.24 Environmental Laws.
(a) The Company and its Subsidiary have operated and continue
to operate the Centers and the Business in compliance in all material respects
with all Laws relating to (i) pollution or protection of the environment,
natural resources or human health from any Hazardous Substances (as hereinafter
defined) or (ii) nuisance, trespass or "toxic tort," including, without
limitation, Laws relating to emissions, discharges, releases or threatened
releases of any Hazardous Substance or otherwise relating to the manufacture,
processing, importation, distribution, use, generation, treatment, storage,
disposal, transportation or handling of any Hazardous Substance (collectively,
"Environmental Laws") where the failure to comply would have a material adverse
effect on the Company or its Subsidiary.
(b) To the Company's Knowledge, no Leased Premises nor any real
property contiguous thereto, is or has been designated by any state, local or
federal agency or body as
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a hazardous waste disposal site or a site or location requiring investigation
concerning, or management, clean-up or removal of, any Hazardous Substance.
(c) There is no civil, criminal or investigative action, suit,
litigation, hearing, communication (written or oral), demand, claim, citation,
notice or notice of violation, warning, consent decree, judgment or order by any
Person or Governmental Authority alleging, claiming, concerning or finding
liability or potential liability arising out of, based on or resulting from, in
whole or in part, (a) the actual or alleged presence, threatened release,
release, emission, disposal, storage, treatment, transportation, generation,
manufacture or use of any Hazardous Substance at or from any location or (b)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Laws (collectively, "Environmental Claims"), pending or threatened
against the Company or its Subsidiary or against any Person whose liability for
any Environmental Claim the Company or its Subsidiary has or may have retained
or assumed either contractually or by operation of Law. There are no past or
present actions, activities, circumstances, conditions, events, incidents or
practices, including, without limitation, the release, threatened release,
emission, discharge, disposal, storage, treatment, transportation, generation,
manufacture or use of any Hazardous Substance that could form the basis of any
Environmental Claim against the Company or its Subsidiary or, to the Company's
Knowledge, against any Person whose liability for any Environmental Claim the
Company or its Subsidiary has or may have retained or assumed either
contractually or by operation of Law.
(d) All Waste (as hereinafter defined) generated in connection
with the Business, operations, Assets and properties of the Company and its
Subsidiary has been (i) treated, stored or disposed of by or at facilities duly
licensed pursuant to applicable Environmental Laws and (ii) transported to such
facilities by transporters duly licensed pursuant to applicable Environmental
Laws. The Company has maintained true and complete records relating to the
generation, transportation, treatment, storage and disposal of Waste generated
in connection with the business, operations, assets and properties of the
Company and its Subsidiary.
(e) The Company has delivered to PHMX all environmental
inspection reports ("Environmental Reports") prepared by any person or entity
concerning compliance with applicable Environmental Laws of the Company's
Business, operations, assets or properties or the use, manufacture, importation,
processing, storage, treatment, transportation, release or disposal therefrom,
therein or thereon of any Hazardous Substance. All such Environmental Reports
are listed on Schedule 3.24.
3.25 Accounts Receivable. All of the accounts receivable of the
Company and its Subsidiary shown or reflected on the Balance Sheet in the
Company Financial Statements, less the reserve for doubtful accounts in the
amount shown on such Balance Sheet, are valid and enforceable claims and subject
to no set off or counterclaim, except for adjustments based on revisions to
study participation and enrollment in accordance with the applicable Clinical
Trial
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protocol. Except as set forth on Schedule 3.25, the Company has no accounts or
loans receivable from any of its directors, officers or employees.
3.26 SEC Filings. If PHMX is required by Nasdaq to seek the
approval of its stockholders prior to the consummation of the Merger, the
Company Financial Statements and other information relating to the Company
furnished in writing by the Company to PHMX for inclusion in the Proxy
Statement, at the time of the mailing of the Proxy Statement to PHMX's
stockholders and at the time of the meeting of PHMX's stockholders, will not
contain any untrue statement of a material fact or omit to state a material fact
concerning the Company or its Subsidiary or omit to state a material fact
required or necessary to be stated therein in order to make the statements
contained therein concerning the Company, in light of the circumstances under
which they are made, not misleading. Information relating to the Company and its
Subsidiary furnished in writing by the Company to PHMX for inclusion in any
registration statement or other voluntary or required filing pursuant to the
Securities Act or the Exchange Act (collectively, an "SEC Filing"), at the time
of filing with the SEC, will not contain any untrue statement of a material fact
or omit to state a material fact concerning the Company or its Subsidiary or
omit to state a material fact required or necessary to be stated therein in
order to make the statements contained therein concerning the Company or its
Subsidiary, in light of the circumstances under which they are made, not
misleading; except that the Company, the Founders, the Trustee and Mr. Heffernan
make no representation or warranty with respect to any statement, information or
omission relating to PHMX or its affiliates provided to the Company, the
Founders, the Trustee or Mr. Heffernan, either orally or in writing, for
inclusion in any SEC Filing.
3.27 Disclosure. All documents and schedules delivered or to be
delivered by or on behalf of the Company and its Subsidiary in connection with
this Agreement, the Merger and the transactions contemplated hereby are true,
complete and correct in all material respects. Neither this Agreement, nor any
Schedule or Exhibit to this Agreement contains any untrue statement of a
material fact or omits a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUISITION AND PHMX
Acquisition and PHMX jointly and severally represent and
warrant to the Company as follows:
4.1 Organization. Acquisition is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. PHMX is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware. PHMX owns all of the
issued and outstanding shares of capital stock of Acquisition.
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4.2 Power and Authority. Acquisition and PHMX each have full
corporate power and authority to carry on their businesses as now being
conducted and to own, operate and lease their respective properties in the
places where such businesses are now conducted and such properties are now
owned, leased or operated. This Agreement and the transactions contemplated
hereby have been duly approved by the Boards of Directors of Acquisition and
PHMX. Acquisition and PHMX each have full corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby, and
this Agreement and all other agreements to be executed and delivered by
Acquisition and PHMX in connection herewith constitute the legal, valid and
binding obligations of Acquisition and PHMX enforceable against them in
accordance with their respective terms.
4.3 No Violation. Neither the execution and delivery of this
Agreement and the other documents and instruments contemplated hereby, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement and such other documents and instruments in
compliance with the terms and conditions hereof and thereof will (i) conflict
with or result in any breach of any trust agreement, charter documents, by-law,
judgment, decree, order, statute or regulation applicable to Acquisition or
PHMX, (ii) require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, (iii) result
in a breach of or default (or give rise to any right of termination,
cancellation or acceleration) under any Law or any of the terms, conditions or
provisions of any mortgage, indenture, note, license, agreement or other
instrument to which Acquisition or PHMX is a party or (v) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Acquisition
or PHMX.
4.4 SEC Reports. PHMX has previously made available to the
Company an accurate and complete copy of each final registration statement,
prospectus, report, schedule and definitive proxy statement (including any
amendment or supplement thereto) filed since January 23, 1996 by PHMX with the
SEC pursuant to the Securities Act or the Exchange Act (the "PHMX Reports"), and
no such PHMX Report contained as of its date of filing with the SEC any untrue
statement of a material fact or omitted, as of its date of filing with the SEC,
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances in which they were
made, not misleading, except that information as of a later date shall be deemed
to modify information as of an earlier date. Schedule 4.4 contains a complete
list of all PHMX Reports. Since January 29, 1996, PHMX has timely filed all
reports, registration statements and other filings required to be filed with the
SEC under the Securities Act and the Exchange Act.
4.5 Broker. Except as set forth on Schedule 4.5, no agent,
broker, person or firm acting on behalf of Acquisition or PHMX or under its
authority is or will be entitled to a financial advisory fee, brokerage
commission, finder's fee or like payment in connection with any of the
transactions contemplated hereby.
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4.6 Proxy Statement. If a vote of the shareholders of PHMX is
required by Nasdaq prior to the Closing, the Proxy Statement to be mailed to
stockholders of PHMX in connection with the solicitation of proxies on behalf of
PHMX's Board of Directors for the meeting of stockholders of PHMX to be held to
seek the approval of this Agreement and the Merger (the "Proxy Statement"), at
the time of its mailing to such stockholders and at the time of such meeting,
will not contain any untrue statement of a material fact or omit to state a
material fact concerning PHMX or the Merger or omit to state a material fact
required or necessary to be stated therein in order to make the statements
contained therein concerning PHMX, or the Merger, in light of the circumstances
under which they are made, not misleading; except that, PHMX makes no
representation or warranty with respect to any statement, information or
omission relating to the Company or its affiliates provided to either orally or
in writing for inclusion in the Proxy Statement.
4.7 Disclosure. The representations and warranties made by
Acquisition and PHMX in this Agreement do not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained herein, in light of the circumstances in which they are made, not
misleading.
4.8 Form S-3. As of the date hereof, the Company is eligible
under the Securities Act to file a registration statement registering PHMX
Common Stock on Form S-3.
ARTICLE V
COVENANTS OF THE COMPANY
The Company, each of the Founders, the Trustee and Mr.
Heffernan covenant and agree with Acquisition and PHMX as follows:
5.1 Best Efforts Cooperation. Until the Closing, the Company
shall use its best efforts in good faith to perform and fulfill, or cause to be
performed and fulfilled, all conditions and obligations to be fulfilled, or
performed by it hereunder, to the end that the transactions contemplated hereby
will be fully and timely consummated; provided, however, if and to the extent
that the Board of Directors of the Company determines in its good faith
judgment, based upon the written advice of outside counsel, that its fiduciary
duties under applicable Delaware Law require such action, the Company and each
officer, director, employee, consultant, advisor, agent or investment banker of
the Company and its Subsidiary may, in response to unsolicited requests, provide
information concerning the Company and the Business, and participate in
discussions and negotiate with any other corporation, partnership, person or
other entity or group concerning a proposal for any merger, sale of all or
substantially all of the assets of the Company, or other transaction involving
the transfer of effective control of the Company (an "Alternative Transaction").
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5.2 Access. Until the Closing, the Company shall give
Acquisition and PHMX, and their attorneys, accountants and other authorized
representatives complete access, upon reasonable notice and at reasonable times,
to the Company's and its Subsidiary's offices, suppliers, employees, business
and financial records, contracts, business plans, budgets and projections,
agreements and commitments and other documents and information concerning the
Business and persons employed by or doing business with the Company and its
Subsidiary, except such documents covered by the attorney-client privilege. In
order that Acquisition and PHMX may have full opportunity to make such
examination and investigation as they may desire of the Business, the Company
and its Subsidiary will furnish Acquisition and PHMX and their representatives
during such period with all such information as such representatives may
reasonably request and cause the respective officers, employees, consultants,
agents, accountants and attorneys of the Company and its Subsidiary to cooperate
fully with the representatives of Acquisition and PHMX in connection with such
review and examination and to make full disclosure to Acquisition and PHMX of
all material facts affecting the Company's financial condition and the
operations, properties and prospects of the Business; provided, however, that
Acquisition and PHMX will, unless the Closing occurs, hold the documents and
information concerning the Company and the Business confidential in accordance
with Section 7.6 hereof.
5.3 Insurance. Until the Closing, the Company and its
Subsidiary shall maintain with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated.
5.4 Compliance with Laws. Until the Closing, the Company shall
conduct the Business in compliance with all applicable Laws.
5.5 Keeping of Books and Records. Until the Closing, the
Company shall keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied, reflecting
all financial transactions and in which all proper reserves for depreciation,
depletion, obsolescence, amortization, taxes, bad debts and other purposes in
connection with the Business shall be made.
5.6 Conduct of Business. Prior to the Effective Time, unless
Acquisition shall have consented in writing thereto, the Company:
(a) shall, and shall cause its Subsidiary to, conduct its
operations according to its usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(b) shall use its reasonable efforts, and shall cause its
Subsidiary to use its reasonable efforts, to preserve intact its
business organization and goodwill, keep
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available the services of its officers and employees, and maintain
satisfactory relationships with those persons having business
relationships with it;
(c) shall not, and shall not permit its Subsidiary to, amend
its Certificate of Incorporation or By-laws, except as provided for in
this Agreement;
(d) shall promptly notify Acquisition of any material emergency
or other material change in its or its Subsidiary's condition
(financial or otherwise), business, properties, assets, liabilities,
prospects or the Ordinary Course of Business of it or its Subsidiary or
in the operation of its or its Subsidiary's properties and of any
litigation or governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated);
(e) shall not, and shall not permit its Subsidiary to, (i)
except pursuant to the exercise of options, warrants, conversion rights
and other contractual rights existing on the date hereof and listed on
Schedule 3.3, issue any shares of its capital stock, effect any stock
split or otherwise change its capitalization as it exists on the date
hereof, (ii) grant, confer or award any option, warrant, conversion
right or other right to acquire any shares of its capital stock not
existing on the date hereof and listed on Schedule 3.3, (iii)
accelerate the vesting or exercisability of any option, warrant,
conversion right or other right to acquire any shares of its capital
stock, (iv) increase, or permit any of its Subsidiary to increase, any
compensation or enter into or amend any employment agreement with any
of its present or future officers, directors or employees except for
the payment of cash bonuses to officers, directors or employees
pursuant to and consistent with existing plans or programs described on
Schedules 3.18 and 3.19, (v) adopt any new employee benefit plan
(including any stock option, stock benefit or stock purchase plan) or
amend any existing employee benefit plan in any respect or (vi) sell,
lease or otherwise dispose of any of its assets which are material,
individually or in the aggregate, except in the Ordinary Course of
Business;
(f) shall not, and shall not permit its Subsidiary to, (i)
incur or obligate itself to incur any capital expenditure in excess of
$50,000, incur any long-term indebtedness in addition to that
outstanding on the date hereof or any other indebtedness or liability
other than in the Ordinary Course of Business; (ii) make any loans,
advances or capital contributions to, or investments in, any other
person, other than travel or other advances to employees consistent
with past practice; or (iii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently, or
otherwise) for the obligations of any other Person, except to endorse
checks for collection or deposit in the Ordinary Course of Business;
provided, however, that the Company is permitted to incur such
indebtedness as is necessary to satisfy the Company's Subchapter S tax
liability for the year ended December 31, 1996 and the Stub Period
Subchapter S Tax Liability (as defined herein);
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(g) declare or pay any dividend or distribution on any shares
of its capital stock, other than with respect to and to the extent of
the Company Shareholders' aggregate Subchapter S tax liability for the
year ended December 31, 1996 and the Stub Period Subchapter S Tax
Liability; or
(h) agree, or permit its Subsidiary to agree, in writing or
otherwise to take any of the foregoing actions or any action that would
make any representation or warranty in this Agreement untrue or
incorrect as of the date hereof or as of the Effective Time, as if made
as of such time.
5.7 Litigation. Until the Closing, the Company will promptly
notify Acquisition of any lawsuits, claims, proceedings or investigations which
are threatened or commenced against or by the Company and its Subsidiary or
their affiliates, or against any employee, consultant or director of the Company
or its Subsidiary.
5.8 Continued Effectiveness of Representations and Warranties.
From the date hereof up to and including the Closing Date, (i) the Company and
its Subsidiary will conduct the Business in a manner such that the
representations and warranties contained herein shall continue to be true and
correct on and as of the Closing Date as if made on and as of the Closing Date,
except for changes and events arising as a consequence of the Merger, or actions
in the Ordinary Course of Business after the date hereof which would not have an
adverse effect on the properties, assets, operations or condition (financial or
otherwise) or prospects of the Business; and (ii) the Company will advise
Acquisition promptly in writing of any condition or circumstance occurring from
the date hereof up to and including the Closing Date which could cause any
representations or warranties of the Company to become untrue.
5.9 No Negotiations. Until the Closing, or the earlier
termination of this Agreement in accordance with its terms, the Company and each
officer, director, employee, consultant, advisor, agent or investment banker of
the Company and its Subsidiary shall not, directly or indirectly, initiate,
solicit or continue discussions with, engage in negotiations with, or provide
any information to any corporation, partnership, person or other entity or group
involving the possible sale, directly or indirectly, transfer or joint venture
of any part of the Business or the stock or assets of the Company or its
Subsidiary to any person or entity other than Acquisition; provided, however, if
and to the extent that the Board of Directors of the Company determines in its
good faith judgment, based upon the written advice of outside counsel, that its
fiduciary duties under applicable Delaware law require such action, upon written
notice to PHMX, the Company and each officer, director, employee, consultant,
advisor, agent or investment banker of the Company and its Subsidiary may, in
response to unsolicited requests, provide information concerning the Company or
the Business, participate in discussions and negotiate with any other
corporation, partnership, person or other entity or group concerning an
Alternative Transaction.
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5.10 Monthly Statements; Daily Census. Until the Closing, the
Company will deliver to PHMX (i) monthly financial statements for the Company
and each Center within thirty (30) days after the end of each month and (ii)
weekly patient census reports for each Center for the preceding business week.
5.11 Covenant Not To Compete. For a period of five (5) years
following the Closing Date, each of the Founders covenants and agrees that
neither of them nor any affiliate, directly or indirectly, (i) shall engage or
become interested in, as owner, employee, partner, through stock ownership
(except for ownership of less than one (1) percent interest of any class of
securities which are listed for trading on a national securities exchange),
investment of capital, lending of money or property, rendering of services or
otherwise, either alone or in association with others, in the operation,
management or supervision of any type of business or enterprise which is engaged
conduct substantially similar to the Business within one hundred (100) miles of
any Center or any future facility or location at which PHMX or the Surviving
Corporation conduct the Business or (ii) solicit any employee of the Business
employed (other than an executive officer of the Company) to leave the Company's
employ or negotiate for the employment of any such employee. Notwithstanding the
foregoing, nothing contained in this Section 5.11 shall prohibit either of the
Founders from (i) engaging in academic research and writing, whether or not he
receives compensation therefor, involving reviewing, analyzing and interpreting
the results of clinical tests performed by others solely for publication in
scholarly journals; provided, however, that under no circumstances may either
Founder be actively or passively involved in the conduct of any Clinical Trials
in competition with PHMX or any of its subsidiaries, including, without
limitation, the Surviving Corporation, (ii) undertaking the clinical testing of
a medical or therapeutic device developed or conceived by the Founders.
5.12 Non-Disturbance Agreements. The Company shall use its best
efforts to obtain and deliver to Acquisition at the Closing non-disturbance
agreements executed and delivered by each mortgagee of each Leased Premises
listed on Schedule 3.11, in form and substance satisfactory to Acquisition.
5.13 Further Assurances. The Company will use its best efforts
to have all present officers and directors of the Company and its Subsidiary
execute whatever minutes of meetings or other instruments and take whatever
action as may be necessary or desirable to effect, perfect or confirm of record
of otherwise, in the Surviving Corporation, full right, title and interest in
and to the Business, properties and assets now conducted or owned by the
Company, free and clear of all restrictions, liens, encumbrances, rights, title
and interests in others, or to collect, realize upon, gain possession of, or
otherwise acquire full right, title and interest in and to such business,
properties and assets, or to carry out the intent and purposes of the
transactions contemplated hereby.
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5.14 Certain Agreements. Neither the Company nor its Subsidiary
will agree to do or cause to be done any of the acts which the Company has
covenanted not to do under this Article V.
5.15 Pension, Profit Sharing and other Retirement Plans. The
Company shall have commenced the termination or suspension of its Plans.
ARTICLE VI
COVENANTS OF ACQUISITION AND PHMX
6.1 Best Efforts Cooperation. Acquisition and PHMX covenant and
agree that they shall use their best efforts in good faith to perform and
fulfill all conditions and obligations to be fulfilled or performed by them
hereunder to the end that the transactions contemplated hereby will be fully and
timely consummated.
6.2 Registration of PHMX Common Stock. In accordance with and
subject to the terms of the Registration Agreement and the Shareholder Agreement
(as defined herein), PHMX covenants and agrees to file with the SEC within two
(2) business days following the Closing Date a Registration Statement on Form
S-3 concerning the resale of the Merger Consideration and to use its best
efforts to diligently pursue the registration of the resale of the Merger
Consideration with the SEC under the Securities Act.
6.3 Special Report on Form 8-K. Upon consummation of the
Merger, promptly following the first calendar month of combined operations of
the Company and PHMX (the "Combined Operations"), but in no event more than
forty-five (45) days after such calendar month, PHMX shall file a Special Report
on Form 8-K (the "Special Report") with the SEC reporting the results of the
Combined Operations; provided, however, that if pursuant to this Section 6.3,
PHMX would be obligated to file a Special Report less than two (2) weeks prior
to its filing with the SEC of a Quarterly Report on Form 10-Q, then PHMX may, at
its option, file the results of the Combined Operations on such Quarterly Report
on Form 10-Q in lieu of the Special Report, and shall thereby be deemed to have
satisfied its obligations pursuant to this Section 6.3.
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ARTICLE VII
MUTUAL COVENANTS
7.1 General Covenants. Following the execution of this
Agreement, Acquisition, PHMX and the Company agree:
(a) If any event should occur, either within or without the
knowledge or control of any party, which would prevent fulfillment of
the conditions to the obligations of any party hereto to consummate the
transactions contemplated by this Agreement, to use its or their
reasonable efforts to cure the same as expeditiously as possible;
(b) To cooperate fully with each other in preparing, filing,
prosecuting, and taking any other actions which are or may be
reasonable and necessary to obtain the consent of any governmental
instrumentality or any third party to accomplish the transactions
contemplated by this Agreement;
(c) To deliver such other instruments of title, certificates,
consents, endorsements, assignments, assumptions and other documents or
instruments, in form reasonably acceptable to the party requesting the
same and its counsel, as may be reasonably necessary to carry out
and/or to comply with the terms of this Agreement and the transactions
contemplated herein;
(d) To confer on a regular basis with the other, report on
material operational matters and promptly advise the other orally and
in writing of any change or event resulting in, or which, insofar as
can reasonably be foreseen could result in, a Material Adverse Change
on such party or which would cause or constitute a material breach of
any of the representations, warranties or covenants of such party
contained herein;
(e) To file all reports required to be filed by each of them or
their affiliates with the Commission between the date hereof and the
Closing Date and to deliver to the other (or its counsel) copies of all
such reports promptly after the same are filed; and
(f) To promptly provide the other (or its counsel) with copies
of all other filings made by such party with any state or federal
governmental entity in connection with this Agreement or the
transactions contemplated hereby.
7.2 Proxy Statement. Following the execution of this Agreement
and if PHMX is required by Nasdaq to seek shareholder approval of the Merger,
Acquisition, PHMX, the Company, the Founders and Mr. Heffernan agree:
(a) PHMX shall use its best efforts in good faith to prepare
and file with the SEC, within thirty (30) days after the date hereof,
the Proxy Statement;
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(b) PHMX, Acquisition and the Company shall take any action
required to be taken under the Delaware Law and the laws, rules and
regulations of the SEC in connection with the consummation of the
transactions contemplated by this Agreement;
(c) The Company, each of the Founders and Mr. Heffernan shall
cooperate in the preparation and filing of the Proxy Statement and all
information furnished for use therein by either party shall be
reasonably satisfactory to the other; provided, however, that neither
party shall have any liability to the other or to any third party for
any information contained therein which is furnished in writing by the
other party for inclusion in the Proxy Statement;
(d) Prior to the approval of the Merger by PHMX's shareholders,
the Company shall correct any material information provided by it to be
used in the Proxy Statement that shall have become false or misleading
in any material respect and PHMX shall take all steps necessary to file
with the SEC and have cleared by the SEC any amendment or supplement to
the Proxy Statement and to cause the same as so corrected to be
disseminated to the shareholders of PHMX, to the extent required by
applicable law; provided, however, that prior to the dissemination
thereof, (i) PHMX and the Company shall consult with each other with
respect to such amendment or supplement and (ii) PHMX shall afford the
Company with a reasonable opportunity to comment on disclosure relating
to the Company or its affiliates and shall ensure that such disclosure
is reasonably satisfactory to the Company; and
(e) PHMX and the Company shall promptly furnish to each other
all information, and take such other actions as may reasonably be
requested in connection with any action by either of them in
furtherance of the provisions of this Section 7.2.
7.3 Shareholder Approval. If PHMX is required by Nasdaq to seek
shareholder approval of this Agreement and the Merger, PHMX shall promptly
submit this Agreement and the transactions contemplated herein for the approval
of its shareholders at a meeting of shareholders. Subject to the fiduciary
duties of the Board of Directors of PHMX under applicable law, the Board of
Directors of PHMX has agreed to recommend to its shareholders approval of the
Merger.
7.4 Public Announcements. PHMX, Acquisition and the Company
will consult with each other before issuing, and provide each other the
opportunity to review and comment upon, any press release or other public
statements with respect to the transactions contemplated by this Agreement,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law (including any fiduciary duty of disclosure), court process or
the rules and regulations of The National Market. The parties agree that the
initial press release or releases to be issued with
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respect to the transactions contemplated by this Agreement shall be mutually
agreed upon prior to the issuance thereof.
7.5 Confidentiality. As used herein, "Confidential Information"
means any information or data that a party has acquired from another party that
is confidential or not otherwise available to the public, whether oral or
written, including without limitation any analyses, computations, studies or
other documents prepared from such information or data by or for the directors,
officers, employees, agents or representatives of such party (collectively, the
"Representatives"), but excluding information or data which (i) the party can
demonstrate it lawfully obtained or developed prior to January 1, 1997, (ii)
became available to the public other than as a result of such party's violation
of this Agreement, (iii) became available to such party from a source other than
the other party if that source was not bound by a confidentiality agreement with
such other party and such source lawfully obtained such information or data, or
(iv) is required to be disclosed by applicable law, provided that promptly after
being compelled to disclose any such information or data, the party being so
compelled shall provide prompt notice thereof to the other party so that such
other party may seek a protective order or other appropriate remedy. Each party
covenants and agrees that it and its Representatives shall keep confidential and
shall not disclose any Confidential Information, except to its Representatives
and lenders who need to know such information and agree to keep it confidential.
Each party shall be responsible for any breach of this provision by its
Representatives. In the event that the Closing does not occur, each party will
promptly return to the other all copies of such other party's Confidential
Information.
7.7 Additional Covenants of the Founders, Mr. Heffernan and the
Trustee.
(a) Between the date hereof and the Closing Date, none of Dr.
Brown, Dr. Rothman, Mr. Heffernan or the Trustee shall sell or dispose or agree
to sell or dispose in any manner of any shares of Company Common Stock owned
directly or indirectly by such Founder as of the date hereof.
(b) Each of Dr. Brown, Dr. Rothman, Mr. Heffernan and the
Trustee hereby agrees to vote such Founder's respective shares of Company Common
Stock in favor of the Merger, at a meeting of the Company Shareholders to
approve the Merger or by written consent in accordance with Delaware Law, and
prior or subsequent thereto shall take such other and further action as may be
necessary or desirable to effectuate the Merger and the other transactions
contemplated by the Agreement.
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ARTICLE VIII
CONDITIONS TO PHMX' AND ACQUISITION'S OBLIGATIONS
The obligation of Acquisition and PHMX to consummate the
transactions contemplated hereby is subject to the satisfaction, on or before
the Closing Date, of the following conditions each of which may be waived by
Acquisition in its sole discretion.
8.1 Representations and Warranties True. All of the
representations and warranties of the Company, Heffernan, the Founders and the
Trustee contained in this Agreement or in any Schedules or other documents
attached hereto or referred to herein or delivered pursuant hereto or in
connection with the transactions contemplated hereby qualified by materiality
shall be true, correct and complete and those not so qualified shall be true,
correct and complete in all material respects on and as of the date hereof and
on and as of the Closing Date, as if made on and as of the Closing Date. On the
Closing Date, the Chairman of the Board or President of the Company shall have
executed and delivered to Acquisition a certificate, in form and substance
satisfactory to Acquisition and its counsel, to such effect.
8.2 Performance. The Company, Heffernan, the Founders and the
Trustee shall have performed and complied with all covenants and agreements
contained herein required to be performed or complied with by them prior to or
at the Closing Date. The Chairman of the Board or President of the Company shall
have executed and delivered to Acquisition a certificate, in form and substance
satisfactory to Acquisition and its counsel, to such effect and to the further
effect that all of the conditions set forth in this Article VIII have been
satisfied.
8.3 Consents. The Company, Heffernan, the Founders and the
Trustee shall have obtained all requisite approvals and consents of, and made
all requisite filings with, all Governmental Authorities and third parties which
are necessary to be obtained or made to (i) permit the valid execution, delivery
and performance by the Company of this Agreement, including, without limitation,
the Merger, and (ii) prevent any Permit or agreement relating to the Business
from terminating prior to its scheduled termination as a result of the
consummation of the transactions contemplated hereby. In addition, Acquisition
and PHMX shall have received or obtained all Permits from any Governmental
Authority or any third party necessary as a result of the Merger, and any appeal
period with respect to the same shall have expired without an objection thereto
having been filed.
8.4 No Material Adverse Change. No Material Adverse Change with
respect to the Company or its Subsidiary shall have occurred or be threatened.
8.5 No Actions, Suits or Proceedings. As of the Closing Date,
no action, suit, investigation or proceeding brought by any Governmental
Authority shall be pending or, to the knowledge of the parties to this
Agreement, threatened, before any Governmental Authority (i) to restrain,
prohibit, restrict or delay, or to obtain damages or a discovery order in
respect of
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this Agreement or the consummation of the of the Merger, (ii) which has resulted
or may result in a Material Adverse Change with respect to the Company or its
Subsidiary or (iii) which has or may adversely affect the operation of the
Business or has or may result in the imposition of liability on the Company or
its Subsidiary. No order, decree or judgment of any Governmental Authority shall
have been issued and remain in effect at the Closing restraining, prohibiting,
restricting or delaying, the consummation of the transactions contemplated by
this Agreement. No insolvency proceeding of any character including, without
limitation, bankruptcy, receivership, reorganization, dissolution or arrangement
with creditors, voluntary or involuntary, affecting the Company or its
Subsidiary shall be pending, and neither the Company nor its Subsidiary shall
have taken any action in contemplation of, or which would constitute the basis
for, the institution of any such proceedings.
8.6 Opinion of Counsel. PHMX shall have received the opinion of
counsel to the Company by a law firm satisfactory to PHMX in the form set forth
as Exhibit 8.6 hereto.
8.7 Accountants. Acquisition shall have received from the
Company's independent public accountants, a certificate or letter, dated the
Closing Date, or, in the case of Sansiveri, Kimball & McNamee, L.L.P., dated
subsequent to the date hereof, but no later than the Closing Date, to the effect
that, such accountants will consent to the inclusion or incorporation of its
report on the audited financial statements of the Company for the years ended
December 31, 1994, 1995 and 1996 in any SEC Filing, subject to such accountants
normal due diligence procedures for such a consent.
8.8 SEC Determination of Pooling of Interests. Acquisition
shall have received the prior written approval of the SEC to the effect that the
Merger will qualify for "pooling of interests" accounting treatment in
accordance with the applicable accounting requirements, rules and regulations of
the SEC (the "Pooling Approval").
8.9 Approval of Acquisition and Its Counsel. All actions,
proceedings, consents, instruments and documents required to be delivered by, or
at the behest or direction of, the Company hereunder or incident to its
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to Acquisition and its counsel.
8.10 Closing Documents. The Company shall have delivered all of
the resolutions, certificates, documents and instruments required by this
Agreement, including without limitation:
(a) Resolutions of the Boards of Directors and shareholders of
the Company, certified by the Secretary of the Company, and other
evidence satisfactory to Acquisition that the requisite consent of the
Board of Directors and the Company Shareholders has been obtained;
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(b) Certificates of Good Standing with respect to the Company
and its Subsidiary issued by the Secretary of State of its state of
incorporation and of any state where it is qualified to do business as
a foreign corporation;
(c) Copies of the charter documents and By-laws of the Company
and its Subsidiary certified by the Secretary of State of its state of
incorporation and by its secretary;
(d) Resignations of all officers and directors of the Company
and its Subsidiary effective as of the Effective Time; and
(e) Estoppel Certificates from the lessors under each of the
Leases in form and substance satisfactory to Acquisition.
8.11 Fairness Opinion. PHMX shall have received the written
opinion of Wessels, Arnold & Henderson, L.L.C. addressed to the Board of
Directors of PHMX prior to the Closing to the effect that, as of the date of
such opinion, the Merger Consideration is fair from a financial point of view to
PHMX, and as of the Closing Date, such opinion shall not have been withdrawn.
8.12 Corporate Approvals. This Agreement and the Merger
contemplated hereby shall have been approved by the Board of Directors of PHMX
by no later than July 24, 1997 and, if required by The Nasdaq National Market,
by a vote of the stockholders of PHMX.
8.13 Dissenting Shareholders. Holders of shares of Company
Common Stock representing nine percent (9.0%) or more of the outstanding shares
of Company Common Stock shall not have demanded appraisal for their shares in
accordance with Delaware Law.
8.14 Minimum Net Worth. On the Closing Date, the Company and
its Subsidiary shall have a combined net worth of not less than $4,888,370 plus
income earned from the period beginning January 1, 1997 through the Closing Date
(the "Stub Period"), less (i) the Company Shareholders' aggregate Subchapter S
tax liability, (which Subchapter S tax liability shall not exceed $1,800,000 for
the year ended December 31, 1996), (ii) the actual tax liability incurred by the
Founders, Heffernan and the beneficiaries of the Trusts for the Stub Period (the
"Stub Period Subchapter S Tax Liability") and (iii) the Deductible Expenses;
provided, however, that if the Deductible Expenses exceed $8,955,362, the
Aggregate Share Pool shall be reduced by a number equal to the amount by which
the Deductible Expenses exceed $8,955,362 divided by the ACPPS; provided,
however, that if the Deductible Expenses are less than $8,955,362, the Aggregate
Share Pool shall be increased by a number equal to the amount by which the
Deductible Expenses are less than $8,955,362 divided by the ACPPS.
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8.15 Mendels Release. PHMX, Acquisition and the Company shall
have received a full and complete release from Dr. Joseph Mendels ("Mendels")
and CNS Consultants, Ltd., a Pennsylvania corporation ("CNS"), for any claim
from the beginning of time through the Merger and the Closing thereof arising
from any agreement, either orally or in writing, between or among any party to
this Agreement and Mendels and CNS.
ARTICLE IX
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligation of the Company to consummate the transactions
contemplated hereby is subject to the satisfaction, on or before the Closing
Date, of the following conditions, each of which may be waived by the Company in
its sole discretion:
9.1 Representations and Warranties to be True and Correct. The
representations and warranties contained in Article IV shall be true, complete
and correct, on and as of the Closing Date, as if made on and as of such date,
and Acquisition shall have delivered to the Company a certificate, in form and
substance satisfactory to the Company and its counsel, to such effect.
9.2 No Actions, Suits or Proceedings. As of the Closing Date,
no action, suit, investigation or proceeding brought by any governmental agency
or instrumentality shall be pending or, to the knowledge of the parties to this
Agreement, threatened, before any court or governmental body to restrain,
prohibit, restrict or delay, or to obtain damages or a discovery order in
respect of this Agreement or the consummation of the transactions contemplated
hereby. No order, decree or judgment of any court or governmental body shall
have been issued and remain in effect at the Closing restraining, prohibiting,
restricting or delaying, the consummation of the transactions contemplated by
this Agreement. No insolvency proceeding of any character including without
limitation, bankruptcy, receivership, reorganization, dissolution or arrangement
with creditors, voluntary or involuntary, affecting Acquisition shall be
pending, and Acquisition shall not have taken any action in contemplation of, or
which would constitute the basis for, the institution of any such proceedings.
9.3 Opinion of Acquisition's Counsel. The Company shall have
received from Nutter, McClennen & Fish, LLP, an opinion dated as of the Closing
Date substantially in the form of Exhibit 9.3 hereto.
9.4 Performance. Acquisition shall have performed and complied
with all agreements contained herein required to be performed or complied with
by it prior to or at the Closing Date, and Acquisition shall have delivered a
certificate to the Company, in form and substance reasonably satisfactory to the
Company and its counsel to such effect.
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9.5 Closing Documents. Acquisition shall have delivered all of
the resolutions, certificates, documents and instruments required to be
delivered by it by this Agreement, including the Registration Agreement.
9.6 Approval of the Company and their Counsel. All actions,
proceedings, consents, instruments and documents required to be delivered by, or
at the behest or direction of, Acquisition hereunder or incident to its
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Company and its counsel.
9.7 No Material Adverse Change. No Material Adverse Change with
respect to PHMX shall have occurred or be threatened.
9.8 Employees of the Company. In connection with the employment
by PHMX of certain employees of the Company following the Closing, the
Compensation Committee of PHMX shall have approved, contingent upon the Closing,
the grant of incentive stock options to the individuals, in the amounts and
subject to the terms set forth on Exhibit 9.8 and all such options shall be
granted by the Company at the Effective Time.
ARTICLE X
MUTUAL CONDITIONS
The respective obligation of each party to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
10.1 No Injunctions or Restraints; Illegality. No order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the Merger
or any of the transactions contemplated by this Agreement shall be in effect. No
statute, rule, regulation, order, injunction or decree shall have been enacted,
entered, promulgated or enforced by any Governmental Entity which prohibits,
restricts or makes illegal consummation of the Merger or any of the transactions
contemplated by this Agreement.
10.2 Pooling of Interests. Acquisition and the Company shall
have received a letter from Coopers & Lybrand, L.L.P. & Deloitte & Touche LLP,
respectively, dated not earlier than five (5) days prior to the Closing Date, to
the effect that the Merger will qualify for "pooling of interests" accounting
treatment in accordance with GAAP and the applicable requirements of the SEC.
10.3 Shareholder Agreement. Each of the Company Shareholders
shall enter into an agreement in the form attached hereto as Exhibit 10.3 (the
"Shareholder Agreement"), prior to the delivery of the Merger Consideration,
providing, among other things, that such
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Company Shareholder shall not sell any shares of PHMX Common Stock acquired
pursuant to this Agreement until the results of the first thirty (30) days
combined operations of PHMX and the Company have been filed with the SEC
following the Closing and that such Company Shareholder is an "accredited
investor" as such term is defined in Rule 501(a) of the Securities Act.
10.4 Registration of Merger Consideration Post-Closing. If, as
of the Closing Date, the issuance of the shares of PHMX Common Stock pursuant to
this Agreement are not registered under the Securities Act, PHMX and each
Company Shareholder shall enter into a registration agreement, in the form
attached hereto as Exhibit 10.4 (the "Registration Agreement"), granting to each
Company Shareholder demand and piggyback registration rights with respect to the
Merger Consideration on a registration statement on Form S-3 under the
Securities Act.
10.5 No Material Adverse Economic Event. There shall not have
occurred (i) any general suspension of trading in, or limitation on prices for,
or other extraordinary event affecting securities on the New York Stock Exchange
or The Nasdaq National Market, (ii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iii) any
material limitation (whether or not mandatory) by any Governmental Authority on,
or any other event which might affect the extension of credit by, lending
institutions, or (iv) in the case of any of the foregoing existing on the date
hereof, a material acceleration or worsening thereof.
ARTICLE XI
SURVIVAL
Notwithstanding any investigation made by any party to this
Agreement, all covenants, agreements, representations and warranties (a) in
Article III made by any of the Company, its Subsidiary, each Founder, the
Trustee and Mr. Heffernan and (b) in Article IV made by any of PHMX and
Acquisition, shall survive the Closing or the termination of this Agreement
until thirty (30) days following the completion of the audit of the Company's
1997 fiscal year by the independent public accountants of PHMX (the "1997
Audit"). No representation, warranty and agreement of the parties set forth in
this Agreement or any of the rights and remedies of the other party for any one
or more breach thereof shall survive subsequent to thirty (30) days following
the completion of the 1997 Audit.
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ARTICLE XII
INDEMNIFICATION
12.1 Indemnification by the Company, the Founders, the Trustee
and Mr. Heffernan.
(a) Subject to the limits set forth in this Article XII and
solely with respect to matters asserted (even though not resolved) within the
period specified in Article XI, each of the Founders, the Trustee and Mr.
Heffernan, and, if the Merger is not consummated by the Termination Date, the
Company and its Subsidiary, jointly agree to indemnify, defend and hold PHMX and
Acquisition (each a "Indemnified PHMX Party") harmless from and in respect of
any and all Adverse Consequences that such Indemnified PHMX Party may suffer
through and after the date of the claim for indemnification arising out of or
due to any of the below-listed items up to an amount equal to the number of
shares of PHMX Common Stock issued to the Company Shareholders pursuant to this
Agreement multiplied by the Average Closing Price Per Share; provided, however,
that there shall be no limit as to the amount for which indemnification may be
sought with respect to any Taxes unpaid by the Company or any act of fraud by
the Company, the Founders, the Trustee or Mr. Heffernan. Liability among each of
the Founders, the Trustee and Mr. Heffernan, pursuant to this Article XII, shall
be pro rata based upon the number of shares of PHMX Common Stock received or to
be received pursuant to this Agreement. The items for which PHMX and Acquisition
shall be entitled to indemnification under Section 12.1(a) are:
(i) the inaccuracy of any representation contained herein or
the breach of any warranty contained herein in each case made as of the
date of this Agreement by the Company, any of its Subsidiary, or any of
the Founders, including any inaccuracy in the Schedules delivered by
the Company and the Founders pursuant to Article III hereof (the "CSL
Disclosure Schedule") or omission of a fact from the CSL Disclosure
Schedule that would be necessary to make the CSL Disclosure Schedule
not misleading;
(ii) the inaccuracy of any representation contained herein or
the breach of any warranty contained herein in each case made as of the
Closing Date by the Company or its Subsidiary, including any inaccuracy
in the CSL Disclosure Schedule or omission of a fact from the CSL
Disclosure Schedule that would be necessary to make the CSL Disclosure
Schedule not misleading, if the facts underlying such inaccuracy or
breach (had they been disclosed) would been sufficient, individually or
in the aggregate with the facts underlying all other such breaches,
inaccuracies or omissions, to cause a failure of a closing condition
set forth in any of subsections 8.1 or 8.2; and
(iii) the breach of any covenant, undertaking or agreement of
the Company or its Subsidiary contained in this Agreement, which breach
has not been cured within fifteen (15) days after the Company's receipt
of written notice thereof from the
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Indemnified PHMX Party (or, if such breach is not reasonably capable of
cure within fifteen (15) days, within a reasonable time under the
circumstances (not to exceed forty-five (45) days, provided that the
Company is making diligent efforts to effect such cure);
provided, however, that the Company, the Subsidiary, the Founders, the Trustee
and Mr. Heffernan shall have no obligation to indemnify an Indemnified PHMX
Party from, against or in respect of any Adverse Consequences until such
Indemnified PHMX Party has suffered Adverse Consequences by reason of all
breaches and other indemnified matters aggregating in excess of $100,000 (the
"Threshold Amount"), but if and at all times after an Indemnified PHMX Party has
suffered Adverse Consequences aggregating in excess of the Threshold Amount, the
Company, its Subsidiary and the Founders, the Trustee and Mr. Heffernan shall
indemnify the Indemnified PHMX Party for the full amount of such Adverse
Consequences incurred above and beyond the Threshold Amount.
12.2 Indemnification by PHMX.
(a) Subject to the limits set forth in this Article XII and
solely with respect to matters asserted (even though not resolved) within the
period specified in Article XI, PHMX agrees to indemnify, defend and hold the
Company, the Founders, the Trustee and Mr. Heffernan (each a "Indemnified CSL
Party") harmless from and in respect of any and all actual Adverse Consequences
that such Indemnified CSL Party may suffer through and after the date of the
claim for indemnification arising out of or due to any of the below-listed items
up to an amount equal to the number of shares of PHMX Common Stock issued to the
Company Shareholders pursuant to this Agreement multiplied by the Average
Closing Price per share. The items for which the Company, the Founders, the
Trustee and Mr. Heffernan shall be entitled to indemnification under Section
12.2(a) are:
(i) the inaccuracy of any representation contained herein or
the breach of any warranty contained herein in each case made as of the
date of this Agreement by PHMX or Acquisition, including any inaccuracy
in the Schedules delivered by PHMX or Acquisition pursuant to Article
IV hereof (the "PHMX Disclosure Schedule") or omission of a fact from
the Disclosure Schedule that would be necessary to make the Disclosure
Schedule not misleading;
(ii) the inaccuracy of any representation contained herein or
the breach of any warranty contained herein in each case made as of the
Closing Date by PHMX or Acquisition, including any inaccuracy in the
PHMX Disclosure Schedule or omission of a fact from the Disclosure
Schedule that would be necessary to make the Disclosure Schedule not
misleading, if the facts underlying such inaccuracy or breach (had they
been disclosed) would been sufficient, individually or in the aggregate
with the facts underlying all other such breaches, inaccuracies or
omissions, to cause a failure of a closing condition set forth in any
of subsections 9.1 or 9.2; and
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(iii) the breach of any covenant, undertaking or agreement of
PHMX or Acquisition contained in this Agreement, which breach has not
been cured within fifteen (15) days after PHMX' receipt of written
notice thereof from the Indemnified CSL Party (or, if such breach is
not reasonably capable of cure within fifteen (15) days, within a
reasonable time under the circumstances (not to exceed forty-five (45)
days, provided that PHMX is making diligent efforts to effect such
cure);
provided, however, that PHMX shall have no obligation to indemnify an
Indemnified CSL Party from, against or in respect of any Adverse Consequences
until such Indemnified CSL Party has suffered actual Adverse Consequences by
reason of all breaches and other indemnified matters aggregating in excess of
$100,000 (the "Threshold Amount"), but if and at all times after an Indemnified
CSL Party has suffered actual Adverse Consequences aggregating in excess of the
Threshold Amount, PHMX shall indemnify the Indemnified CSL Party for the full
amount of such actual Adverse Consequences incurred above and beyond the
Threshold Amount.
12.3 Indemnification Procedures.
(a) An Indemnified CSL Party or an Indemnified PHMX Party (each
an "Indemnified Party") seeking indemnification pursuant to this Article XII
shall give notice to the party from whom such indemnification is sought (the
"Indemnifying Party") specifying in reasonable detail the basis for and the
indemnification sought and the amount of Adverse Consequences suffered by the
Indemnified Party. Not less than twenty (20) business days after receipt of such
demand from the Indemnified Party, the Indemnifying Party shall notify the
Indemnified Party in writing whether it agrees that indemnification is required
pursuant to this Article XII and whether it agrees with the Indemnified Party's
calculation of its Adverse Consequences. If following the receipt of such
response the parties continue to disagree, each party shall be free to seek any
remedy available to it at law or in equity. If the parties contest a claim for
indemnification in any adjudicatory proceeding, all Expenses of the prevailing
party or parties shall be borne by the other party or parties.
(b) An Indemnified Party's knowledge prior to Closing of any
inaccuracy or breach of any representation, warranty or covenant made or to be
performed by the Company, the Subsidiary, the Founders or Mr. Heffernan shall
not limit the Indemnified Party's rights to indemnification under this Agreement
if the Merger is consummated.
(c) The items or matters set forth on each section of the CSL
Disclosure Schedule and the PHMX Disclosure Schedule (collectively, the
"Disclosure Schedule"), or excepted by the text of a given representation or
warranty, shall qualify or be excepted from only the representations and
warranties contained in the Section of this Agreement to which such Disclosure
Schedule section specifically applies or in which such exception is written, and
such disclosure or exception of said item or matter shall not constitute a
disclosure or exception for
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purposes of any other Section of this Agreement unless specifically referenced
in such other Section.
12.4 Indemnification Concerning Mendels. Notwithstanding
anything to the contrary contained in this Agreement, the Founders, Heffernan
and the Trustee jointly and severally, without limit as to amount or duration,
agree to indemnify defend and hold harmless PHMX, Acquisition and the Company
from and in respect of any and all Adverse Consequences that such Indemnified
PHMX Party or the Company may suffer through and after the date of the claim for
indemnification arising out of or due to any claim whatsoever by Dr. Joseph
Mendels or CNS or the breach by Dr. Mendels or CNS of any agreement executed in
connection with the Merger or this Agreement. This Section 12.1(b) shall survive
the Closing of the Merger indefinitely and shall not be limited in amount and no
threshold level with respect to any Adverse Consequences need be attained before
a claim by PHMX or the Company be made for indemnification under this Section
12.1(b).
ARTICLE XIII
TERMINATION
13.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Closing:
(a) By mutual written consent duly authorized by the Board of
Directors of Acquisition and the Company;
(b) By Acquisition or the Company if the Average Closing Price
Per Share is less than or equal to Twelve Dollars ($12.00);
(c) By Acquisition or the Company if
(i) any Governmental Authority of competent jurisdiction
shall have issued an order, decree or ruling, or taken
any other action, permanently restraining, enjoining
or otherwise prohibiting the transactions contemplated
by this Agreement, provided that no termination shall
be permitted under this paragraph unless the party
seeking such termination shall have used its
reasonable best efforts to oppose such issuance or
taking; or
(ii) the other party commits any material breach of its
representations, warranties or covenants set forth
herein and such breach has not been cured within seven
(7) days after notice is given to terminate this
Agreement as a result of such breach;
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(d) By Acquisition or the Company, on or after October 15,
1997 (the "Termination Date"); provided, however, that, notwithstanding
the previous waiver by Nasdaq of its shareholder approval requirement,
if Nasdaq subsequently requires PHMX to seek the approval of its
shareholders of this Agreement and the transactions contemplated
hereby, that the Termination Date shall be extended to such date not
later than January 31, 1998, provided that (i) PHMX files its Proxy
Statement with the SEC twenty-one (21) days following the Termination
Date, (ii) PHMX mails to its stockholders the Proxy Statement one (1)
week after it receives written approval by the SEC of its Proxy
Statement and other Proxy Materials (the "Mailing Date"), and (iii)
PHMX holds the meeting of its shareholders to approve the Merger no
later than thirty (30) days following the Mailing Date. If PHMX fails
to meet the requirements of clause (i), (ii) or (iii) of the
immediately preceding sentence, the Company, may, at its option,
terminate the Agreement.
Upon the occurrence of any of the events specified in this
Section 13.1 (other than paragraph (a) hereof), written notice of such event
shall forthwith be given to the other parties to this Agreement, whereupon this
Agreement shall terminate and the Merger shall be abandoned.
13.2 Effect of Termination. In the event of the termination of
this Agreement and abandonment of the Merger pursuant to Section 13.1:
(a) This Agreement, except for the provisions of Section 7.6
and Articles XI, XII, XIII and XIV, shall forthwith become void and be
of no effect, without any liability on the part of any party or its
affiliates, directors, officers or shareholders; provided that nothing
in this Section 13.2(a) shall relieve any party to this Agreement of
liability for breach of this Agreement; and
(b) In the event that the Agreement is terminated as a result
of (i) the failure of the shareholders of the Company to approve the
Merger, and the Company sells all or a part of the assets or stock of
the Business to a third party or merges with a third party within
twelve (12) months after such termination, (ii) the refusal of the
Company to consummate the Merger for any reason other than the failure
of a condition to Closing set forth in Article IX (except a failure
resulting from the actions specified in clause (i)) or the action of
the Company pursuant to Section 13.1(e), or (iii) the action of the
Company pursuant to Section 13.1(e), PHMX at its option may elect (X)
to seek specific performance of this Agreement or any other equitable
remedies available to it, provided
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that the Agreement is terminated for the reason set forth in clause
(ii) above, or (Y) to have the Company pay, and in such event the
Company shall pay on demand, to PHMX Three Million Dollars ($3,000,000)
as full and complete liquidated damages, it being specifically
understood and agreed that in the event of such a termination the
damages suffered by PHMX will be difficult to ascertain.
(c) In the event that the Agreement is terminated by PHMX or
Acquisition for a reason other than a failure of a condition to Closing
set forth in Articles VIII or X, and PHMX and/or Acquisition or any
affiliate thereof within twelve (12) months acquires a controlling
interest in any third party site management or clinical research
organization or other company performing functions substantially
similar to the Business of the Company, or a hybrid of such types of
companies, PHMX shall pay on demand to the Company Three Million
Dollars ($3,000,000) as full and complete liquidated damages, it being
specifically understood and agreed that in the event of such a
termination the damages suffered by the Company will be difficult to
ascertain.
ARTICLE XIV
MISCELLANEOUS
14.1 Certain Definitions. As used in this Agreement, the
following terms shall have the respective meanings set forth below:
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses, and
including costs of environmental investigations and/or cleanups ordered by
federal, state, local, or foreign governments (or any agencies thereof), all as
offset by any net tax benefit to the party so affected.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Alternative Transaction" has the meaning provided in Section 5.1.
"Average Closing Price Per Share" or "ACPPS" has the meaning provided
in Section 1.5.
"Balance Sheet Date" has the meaning provided in Section 3.8.
"Balance Sheet" has the meaning provided in Section 3.6.
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RIDER A
"Certificate" has the meaning provided in Section 1.6.
"Claim" means liability, claim, assessment, security interest, lien,
restriction, encumbrance, or right, title or interest in others.
"Clinical Trials" means the administration and testing of certain
pharmaceutical and other forms of therapies on human subjects in order to
determine the efficacy of such treatments, and any other activities incidental
thereto.
"Closing" has the meaning provided in Section 2.1.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended to date.
"Company Financial Statements" has the meaning provided in Section 3.6.
"Company Proprietary Asset" has the meaning provided in Section 3.13.
"Company Shareholders" has the meaning provided in Section 1.6.
"Confidential Information" has the meaning provided in Section 7.6.
"Contracts" has the meaning provided in Section 3.14.
"Conversion Rate" means the number of shares of PHMX Common Stock
composing the Merger Consideration divided by 900,039.51.
"CNS" had the meaning provided in Section 8.15.
"Deductible Expenses" shall be equal to (I) any and all fees and
expenses of Joseph Anton, Incorporated, James P. Redding & Associates, Deloitte
& Touche LLP, Hutchins, Wheeler & Dittmar, P.C., and Sansiveri, Kimball &
McNamee, L.L.P., in connection with the preparation and negotiation of, and
services performed in connection with, the Letter of Intent dated March 12, 1997
between the Company and PHMX, this Agreement and the Merger, as of the last
business day prior to the Closing, plus a good faith estimate of such expenses
to be incurred in connection with the Closing, plus (II) the Mendels' Expense
plus (III) $250,000.
"Disclosure Schedule" means the schedules referenced in Articles III
and IV of this Agreement and that are attached hereto.
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"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including, without limitation, any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"ERISA" has the meaning provided in Section 3.19.
"Environmental Laws" means, collectively, the Clean Air Act, the Clean
Water Act, the Resource Conservation and Recovery Act of 1976, the Hazardous
Materials Transportation Act, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Emergency Planning and Community
Right-to-Know Act or any other federal, state or local environmental law.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
including the rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles.
"Governmental Authority" means any federal, state or municipal court
and any other governmental or public department, commission, board, bureau,
agency, authority or instrumentality, domestic or foreign.
"Hazardous Substance" means any chemical, pollutant, contaminant, waste
(including, without limitation, toxic, hazardous, infectious, sanitary, solid,
radioactive and petroleum waste collectively, "Waste"), toxic substance,
hazardous substance, extremely hazardous substance, hazardous material,
radioactive material, oil and petroleum product, as such terms, or any similar
terms, are or shall be used under any applicable laws relating to pollution or
protection of the environment, natural resources or human health.
"IRS" means the Internal Revenue Service.
"Knowledge" means the actual knowledge of one or more of Dr. Michael
Rothman, Dr. Walter Brown, Michael Heffernan, Donald Palazini or any person not
named above who constitutes an "Executive Officer" of the Company for purposes
of the Securities Act.
"Law" means all federal, state, local and foreign laws, regulations,
rules, ordinances, permits (including, without limitation, authorizations,
approvals, registrations and licenses), administrative and other orders,
judicial decisions or the like.
"Leased Premises" has the meaning provided in Section 3.11.
"Leases" has the meaning provided in Section 3.11.
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"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Material Adverse Change" has the meaning provided in Section 3.9.
"Mendels" has the meaning provided in Section 8.15.
"Mendels' Expense" means the amount, valued using the ACPPS, of any
settlement agreement between the parties to this Agreement, Mendels and CNS.
"Nasdaq" means The Nasdaq National Market.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Permits" has the meaning provided in Section 3.12.
"Person" means an individual, a partnership, a corporation, a firm, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof), or any other legally recognized entity.
"Plan" has the meaning provided in Section 3.19.
"Pooling Approval" has the meaning provided in Section 8.8.
"Proprietary Asset" means any (a) patent, patent application, trademark
(whether registered or unregistered), trademark application, trade name,
fictitious business name, service mark (whether registered or unregistered),
service mark application, copyright (whether registered or unregistered),
copyright application, mask work, mask work application, trade secret, know-how,
confidential information, customer list, franchise, system, computer software,
computer program, invention, design, blueprint, engineering drawing, proprietary
product, technology, proprietary right or other intellectual property right or
intangible asset; or (b) license or right to use or exploit any of the
foregoing.
"Proxy Statement" has the meaning provided in Section 4.5.
"Registration Agreement" has the meaning provided in Section 10.5
"SEC" means the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shareholder Agreement" has the meaning provided in Section 10.4.
"Stub Period Subchapter S Tax Liability" has the meaning provided in
Section 8.16.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Sec. 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Trusts" means The Alexander Rothman 1993 Qualified Sub-Chapter S Trust
and The Julie Rothman 1993 Qualified Sub-Chapter S Trust.
14.2 Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) made by telex,
telecopy or facsimile transmission with a confirmatory copy by regular mail,
(iii) sent by recognized overnight courier or (iv) sent by registered or
certified mail, return receipt requested, postage prepaid.
If to Acquisition or PHMX:
PhyMatrix Corp.
777 South Flagler Drive, Suite 1000E
West Palm Beach, FL 33401
Attn: Alberto Hernandez, Esq.
Facsimile telephone number: (561) 833-7175
with a copy to:
Michael J. Bohnen, Esq.
Nutter, McClennen & Fish, LLP
One International Place
Boston, MA 02110-2699
Facsimile telephone number: (617) 973-9748
If to the Company or Mr. Heffernan:
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Clinical Studies, Ltd.
2 Charles Street
Providence, RI 02904
Attn: Michael T. Heffernan
Facsimile telephone number: (401) 831-6758
With a copy to:
Frederick H. Grein, Jr., Esq.
Andrew J. Hayden, Esq.
Hutchins, Wheeler & Dittmar, PC
101 Federal Street
Boston, MA 02110
Facsimile telephone number: (617) 951-1295
James P. Redding, Esq.
Redding & Associates
170 Westminster Street
Providence, RI 02903
Facsimile telephone number: (401) 751-0031
If to Dr. Brown:
101 Driftwood Drive
Tiverton, RI 02878
If to Dr. Rothman or the Trustee:
37 Grayson Lane
Newton Lower Falls, MA 02162
Facsimile telephone number: (617) 332-5914
All notices, requests, consents and other communications hereunder shall be
deemed to have been properly given (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service or (iv) if sent by registered or
certified mail, on the fifth business day following the day such mailing is
made.
14.3 Entire Agreement. This Agreement together with the
Exhibits and Schedules hereto and the other documents executed and to be
executed in connection herewith
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(together, the "Documents") embodies the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings relating to
the subject matter hereof. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in the Documents shall affect, or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement.
14.4 Modifications and Amendments. The terms and provisions of
this Agreement may be modified or amended only by written agreement executed by
all parties hereto.
14.5 Waivers and Consents. No failure or delay by a party
hereto in exercising any right, power or remedy under this Agreement, and no
course of dealing between the parties hereto, shall operate as a waiver of any
such right, power or remedy of the party. No single or partial exercise of any
right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand. The terms and provisions of this Agreement may be waived,
or consent for the departure therefrom granted, only by written document
executed by the party entitled to the benefits of such terms or provisions. No
such waiver or consent shall be deemed to be or shall constitute a waiver or
consent with respect to any other terms or provisions of this Agreement, whether
or not similar. Each such waiver or consent shall be effective only in the
specific instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
14.6 Assignment. Neither this Agreement, nor any right
hereunder, may be assigned by any of the parties hereto without the prior
written consent of the other parties; provided, however, Acquisition may assign
this Agreement to any of its affiliates which it controls, is controlled by or
is under common control with.
14.7 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their permitted
assigns, and nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement. Nothing in this Agreement shall be
construed to create any rights or obligations except among the parties hereto,
and no person or entity shall be regarded as a third-party beneficiary of this
Agreement.
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14.8 Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
governed by the internal laws of the State of Delaware, without giving effect to
the conflict of law principles thereof.
14.9 Jurisdiction and Service of Process. Any legal action or
proceeding with respect to this Agreement may be brought in the courts of the
Commonwealth of Massachusetts or the State of Delaware, or of the United States
of America for the District of Massachusetts or the District of Delaware. By
execution and delivery of this Agreement, each of the parties hereto accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The parties hereby irrevocably waive any
objection or defense that they may now or hereafter have to the assertion of
personal jurisdiction by any such court in any such action or to the laying of
the venue of any such action in any such court, and hereby waive, to the extent
not prohibited by law, and agree not to assert, by way of motion, as a defense,
or otherwise, in any such proceeding, any claim that it is not subject to the
jurisdiction of the above-named courts for such proceedings. Each of the parties
hereto irrevocably consents to the service of process of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered mail, postage prepaid, to the party at its address set
forth in Section 13.2 hereof and irrevocably waives any objection or defense
that it may now or hereafter have to the sufficiency of any such service of
process in any such action. Nothing in this Section 13.9 shall affect the rights
of the parties to commence any such action in any other forum or to serve
process in any such action in any other manner permitted by law.
14.10 Severability. In the event that any court of competent
jurisdiction shall finally determine that any provision, or any portion thereof,
contained in this Agreement shall be void or unenforceable in any respect, then
such provision shall be deemed limited to the extent that such court determines
it enforceable, and as so limited shall remain in full force and effect. In the
event that such court shall determine any such provision, or portion thereof
wholly unenforceable, the remaining provisions of this Agreement shall
nevertheless remain in full force and effect.
14.11 Interpretation. The parties hereto acknowledge and agree
that: (i) each party and its counsel reviewed and negotiated the terms and
provisions of this Agreement and have contributed to its revision; (ii) the rule
of construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (iii) the terms and provisions of this Agreement shall be construed fairly
as to all parties hereto and not in favor of or against any party, regardless of
which party was generally responsible for the preparation of this Agreement.
14.12 Headings and Captions. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only and
shall in no way
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modify, or affect, or be considered in construing or interpreting the meaning or
construction of any of the terms or provisions hereof.
14.13 Choice of Remedies and Enforcement. The parties shall be
entitled to pursue any and all remedies available to them, in law or in equity,
in the event of a breach of this Agreement. Each of the parties hereto
acknowledges and agrees that the rights acquired by each party hereunder are
unique and that irreparable damage would occur in the event that any of the
provisions of this Agreement to be performed by the other party were not
performed in accordance with their specific terms or were otherwise breached.
Accordingly, in addition to any other remedy to which the parties hereto are
entitled at law or in equity, each party hereto shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement by the other
party and to enforce specifically the terms and provisions hereof in any federal
or state court to which the parties have agreed hereunder to submit to
jurisdiction.
14.14 Expenses. Except as provided elsewhere herein, each of
the parties hereto shall pay its own fees and expenses (including the fees of
any attorneys, accountants, appraisers or others engaged by such party) in
connection with this Agreement and the transactions contemplated hereby whether
or not the transactions contemplated hereby are consummated.
14.15 Counterparts. This Agreement may be executed in one or
more counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, Acquisition, PHMX and the Company have executed
this Agreement as of the day and year first above written.
Attest: CLINICAL STUDIES LTD.
/s/ Walter Brown By: /s/ Michael T. Heffernan
- --------------------------------- ---------------------------------
Walter Brown, Secretary Title: Chief Executive Officer
Attest: PHYMATRIX ACQUISITION I, INC.
/s/ Albert Hernandez By: /s/ Robert A. Miller
- --------------------------------- ---------------------------------
Albert Hernandez, Secretary Title: President
Attest: PHYMATRIX CORP.
/s/ Albert Hernandez By: /s/ Robert A. Miller
- --------------------------------- ---------------------------------
Albert Hernandez, Secretary Title: President
Witness:
/s/ /s/ Michael Rothman
- --------------------------------- ---------------------------------
Michael Rothman
Witness:
/s/ /s/ Walter Brown
- --------------------------------- ---------------------------------
Walter Brown
Witness:
/s/ /s/ Michael T. Heffernan
- --------------------------------- ---------------------------------
Michael T. Heffernan
-52-
<PAGE>
SIGNATURE PAGE CON'T:
Witness:
/s/ /s/ Ronald Philips, as Trustee
- --------------------------------- ---------------------------------
Ronald Phillips, as Trustee of
The Alexander Rothman 1993
Qualified Sub-Chapter S Trust
Witness:
/s/ /s/ Ronald Philips, as Trustee
- --------------------------------- ---------------------------------
Ronald Phillips, as Trustee of
The Julie Rothman 1993
Qualified Sub-Chapter S Trust
-53-
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
333-03853 on Form S-8, No. 333-31973 on Form S-3, No. 333-08269 on Form S-3 and
No. 333-09187 on Form S-4 of PhyMatrix Corp. of our report dated May 28, 1997
(relating to the combined financial statements of Clinical Studies Ltd. and
Clinical Marketing Ltd.) appearing in this Form 8-K Current Report of PhyMatrix
Corp.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 1, 1997
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
333-03853 on Form S-8, No. 333-31973 on Form S-3, No. 333-08269 on Form S-3 and
No. 333-09187 on Form S-4 of PhyMatrix Corp. of our report dated April 14, 1997
(except for Note 7, which is dated April 23, 1997) (relating to the financial
statements of Clinical Studies Ltd.) appearing in this Form 8-K Current Report
of PhyMatrix Corp.
SANSIVERI, KIMBALL & McNAMEE, L.L.P.
Providence, Rhode Island
October 2, 1997
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