<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 10-Q
------------
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended October 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from to
------- -------
Commission file number 0-27568
INNOVATIVE CLINICAL SOLUTIONS, LTD.
(Exact name of registrant as specified in its charter)
Delaware 65-0617076
(State of incorporation) (I.R.S. Employer Identification No.)
10 Dorrance Street, Suite 400, Providence, Rhode Island 02903
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 831-6755
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such Reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
On December 7, 1999, the number of outstanding shares of the
registrant's Common Stock, par value $0.01 per share, was 32,003,429.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets October 31, 1999 (unaudited) and January 31, 3
1999
Consolidated Statements of Operations (unaudited) Three and Nine Months 4
Ended October 31, 1999 and 1998
Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended 5
October 31, 1999 and 1998
Notes to Consolidated Financial Statements (unaudited) Three and Nine 6-13
Months Ended October 31, 1999 and 1998
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 14-22
Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
</TABLE>
<PAGE>
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INNOVATIVE CLINICAL SOLUTIONS, LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1999 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 38,017 $ 10,137
Receivables:
Accounts receivable, net 27,994 15,276
Income tax refund receivable - 10,789
Other receivables 7,082 6,760
Notes receivable 12,819 5,060
Prepaid expenses and other current assets 878 1,260
Assets held for sale 12,512 100,795
-------- --------
Total current assets 99,302 150,077
Property, plant and equipment, net 11,352 11,024
Notes receivable 8,628 7,274
Goodwill, net 28,936 41,007
Management service agreements, net 8,381 28,167
Other assets (including advances to shareholder) 2,328 15,302
-------- --------
Total assets $ 158,927 $ 252,851
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of debt and capital leases $ 16,055 $ 12,192
Accounts payable 13,954 13,602
Accrued compensation 2,088 1,475
Accrued and other current liabilities 15,520 11,623
-------- --------
Total current liabilities 47,617 38,892
Long-term debt less current maturities 4,375 5,465
Convertible subordinated debentures 100,000 100,000
Other long-term liabilities 2,063 1,191
Minority interest 673 1,403
-------- --------
Total liabilities 154,728 146,951
Commitments and contingencies
Shareholders' equity:
Common stock, par value $.01, 40,000 shares authorized,
33,387 and 33,344 shares issued at October 31, 1999
and January 31, 1999 respectively, 32,003 and 32,916
shares outstanding at October 31, 1999 and January 31,
1999, respectively 320 329
Treasury stock (2,674) (1,202)
Additional paid in capital 224,782 224,715
Accumulated deficit (218,229) (117,942)
-------- --------
Total shareholders' equity 4,199 105,900
-------- --------
Total liabilities and shareholders' equity $ 158,927 $ 252,851
========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------ -----------------
1999 1998 1999 1998
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net revenues from services $ 28,429 $ 42,563 $ 108,953 $ 141,140
Net revenues from management service agreements 15,895 24,812 45,500 79,746
Net revenues from real estate services 47 571 434 8,616
-------- -------- --------- ---------
Total revenue 44,371 67,946 154,887 229,502
-------- -------- --------- ---------
Operating costs and administrative expenses:
Salaries, wages and benefits 13,195 23,029 48,847 69,873
Professional fees 4,689 3,943 14,111 11,549
Supplies 9,930 15,016 34,706 44,047
Utilities 1,240 1,412 3,586 4,125
Depreciation and amortization 2,287 3,827 9,099 10,971
Rent 3,222 5,369 11,921 15,037
Provision for bad debts 463 2,393 2,127 4,282
Provision for writedown of notes receivable - 2,674 - 2,674
Gain on sale of assets - 7 - (5,415)
Nonrecurring expenses - - 15,825 5,305
Other - primarily capitation expense 17,182 22,612 58,406 66,502
-------- -------- --------- ---------
Total operating costs and administrative
expenses 52,208 80,282 198,628 228,950
-------- -------- --------- ---------
Interest expense, net 2,207 1,608 6,925 5,254
Income from investment in affiliates (58) (154) (58) (588)
-------- -------- --------- ---------
2,149 1,454 6,867 4,666
-------- -------- --------- ---------
Loss before provision for income taxes
and extraordinary item (9,986) (13,790) (50,608) (4,114)
Income tax expense (benefit) (53) (4,671) 47 (1,499)
-------- -------- --------- ---------
Net loss before extraordinary item (9,933) (9,119) (50,655) (2,615)
Extraordinary item - (51,552) (49,632) (51,552)
-------- -------- --------- ---------
Net loss $ (9,933) $ (60,671) $ (100,287) $(54,167)
======== ========= ========== =========
Net loss per share - basic
Loss before extraordinary item $ (0.28) $ (0.27) $ (1.41) $ (0.08)
Extraordinary item $ - $ (1.54) $ (1.38) $ (1.55)
Net loss $ (0.28) $ (1.81) $ (2.79) $ (1.63)
Net loss per share - diluted
Loss before extraordinary item $ (0.28) $ (0.27) $ (1.41) $ (0.08)
Extraordinary item $ - $ (1.54) $ (1.38) $ (1.55)
Net loss $ (0.28) $ (1.81) $ (2.79) $ (1.63)
Weighted average shares outstanding - basic 35,583 33,548 35,929 33,245
======= ======= ======= ======
Weighted average shares outstanding - diluted 35,583 33,548 35,929 33,245
======= ======= ======= ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
-----------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (100,287) $ (54,167)
Noncash items included in net income:
Depreciation and amortization 9,099 10,971
Extraordinary item 49,632 49,444
Gain on sale of assets - (5,415)
Nonrecurring charges 14,204 4,401
Amortization of debt issuance costs 1,193 796
Writedown of notes receivable - 2,674
Other (59) 667
Changes in receivables (4,785) (3,074)
Changes in accounts payable and accrued liabilities 795 (5,403)
Changes in other assets 12,492 (1,724)
------- -------
Net cash used by operating activities (17,716) (830)
------- -------
Cash flows from investing activities:
Capital expenditures (4,593) (4,556)
Sale of assets 51,171 5,125
Notes receivable, net 1,344 (2,028)
Other - (109)
Acquisitions, net of cash acquired (1,404) (10,958)
------- -------
Net cash provided (used) by investing activities 46,518 (12,526)
------- -------
Cash flows from financing activities:
Advances to shareholder - (3,116)
Proceeds from issuance of common stock - 130
Proceeds from issuance of debt 21,709 -
Offering costs and other 28 (215)
Repayment of debt (21,188) (8,245)
Purchase of treasury stock (1,471) (497)
------- -------
Net cash used by financing activities (922) (11,943)
------- -------
Increase (decrease) in cash and cash equivalents $ 27,880 $ (25,299)
========== ==========
Cash and cash equivalents, beginning of period $ 10,137 $ 49,536
========== ==========
Cash and cash equivalents, end of period $ 38,017 $ 24,237
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
include the accounts of Innovative Clinical Solutions, Ltd. ("the Company" or
"ICSL") (formerly PhyMatrix Corp.). These interim consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles and the requirements of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is management's opinion that the
accompanying interim financial statements reflect all adjustments (which are
normal and recurring) necessary for a fair presentation of the results for the
interim periods. These interim financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended January 31, 1999.
Operating results for the three and nine months ended October 31, 1999 are not
necessarily indicative of results that may be expected for the year.
2. SIGNIFICANT EVENTS
During May 1998, the Company announced that the Board of Directors had
instructed management to explore various strategic alternatives for the Company
that could maximize stockholder value. During August 1998, the Company announced
that the Board of Directors approved several strategic alternatives to enhance
stockholder value. The Board authorized a series of initiatives designed to
reposition the Company as a significant company in pharmaceutical contract
research, specifically clinical trials site management and outcomes research.
The Company intends to link its nationally focused hospital affiliations and its
physician networks with its clinical trials site management and healthcare
outcomes research operations.
During August 1998, the Board approved, consistent with achieving its
stated restructuring goal, its plan to divest and exit the Company's
physician practice management ("PPM") business and certain of its ancillary
services businesses, including diagnostic imaging, lithotripsy and radiation
therapy. Subsequent to August 1998, the Company also decided to divest its
home health business and exit its infusion therapy business. During second
quarter ended July 31, 1999, the Company also decided to terminate an
additional physician practice management agreement, divest its investments in
a surgery center and a network of physicians, and sell its real estate
service operations. Net loss for the nine months ended October 31, 1998 and
net loss for the nine months ended October 31, 1999 includes an extraordinary
item of $51.6 million (net of tax benefit of $8.4 million) and $49.6 million
(net of tax of $0), respectively, which is primarily a non-cash charge
related to these divestitures. In accordance with APB 16, the Company is
required to record these charges as an extraordinary item since impairment
losses are being recognized for divestitures and disposals expected to be
completed within two years subsequent to a pooling of interests (the pooling
of interests with Clinical Studies, Ltd. ("CSL") was effective October 15,
1997). Based on fair market value estimates, which have primarily been
derived from purchase agreements, letters of intent, letters of interest and
discussions with prospective buyers, the Company currently expects to realize
net proceeds of approximately $12.5 million (subsequent to October 31, 1999
approximately $7.7 million was realized, prior to the payment of retained
liabilities of approximately $3.0 million) from the sale of the remaining
businesses identified to be divested or disposed and has recorded this amount
as an asset held for sale on the balance sheet at October 31, 1999.
As part of the Company's repositioning, management continues to explore
options to align the Company's capital structure with its current operations
and growth strategy. On December 1, 1999, the Company retained Donaldson,
Lufkin & Jenrette Securities Corporation as its financial advisors to assist
the Company in evaluating a possible capital restructuring as well as
industry consolidation opportunities.
-6-
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)
3. SUPPLEMENTAL CASH FLOW INFORMATION
During the nine months ended October 31, 1998 the Company acquired the
assets and/or stock, entered into management and employment agreements,
and/or assumed certain liabilities of various ancillary service companies,
networks and organizations and sold certain assets. During the nine months
ended October 31, 1999 and 1998, the Company also made contingent payments
and issued shares of stock which had been committed to be issued in
conjunction with acquisitions. During the nine months ended October 31, 1999,
the Company terminated several physician management and employment
agreements, and sold certain ancillary service companies. The transactions
had the following non-cash impact on the balance sheets of the Company as of
the indicated dates:
<TABLE>
<CAPTION>
October 31,
---------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
Current Assets $ (80,392) $ 73,465
Property, plant and equipment 75 (33,418)
Intangibles (26,873) (86,138)
Other noncurrent assets (485) 7,958
Current liabilities (5,722) (7,063)
Noncurrent liabilities 1,512 (196)
Debt (1,649) (10,784)
Equity 49,562 (27,216)
</TABLE>
During the nine months ended October 31, 1998, the Company sold real estate
and a radiation therapy center. These sales resulted in gains of $4.5 million
and $0.9 million, respectively.
4. ASSETS HELD FOR SALE
During the year ended January 31, 1999, the Board approved, consistent
with its stated restructuring goal, its plan to divest and exit the Company's
PPM business and certain of its ancillary services businesses, including
diagnostic imaging, lithotripsy, radiation therapy, home health and infusion
therapy. During the nine months ended, October 31, 1999, the Company also
decided to terminate an additional physician practice management agreement,
divest its investments in a surgery center and a network of physicians, and
sell its real estate service operations. During the nine months ended October
31, 1999, the Company exited its infusion therapy business, divested seven
physician practices, terminated its relationship with several employed
physicians and sold eight radiation therapy centers, its diagnostic imaging
division, its remaining lithotripsy business, its real estate service
operations, and its investment in a diagnostic imaging center. Subsequent to
October 31, 1999, the Company divested two physician practices. Based on fair
market value estimates, which estimates were primarily derived from purchase
agreements, letters of intent, letters of interest or discussions with
prospective buyers, the Company currently expects to realize net proceeds of
approximately $12.5 million (subsequent to October 31, 1999 approximately
$7.7 million was realized, prior to the payment of retained liabilities of
$3.0 million) from the sale of the remaining businesses identified to be
divested or disposed and has recorded this amount as an asset held for sale
on the balance sheet at October 31, 1999.
5. NONRECURRING CHARGE
The $15.8 million charge during the nine months ended October 31, 1999
(which was recorded during the second quarter) is comprised of a $14.1
million impairment charge for a management service organization and a
physician practice management agreement and $1.7 million primarily
representing additional severance costs in conjunction with the sale of
assets and the repositioning of the Company. During the nine months ended
October 31, 1998, the Company terminated several of its physician management
and
-7-
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)
employment agreements, which resulted in a charge of approximately $5.3
million during the second quarter. The charge is composed primarily of the
write-off of the remaining intangible assets as well as severance and legal
costs.
6. REVOLVING LINE OF CREDIT
During March 1999, the Company entered into a $30.0 million revolving
line of credit, which has a three-year term and availability, based upon
eligible accounts receivable. The line of credit bears interest at prime plus
1.0% and fees are 0.0875%. Approximately $9.2 million of proceeds from the
new line of credit were used to repay the previous line of credit, and
approximately $2.0 million were used as cash collateral for a $2.0 million
letter of credit. The line of credit is secured by the assets of the Company,
limits the ability of the Company to incur certain indebtedness and make
certain dividend payments and requires the Company to comply with other
customary covenants. Proceeds from asset sales must be used to repay the line
of credit to the extent the sold assets included eligible accounts
receivable. As of October 31, 1999, there was $14.3 million outstanding under
the line of credit, which is included in the current portion of debt and
capital leases.
7. TREASURY STOCK
The Board of Directors of the Company authorized a share repurchase plan
pursuant to which the Company may repurchase up to $15.0 million of its
Common Stock from time to time on the open market at prevailing market
prices. Through October 31, 1999, the Company has repurchased a total of
approximately 1.3 million shares at a net purchase price of approximately
$2.2 million.
-8-
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)
8. NET INCOME PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and fully diluted earnings per share computations for net income:
<TABLE>
<CAPTION>
(Loss) Per Share
(in thousands except per share data) Income Shares Amount
------ ------ ------
<S> <C> <C> <C>
THREE MONTHS ENDED OCTOBER 31, 1999
Basic loss per share
Loss available to common stockholders $(9,933) 35,583 $(0.28)
Extraordinary item - - -
------- ------ ------
Net loss available to common stockholders (9,933) 35,583 (0.28)
Effect of dilutive securities - - -
------- ------ ------
Diluted loss per share $(9,933) 35,583 $(0.28)
======= ====== ======
THREE MONTHS ENDED OCTOBER 31, 1998
Loss available to common stockholders $(9,119) 33,548 $(0.27)
Extraordinary item (51,552) - (1.54)
------- ------ ------
Net loss available to common stockholders (60,671) 33,548 (1.81)
Effect of dilutive securities - - -
------- ------ ------
Diluted loss per share $(60,671) 33,548 $(1.81)
======== ====== ======
NINE MONTHS ENDED OCTOBER 31, 1999
Loss available to common stockholders $(50,655) 35,929 $(1.41)
Extraordinary item (49,632) - (1.38)
------- ------ ------
Net loss available to common stockholders (100,287) 35,929 (2.79)
Effect of dilutive securities - - -
------- ------ ------
Diluted loss per share $(100,287) 35,929 $(2.79)
======== ====== =====
NINE MONTHS ENDED OCTOBER 31, 1998
Loss available to common stockholders $(2,615) 33,245 $(0.08)
Extraordinary item (51,552) - (1.55)
------- ------ ------
Net loss available to common stockholders (54,167) 33,245 (1.63)
Effect of dilutive securities - - -
------- ------ ------
Diluted loss per share $(54,167) 33,245 $(1.63)
======== ====== ======
</TABLE>
-9-
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)
For the three and nine months ended October 31, 1999 and 1998, no
additional securities or related adjustments to income were made for the common
stock equivalents related to the Debentures since the effect would be
antidilutive.
9. RATIO OF EARNINGS TO FIXED CHARGES
For the three and nine months ended October 31, 1999, the ratio of earnings
to fixed charges was less than 1.0. For purposes of computing the ratio of
earnings to fixed charges, earnings represent income (loss) from operations
before minority interest and income taxes, plus fixed charges. Earnings also
includes the equity in less-than-fifty-percent-owned investments only to the
extent of distributions. Fixed charges include interest, amortization of
financing costs and the portion of operating rental expense which management
believes is representative of the interest component of the rental expense. For
the three and nine months ended October 31, 1999, for purposes of computing the
ratio of earnings to fixed charges, the Company's earnings were inadequate to
cover fixed charges by $10.0 million and $50.6 million, respectively.
10. ACCOUNTING CHANGES AND PRONOUNCEMENTS
In 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued EITF 97-2 concerning the consolidation of physician
practice revenues. PPMs are required to consolidate financial information of a
physician where the PPM acquires a "controlling financial interest" in the
practice through the execution of a contractual management agreement even though
the PPM does not own a controlling equity interest in the physician practice.
EITF 97-2 outlines six requirements for establishing a controlling financial
interest. EITF-92 was effective for the Company's financial statements for the
year ended January 31, 1999. Adoption of this statement reduced previously
reported revenues for the three and nine months ended October 31, 1998 by $15.2
million and $49.9 million, respectively. During August 1998, the Company
announced its plan to divest and exit the PPM business. The majority of these
assets, which have not yet been divested, are recorded as assets held for sale
at October 31, 1999.
During the year ended January 31, 1999, the Company adopted SFAS 131,
"Disclosures About Segments of an Enterprise and Related Information." This
Statement requires reporting of summarized financial results for operating
segments as well as established standards for related disclosures about products
and services, geographic areas and major customers. Primary disclosure
requirements include total segment revenues, total segment profit or loss and
total segment assets.
FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998. It establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. As issued, Statement 133 was effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. In August 1999, the
FASB issued Statement No. 137, which amended FASB Statement No. 133, and
deferred its effective date to all fiscal quarters of all fiscal years beginning
after June 15, 2000. The adoption of this statement is not expected to have a
material impact on the Company's results of operations, financial position or
cash flows or to produce any major changes in current disclosures.
11. RELATED PARTY TRANSACTIONS
The Company provided construction management, development marketing and
consulting services to entities principally owned by Abraham D. Gosman
(former Chairman of the Board and former Chief Executive Officer) in
connection with the development and operation by such entities of several
healthcare related facilities (including a medical office building and a
retirement community). During the years ended January 31, 1999 and 1998, the
Company recorded revenues in the amount of $1.4 million and $10.5 million,
respectively, related to such services. The Company provides these services
to such affiliated parties on terms no more or less favorable to the Company
than those provided to unaffiliated parties. As of October 31, 1999, the
Company advanced $10.9 million, which is due in July 2000, to a company
principally owned by Mr. Gosman relating to the development of a healthcare
facility. This $10.9 million is included in short term notes receivable on
the balance sheet at October 31, 1999. The advance accrues at the prime rate
and is guaranteed by Mr. Gosman. To secure his obligation under the
guarantee, Mr. Gosman has pledged the stock of another company principally
owned by him and (subject to prior pledges) 8.2 million shares of Company
Common Stock ("ICSL Pledged Shares"). Until the note has been repaid in full,
the Company has the right to vote the ISCL Pledged Shares, subject to the
rights of any prior pledges. During November 1999, the Company agreed to
waive claims for interest on the note through the maturity date in
consideration of waivers of claims for unpaid rent with respect to certain
leases and the termination or amendment of these leases.
-10-
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)
12. LEGAL PROCEEDINGS
On October 18, 1997, the Florida Board of Medicine, which governs
physicians in Florida, declared that the payment of percentage-based fees by
a physician to a physician practice management company in connection with
practice-enhancement activities subjects a physician to disciplinary action
for a violation of a statute which prohibits fee-splitting. Some of the
Company's contracts with Florida physicians include provisions providing for
such payments. The Company appealed the ruling to a Florida District Court of
Appeals and the Board stayed the enforceability of its ruling pending the
appeal. Oral arguments were held on May 26, 1999, and the judge upheld the
Board of Medicine's ruling. The Company may be forced to renegotiate those
provisions of the contracts, that are affected by the ruling. While these
contracts call for renegotiation in the event that a provision is not found
to comply with state law, there can be no assurance that the Company would be
able to renegotiate such provisions on acceptable terms. The contracts
affected by this ruling are with the physician practices the Company has sold
or has identified to be divested or disposed and for which the assets are
included in assets held for sale at October 31, 1999.
In conjunction with a physician practice management agreement with a
physician practice in Florida, the Company has filed suit against the practice
to enforce the guarantees executed in connection with the management agreement.
The practice has filed a counterclaim. The Company intends to prosecute and
defend the case.
In connection with a joint venture partnership (the "Joint Venture")
between the Company and Tenet Healthsystem Hospitals, Inc. ("Tenet"), to own
and operate an ambulatory surgical center and diagnostic radiology facility
in Florida, Tenet has filed suit against the Company on September 23, 1999 in
the Palm Beach, Florida circuit court, for (1) recission and (2) damages of
approximately $3.0 million for breach of contract, breach of fiduciary duty,
and breach of good faith and fair dealing. In a related matter, PBG Medical
Mall MOB 1 Properties (the "Mall"), which is principally owned by Abraham
Gosman, filed suit against Tenet (as tenant) and the Joint Venture (as
subtenant) on September 8, 1999 in the Palm Beach County, Florida county
court, for eviction. The Mall also filed suit against Tenet and the Company
on September 24, 1999, in the Palm Beach County, Florida circuit court, for
damages. The Tenet suit has been stayed while the parties attempt to
negotiate an unwind of the Joint Venture. In addition, the parties have
reached a tentative settlement on the Mall suit, pending final resolution of
the Tenet suit. If the parties are unable to reach agreement, the Company
intends to file counterclaims against both Tenet and the Mall, and defend
both cases.
-11-
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)
13. SEGMENT INFORMATION
For the fiscal year ending January 31, 1999, the Company adopted SFAS
131. The prior year's segment information has been restated to present the
Company's reportable segments. The Company has determined that its reportable
segments are those that are based on its current method of internal
reporting. The reportable segments are: provider network management, site
management organization and assets held for sale. The accounting policies of
the segments are the same as those described in the "Summary of Significant
Accounting Policies" in the Company's Annual Report on Form 10-K. There are
no intersegment revenues and the Company does not allocate corporate overhead
to its segments. The tables below present revenue, pretax income (loss) and
net assets of each reportable segment for the indicated periods:
<TABLE>
<CAPTION>
Provider Site Assets
Network Management Held for Reconciling Consolidated
Management (2) Organization Sale Items (1) Totals
-------------- ------------ ---- --------- ------
<S> <C> <C> <C> <C> <C>
Quarter ended October 31, 1999
Net Revenues $ 12,876 $ 9,200 $ 22,134 $ 161 $ 44,371
Loss before income taxes
and extraordinary item (91) (2,589) (2,199) (5,107) (9,986)
Quarter ended October 31, 1998
Net Revenues $ 16,252 $ 7,492 $ 43,392 $ 810 $ 67,946
Loss before income taxes
and extraordinary item (2,237) (3,694) (3,803) (4,056) (13,790)
Nine months ended October 31, 1999
Net Revenues $ 43,603 $ 26,827 $ 84,236 $ 221 $154,887
Loss before income taxes
and extraordinary item (15,724) (8,034) (9,006) (17,844) (50,608)
Net Assets 16,648 22,547 12,512 (47,508) 4,199
Nine months ended October 31, 1998
Net Revenues $ 53,785 $ 26,649 $147,958 $ 1,109 $229,502
Income (loss) before income taxes
and extraordinary item 573 (3,109) 12,053 (13,631) (4,114)
Net Assets 85,768 22,436 123,220 (48,611) 182,813
</TABLE>
(1) Reconciling items consist of corporate expenses and corporate net assets
(primarily the convertible subordinated debentures, net of cash) which are not
allocated.
(2) Provider Network Management loss for the nine months ending October 31,
1999 includes an $11.2 million nonrecurring charge.
-12-
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)
14. SUBSEQUENT EVENTS
Subsequent to October 31, 1999, the Company divested of two physician
practices. Proceeds from these asset sales were approximately $7.7 million,
prior to the payment of retained liabilities of approximately $3.0 million.
As part of the Company's repositioning, management continues to explore
options to align the Company's capital structure with its current operations
and growth strategy. On December 1, 1999, the Company retained Donaldson,
Lufkin & Jenrette Securities Corporation as its financial advisors to assist
the Company in evaluating a possible capital restructuring as well as
industry consolidation opportunities.
During December 1999, the Company received notification from Nasdaq
that the Company's Common Stock has been delisted from the Nasdaq National
Market and is now eligible to trade on the OTC Bulletin Board.
15. RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform with the
current period presentation. Such reclassifications had no material effect on
the previously reported consolidated financial position, results of operations
or cash flows of the Company.
-13-
<PAGE>
INNOVATIVE CLINICAL SOLUTIONS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
ICSL is repositioning itself as a company that provides diverse services
supporting the needs of the pharmaceutical and managed care industries. The
Company is focusing its operations on two integrated business lines:
pharmaceutical services, including investigative site management, clinical
and outcomes research and disease management, as well as multi and
single-specialty provider network management. Historically, the Company has
been an integrated medical management company that provides medical
management services to the medical community, certain ancillary medical
services to patients and medical real estate development and consulting
services to related and unrelated third parties. In August 1998, the Company
announced that it planned to change this business model. The Company is in
the process of terminating its management of individual and group physician
practices and divesting itself of related assets, and selling and divesting
itself of its ancillary medical service businesses, such as diagnostic
imaging, radiation therapy, lithotripsy services, home healthcare and
infusion therapy. In conjunction with the change in the business model, the
Company also significantly downsized and then, during the three months ended
October 31, 1999, sold the operation of its real estate services. The Company
currently estimates that by the end of its current fiscal year it will have
exited the majority of its physician practice management ("PPM") and
ancillary medical service businesses.
REPOSITIONING
During May 1998, the Company announced that the Board of Directors had
instructed management to explore various strategic alternatives for the Company
that could maximize stockholder value. During August 1998, the Company announced
that the Board of Directors approved several strategic alternatives to enhance
stockholder value. The Board authorized a series of initiatives designed to
reposition the Company as a significant company in pharmaceutical contract
research, specifically clinical trials site management and outcomes research.
The Company intends to link its nationally focused hospital affiliations and its
physician networks with its clinical trials site management and outcomes
research operations.
During the year ended January 31, 1999, the Board approved, consistent
with achieving its stated restructuring goal, its plan to divest and exit the
Company's PPM business and certain of its ancillary services businesses,
including diagnostic imaging, lithotripsy, radiation therapy, home health and
infusion therapy. During the nine months ended October 31, 1999, the Company
also decided to terminate an additional physician practice management
agreement and divest its investments in a surgery center and a network of
physicians, and sell its real estate service operations. The revenue and
pretax loss of these businesses which have been identified to be divested or
disposed for the nine months ended October 31, 1999 were $84.2 million and
$9.0 million, respectively. Net loss for the nine months ended October 31,
1999 included an extraordinary item of $49.6 million (net of tax of $0),
which is primarily a non-cash charge related to these divestitures. Based on
fair market value estimates, which have primarily been derived from purchase
agreements, letters of intent, letters of interest and discussions with
prospective buyers, the Company currently expects to realize net proceeds of
approximately $12.5 million (subsequent to October 31, 1999 approximately
$7.7 million was realized, prior to the payment of retained liabilities of
approximately $3.0 million) from the sale of the remaining businesses
identified to be divested or disposed and has recorded this amount as an
asset held for sale on the balance sheet at October 31, 1999.
ACCOUNTING TREATMENT
The terms of the Company's relationships with its remaining affiliated
physicians are set forth in various asset and stock purchase agreements,
management services agreements and employment and consulting agreements. Through
the asset and/or stock purchase agreement, the Company acquired the equipment,
furniture, fixtures, supplies and, in certain instances, service agreements, of
a physician practice at the fair market value of the assets.
-14-
<PAGE>
The accounts receivable typically were purchased at the net realizable value.
The purchase price of the practice generally consisted of cash, notes and/or
Common Stock of the Company and the assumption of certain debt, leases and other
contracts necessary for the operation of the practice. The management services
or employment agreements delineate the responsibilities and obligations of each
party.
Net revenues from services is reported at the estimated realizable amounts
from patients, third-party payors and others for services rendered. Revenue
under certain third-party payor agreements is subject to audit and retroactive
adjustments. Provisions for estimated third-party payor settlements and
adjustments are estimated in the period the related services are rendered and
adjusted in future periods as final settlements are determined. The provision
and related allowance are adjusted periodically, based upon an evaluation of
historical collection experience with specific payors for particular services,
anticipated reimbursement levels with specific payors for new services, industry
reimbursement trends, and other relevant factors. Included in net revenues from
services are revenues from the diagnostic imaging centers in New York, which the
Company operated pursuant to Administrative Service Agreements. These revenues
are reported net of payments to physicians.
Net revenues from management services agreements include the revenues
generated by the physician practices net of payments to physicians. The Company,
in most cases, is responsible and at risk for the operating costs of the
physician practices. Expenses include the reimbursement of all medical practice
operating costs as required under the various management agreements. For
providing services under management services agreements entered into prior to
April 30, 1996, physicians generally received a fixed percentage of net revenue
of the practice. "Net revenues" is defined as all revenue computed on an accrual
basis generated by or on behalf of the practice after taking into account
certain contractual adjustments or allowances. The revenue is generated from
professional medical services furnished to patients by physicians or other
clinicians under physician supervision. In several of the practices, the Company
has guaranteed that the net revenues of the practice will not decrease below the
net revenues that existed immediately prior to the agreement with the Company.
Under most management services agreements entered into after April 30, 1996, the
physicians receive a portion of the operating income of the practice which
amounts vary depending on the profitability of the practice. In 1997, the
Emerging Issues Task Force of the Financial Accounting Standards Board issued
EITF 97-2 concerning the consolidation of physician practice revenues. PPMs are
required to consolidate financial information of a physician where the PPM
acquires a "controlling financial interest" in the practice through the
execution of a contractual management agreement even though the PPM does not own
a controlling equity interest in the physician practice. EITF 97-2 outlines six
requirements for establishing a controlling financial interest. The Company
adopted EITF 97-2 in the fourth quarter of its fiscal year ended January 31,
1999. Adoption of this statement reduced previously reported revenues and
expenses for the three and nine months ended October 31, 1998 by $15.2
million and $49.9 million respectively. During August 1998, the Company
announced its plan to divest and exit the PPM business. The Company is
currently working to complete these divestitures and the majority of these
assets are recorded as assets held for sale at October 31, 1999.
-15-
<PAGE>
RESULTS OF OPERATIONS
The following table shows the percentage of net revenue represented by
various expense categories reflected in the Consolidated Statements of
Operations. The information that follows should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
---------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0% 100.0%
Salaries, wages and benefits 29.7% 33.9% 31.5% 30.4%
Supplies 22.4% 22.1% 22.4% 19.2%
Depreciation and amortization 5.2% 5.6% 5.9% 4.8%
Rent expense 7.3% 7.9% 7.7% 6.6%
Provision for bad debts 1.0% 3.5% 1.4% 1.9%
Gain on sale of assets 0.0% 0.0% 0.0% 2.4%
Non-recurring expenses 0.0% 0.0% 10.2% 2.3%
Provision for writedown of notes receivable 0.0% 3.9% 0.0% 1.2%
Other (primarily capitation expense) 52.1% 41.2% 49.1% 35.8%
----------- ---------- ----------- ----------
Total operating costs and administrative expenses 117.7% 118.2% 128.2% 99.8%
Interest Expense, net 5.0% 2.4% 4.5% 2.3%
(Income) from investment in affiliate (0.1%) (0.2%) 0.0% (0.3%)
----------- ---------- ----------- ----------
Loss before taxes and extraordinary item (22.5%) (20.3%) (32.7%) (1.8%)
Income tax expense (benefit) (0.1%) (6.9%) 0.0% (0.7%)
----------- ---------- ----------- ----------
Loss before extraordinary item (22.4%) (13.4%) (32.7%) (1.1%)
Extraordinary item, net of tax 0.0% 75.9% 32.0% 22.5%
----------- ---------- ----------- ----------
Net loss (22.4%) (89.3%) (64.7%) (23.6%)
===== ==== ===== ====
</TABLE>
THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 COMPARED TO THE THREE AND NINE
MONTHS ENDED OCTOBER 31, 1998
The following discussion reviews the results of operations for the three
and nine months ended October 31, 1999 (the "2000 Quarter" and "2000 Period"),
respectively, compared to the three and nine months ended October 31, 1998 (the
"1999 Quarter" and "1999 Period"), respectively.
REVENUES
During the 2000 Quarter and the 2000 Period the Company derived revenues
primarily from the following segments: provider network management, site
management organizations and assets held for sale. Revenues from provider
network management are derived from management services to management service
organizations and administrative services to health plans which include
reviewing, processing and paying claims and subcontracting with specialty
care physicians to provide covered services. Revenues from site management
organizations are derived primarily from services provided to pharmaceutical
companies for clinical trials. Revenues from assets held for sale are derived
primarily from providing the following services: physician practice
management, diagnostic imaging, radiation therapy, home healthcare, infusion
therapy, real estate services and lithotripsy.
-16-
<PAGE>
Net revenues were $44.4 million and $154.9 million during the 2000
Quarter and 2000 Period, respectively. Of this amount, $12.9 million and
$43.6 million or 29.0% and 28.2% of such revenues was attributable to
provider network management; $9.2 million and $26.8 million or 20.7% and
17.3% was related to site management organizations; and $22.1 million and
$84.2 million or 49.9% and 54.4% was attributable to assets held for sale.
Net revenues were $67.9 million and $229.5 million during the 1999
Quarter and 1999 Period, respectively. Of this amount, $16.3 million and
$53.8 million or 23.9% and 23.4% of such revenues was attributable to
provider network management; $7.5 million and $26.6 million or 11.0% and
11.6% was related to site management organizations; and $43.4 million and
$148.0 million or 63.8% and 64.5% was attributable to assets held for sale.
The Company's net revenues from provider network management services
decreased by $3.4 million from $16.3 million for the 1999 Quarter to $12.9
million for the 2000 Quarter and by $10.2 million from $53.8 million for the
1999 Period to $43.6 million for the 2000 Period. The decrease is primarily
attributable to a reduction in capitation revenue from one contract managed
by the Company. The Company's net revenues from site management organizations
increased by $1.7 million from $7.5 million for the 1999 Quarter to $9.2
million for the 2000 Quarter and by $0.2 million from $26.6 million for the
1999 Period to $26.8 million for the 2000 Period. The Company's net revenues
from assets held for sale decreased by $21.3 million from $43.4 million for
the 1999 Quarter to $22.1 million for the 2000 Quarter and by $63.8 million
from $148.0 million for the 1999 Period to $84.2 million for the 2000 Period
primarily attributable to the asset divestitures including the sale of the
real estate service operations. The Company is currently negotiating the
termination of a management services agreement to manage a network of over
100 physicians. The ultimate resolution of the negotiations and collection of
any receivables due from the beginning of the year is uncertain; therefore,
the Company has not recorded revenue from the agreement for the 2000 Quarter
and the 2000 Period. For the 1999 Quarter and the 1999 Period, the Company
recorded $4.6 million and $14.7 million of net revenues (which are included
in revenues from the assets held for sale segment) from this agreement.
EXPENSES
The Company's salaries, wages and benefits decreased by $9.8 million from
$23.0 million or 33.9% of net revenues during the 1999 Quarter to $13.2 million
or 29.7% of net revenues during the 2000 Quarter and by $21.1 million from $69.9
million or 30.4% of net revenues during the 1999 Period to $48.8 million or
31.5% of net revenues during the 2000 Period. The decrease in dollars is
primarily attributable to the reductions in personnel in conjunction with the
asset divestitures.
The Company's supplies expense was $15.0 million or 22.1% of net
revenues during the 1999 Quarter and $9.9 million or 22.4% of net revenues
during the 2000 Quarter and was $44.0 million or 19.2% of net revenues during
the 1999 Period and $34.7 million or 22.4% of net revenues during the 2000
Period. The increase in supplies expense as a percentage of net revenues was
primarily due to the relative increase, due to other asset divestitures, in
the size of the Company's infusion and cancer service businesses, which are
more supply intensive and for which the cost of pharmaceutical supplies is
higher.
The Company's rent expense decreased by $2.2 million from $5.4 million
or 7.9% of net revenues during the 1999 Quarter to $3.2 million or 7.3% of
net revenues during the 2000 Quarter and by $3.1 million from $15.0 million
or 6.6% of net revenues during the 1999 Period to $11.9 million or 7.7% of
net revenues during the 2000 Period. The decrease in dollars is primarily a
result of the asset divestitures.
The Company's gain on sale of assets of $5.4 million during the second
quarter of the 1999 Period, represented gains from the sale of real estate of
approximately $4.5 million during July 1998 and from the sale of a radiation
therapy center of approximately $0.9 million during February 1998.
The Company's nonrecurring charge of $5.3 million during the second
quarter of the 1999 Period represents the charge resulting from the
termination of several physician management and employment agreements. The
Company's nonrecurring
17
<PAGE>
charge of $15.8 million during the second quarter of the 2000 Period
represents a $14.1 million impairment charge for a physician practice
management agreement and management service organization and the balance
primarily represents additional severance costs in conjunction with the sale
of assets and the repositioning of the Company.
The Company's provision for the loss on notes receivable of $2.7 million
during the 1999 Quarter and the 1999 Period represents the writedown of several
notes receivable that were collateralized by shares of Common Stock of the
company to their net realizable value.
The Company's other expenses decreased by $4.9 million from $28.0
million or 41.2% of net revenues during the 1999 Quarter to $23.1 million or
52.1% of net revenues during the 2000 Quarter and by $6.1 million from $82.2
million or 35.8% of net revenues during the 1999 Period to $76.1 million or
49.1% of net revenues during the 2000 Period. The increase in other expenses
as a percentage of net revenues is primarily due to an increase in capitation
revenues related to the Company's provider network management services as a
percentage of total revenues.
The Company's interest expense increased by $0.6 million from $1.6
million or 2.4% of net revenues during the 1999 Quarter to $2.2 million or
5.0% of net revenues during the 2000 Quarter and by $1.6 million from $5.3
million or 2.3% of net revenues during the 1999 Period to $6.9 million or
4.5% of net revenues during the 2000 Period. The acceleration of the
amortization of debt issuance costs related to the line of credit which was
repaid during the 2000 Period resulted in increased interest expense of $0.3
million during the 2000 Period.
The Company's extraordinary item of $49.6 million (net of tax of $0)
during the 2000 Period and $51.6 (net of tax benefit of $8.4 million) during
the 1999 Period represents the charge resulting from divestitures or
disposals that had occurred subsequent to August 1998 as well as the
write-down of the assets of the businesses being held for sale at October 31,
1999,and 1998, respectively. The carrying value of the assets of these
businesses was written down to their estimated net realizable value (less
costs to sell).
The Company's loss prior to income taxes and extraordinary item during
the 2000 Quarter and 2000 Period was $10.0 million and $50.6 million compared
to loss prior to income taxes and extraordinary item during the 1999 Quarter
and 1999 Period $13.8 million and $4.1 million. The deterioration of income
during the 2000 Quarter and 2000 Period is primarily due to several factors
including: (i) the sale of the real estate service operations during the
three months ended October 31, 1999, which was done in connection with the
repositioning of the Company, and in part due to the resignation of Bruce A.
Rendina as Chief Executive Officer of the Company's real estate services (the
real estate service operations, which are included in the assets held for
sale segment generated a pretax loss of $0.1 million and $1.9 million during
the 2000 Quarter and the 2000 Period compared to pretax income of $0.6
million and $6.7 million during the 1999 Quarter and the 1999 Period), (ii)
the deterioration of the operating results of certain of the businesses
divested or to be divested (the assets held for sale segment, including the
real estate service operation discussed above, generated a total pretax loss
of $2.2 million and $9.0 million during the 2000 Quarter and the 2000 Period
compared to pretax loss of $3.8 million and pretax income of $12.1 million
during the 1999 Quarter and the 1999 Period), and (iii) the Company is in the
process of repositioning and building infrastructure to expand and integrate
its two primary business lines: provider network management and
pharmaceutical services (site management organizations) (combined these
businesses generated a pretax loss, prior to nonrecurring charges, of $2.7
million and $12.5 million during the 2000 Quarter and the 2000 Period
compared to pretax loss of $5.9 million and $2.5 million during the 1999
Quarter and the 1999 Period).
-18-
<PAGE>
REAL ESTATE SERVICES
Prior to the repositioning, the Company had historically derived
significant revenues from real estate services. During August 1998, Bruce A.
Rendina resigned as CEO and President of DASCO (the Company's real estate
services subsidiary) and Vice Chairman of the Company. During September 1998,
Mr. Rendina entered into a Business Agreement (the "Business Agreement") with
the Company. The Business Agreement was entered into in settlement of certain
claims by both the Company and Mr. Rendina relating to Mr. Rendina's future
competition with the Company. The Business Agreement provides that the Company
has the exclusive development rights to 27 separate projects located in 12
separate states. In addition, the Company and Mr. Rendina agreed to share fees
with respect to five asset conversion projects and six medical facility
development projects whereby Mr. Rendina is entitled to the first 25% of the
projected development fees received on any shared fee project and the Company
and Mr. Rendina evenly split the remaining portion of the fees for such
projects. The Business Agreement also permits Mr. Rendina and his affiliates to
pursue independently the development of six separate projects in five states.
Finally, the Company and Mr. Rendina have provided mutual releases of each other
with respect to any event related to the business and employment relationships
of the parties.
During the year ended January 31, 1999, the Company recorded a goodwill
impairment writedown of $9.1 million which eliminated the remaining goodwill
of the real estate services subsidiary. The asset of goodwill was determined
to have been impaired because of the Company's decision to significantly
downsize the real estate services. During the three months ended October 31,
1999, the Company sold the remaining real estate service operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities was $17.7 million during the 2000
Period. Cash used by operating activities was $0.8 million during the 1999
Period. At October 31, 1999, the Company's principal sources of liquidity
consisted of working capital of $51.7 million which included $38.0 million in
cash, and $12.5 million in assets held for sale (see below for further
discussion of assets held for sale) offset by the current portion of debt and
capital leases. The Company also had $47.6 million of current liabilities,
including approximately $16.1 million of indebtedness which is comprised
primarily of $14.3 million outstanding under the line of credit (see below
for further discussion of the line of credit).
Cash provided by investing activities was $46.5 million during the 2000
Period and primarily represented the net cash received from the sale of
assets of $51.2 million, offset by the funds required by the Company for
capital expenditures of $4.6 million and additional purchase price of $1.4
million. Cash used by investing activities was $12.5 million during the 1999
Period. This primarily represents the total funds required by the Company for
acquisitions and capital expenditures of $15.5 million and advances under
notes receivable of $2.0 million offset by the cash received from the sale of
assets of $5.1 million.
Cash used by financing activities was $0.9 million during the 2000
Period and primarily represented proceeds from the issuance of debt of $21.7
million, offset by the repayment of debt of $21.2 million and the purchase of
treasury stock of $1.5 million. Cash used by financing activities was $11.9
million during the 1999 Period and primarily represented the repayment of
debt of $8.2 million and advances to shareholder of $3.1 million.
In conjunction with various acquisitions that have been completed, the
Company may be required to make various contingent payments in the event that
the acquired companies attain predetermined financial targets during
established periods of time following the acquisitions. If all of the
applicable financial targets were satisfied, for the periods covered, the
Company would be required to pay an aggregate of approximately $13.4 million
over the next four years, of which $5.0 million represents a minimum option
price for an additional 29% ownership interest in a network which may be
required to be purchased by the Company any time between November 1999 and
November 2001. The payments, if
19
<PAGE>
required, are payable in cash and/or Common Stock of the Company. In
addition, in conjunction with the acquisition of a clinical research center,
an ownership interest in a network and in conjunction with a joint venture
entered into by the Company during the year ended January 31, 1998, the
Company may be required to make additional contingent payments based on
revenue and profitability measures over the next five years.
During July 1997, the Company entered into a management services agreement
to manage a network of over 100 physicians in New York. In connection with this
transaction, the Company may expend, in certain circumstances, up to $40.0
million (of which none has been expended as of October 31, 1999) to be utilized
for the expansion of the network. The Company is currently in the process of
terminating this management agreement which, if terminated, is expected to
result in the elimination of any additional expenditures to expand this network.
During February 1998, the Company completed the formation of an MSO in New
York, one-third of which it owns. The owners of the remaining two-thirds of the
MSO have the right to require the Company to purchase their interests at the
option price, which is based upon earnings, during years six and seven.
In conjunction with certain of its acquisitions the Company has agreed to
make payments in shares of Common Stock of the Company at a predetermined future
date. The number of shares to be issued are generally determined based upon the
average price of the Company's Common Stock during the five business days prior
to the date of issuance. As of October 31, 1999, the Company had committed to
issue $1.1 million of Common Stock of the Company using the methodology
discussed above. This amount is included in other long-term liabilities on the
balance sheet. The Company also guarantees a loan in the amount of $3.5 million
which matures in March 2000.
In conjunction with the repositioning (as described earlier in
"Significant Events"), during the year ended January 31, 1999, the Board of
Directors approved its plan to divest and exit the Company's PPM business and
certain of its ancillary services businesses including diagnostic imaging,
lithotripsy, radiation therapy, home health and infusion therapy. During the
nine months ended October 31, 1999, the Company also decided to terminate an
additional physician practice management agreement, divest its investments in
a surgery center and a network of physicians and sell its real estate service
operations. The revenue and pretax loss of these businesses which have been
identified to be divested or disposed for the nine months ended October 31,
1999 were $84.2 million and $9.0 million. Based on fair market value
estimates, which have primarily been derived from purchase agreements,
letters of intent, letters of interest and discussions with prospective
buyers, the net realizable value of the remaining assets identified to be
divested or disposed was $12.5 million at October 31, 1999 (subsequent to
October 31, 1999 approximately $7.7 million was realized, prior to the
payment of retained liabilities of $3.0 million) which has been reflected as
an asset held for sale on the balance sheet at October 31, 1999.
In conjunction with a physician practice management agreement with a
physician practice in Florida, the Company has filed suit against the practice
to enforce the guarantees executed in connection with the management agreement.
The practice has filed a counterclaim. The Company intends to prosecute and
defend the case.
The Board of Directors of the Company authorized a share repurchase plan
pursuant to which the Company may repurchase up to $15.0 million of its
Common Stock from time to time on the open market at prevailing market
prices. As of October 31, 1999 the Company has repurchased approximately 1.3
million shares at a net purchase price of approximately $2.2 million.
The Company's Common Stock was delisted from the Nasdaq National Market
as of the close of business on December 8, 1999. The Company's Common Stock
is now trading on the OTC Bulletin Board. As a result, current information
regarding bid and asked prices for the common stock may be less readily
available to brokers, dealers and/or their customers. As a result of reduced
availability of current information, there may be a reduction in the
liquidity of the market for the Common Stock which, in turn, could result in
decreased demand for the Common Stock, a decrease in the stock price and an
increase in the spread between the bid and asked prices for the Common Stock.
The development and implementation of the Company's management
information system will require ongoing capital expenditures. The Company has
estimated the total costs to be incurred for completion of its Year 2000
strategy is approximately $3.0 million, which includes costs for new systems
and system upgrades which would have been incurred regardless of the need to
remedy the Year 2000 issue. The Company expects that its working capital of
$51.7 million at October 31, 1999, which includes cash of $38.0 million and
the expected cash to be generated from the assets held for sale, will be
adequate to satisfy the Company's cash requirements for the next 12 months.
The Company's capital needs over the next several years may exceed capital
generated from operations.
During March 1999, the Company obtained a new $30.0 million revolving line
of credit which has a three-year term and availability based upon eligible
accounts receivable. Approximately $9.2 million of proceeds from the new line of
credit were used to repay the previous line of credit. The new line of credit is
secured by the assets of the Company, limits the ability of the Company to incur
certain indebtedness and make certain dividend payments,
20
<PAGE>
and requires the Company to comply with customary covenants. Proceeds from
asset sales must be used to repay the line of credit to the extent the sold
assets included eligible accounts receivable. At October 31, 1999,
approximately $14.3 million was outstanding under the line.
RISKS ASSOCIATED WITH YEAR 2000
The Year 2000 date change issue is believed to affect virtually all
companies and organizations. If not corrected, many computer applications could
fail or create erroneous results by or at the year 2000. The Company recognizes
the need to ensure its operations will not be adversely impacted by the
inability of the Company's information systems to process data having dates on
or after January 1, 2000 (the "Year 2000" issue). The Company has completed its
full assessment of the Year 2000 issue.
The Company has a committee, led by its Chief Information Officer,
charged with building, developing and implementing the information systems
required for its pharmaceutical and provider network management services
business lines and to assess and remediate the effect of the Year 2000 issue
on the Company's operations. The Company has contacted its clients, principal
suppliers and other vendors to assess whether their Year 2000 issues, if any,
will affect the Company. There is no guarantee that the systems of other
companies on which the Company relies will be corrected in a timely manner or
that the failure to correct such systems will not have a material adverse
effect on the Company's systems. Many year 2000 deficiencies have already
been identified and addressed through planned systems and infrastructure
evolution, replacement or elimination. The continuing program described below
is designed to permit the Company to identify and address all remaining Year
2000 systems and deficiencies well in advance of the millenium change.
The programs consist of three phases, which are, (i) conducting an
inventory of all systems and deficiencies that may be affected by the Year
2000 issue as well as the assessment and categorization of all the
inventoried systems and deficiencies by level of priority, (ii) reflecting
their potential impact on business continuation, and (iii) bringing each
system to full compliance as well as general contingency planning in the
event that any critical systems cannot be made fully compliant by January 1,
2000. All phases of the program are substantially complete.
The Company's information technology systems ("IT Systems") can be broadly
categorized into the following areas: (i) clinical studies information systems,
(ii) managed care information systems, (iii) other administrative information
systems including financial accounting, payroll, human resource and other
desktop systems and applications and (iv) information systems of business held
for sale.
The Company recognizes that investment in information systems is
integral to its operations. The majority of the Company's technology
expenditures are related to the development and implementation of both
clinical information and managed care information systems that are Year 2000
compliant. The clinical information systems, currently implemented in the
Clinical Studies locations, and the managed care information systems are
fully operational. The Company believes that the Year 2000 issue-related
remediation costs incurred through the 2000 Quarter have not been material to
its results of operations. The Company has estimated the total costs to be
incurred for completion of its Year 2000 strategy is approximately $3.0
million, which includes costs for new systems and system upgrades which would
have been incurred regardless of the need to remedy the Year 2000 issue.
The Company's financial accounting system is fully Year 2000 compliant
at a total cost of approximately $30,000. The Company expects to complete
within the next month the disposition of the majority of the remaining assets
held for sale. The Company has completed all three phases of the program
discussed above for the remaining assets held for sale in the event that
there are assets which are not sold or divested prior to December 31, 1999.
The Company believes that it has adequately identified and addressed any Year
2000 issues that may arise related to the assets currently included in assets
held for sale which are not sold by December 31, 1999.
Risks involved in the managed care applications include the risk that
failures in the Company's managed care systems causing a backlog of claims or
failures at one or more of the Company's payors will cause a delay in the
payment of claims and capitation payments, either of which could negatively
affect cash flows of the Company. The Company has developed contingency plans
for failures at the Company's electronic trading partners.
-21-
<PAGE>
The nature of the Year 2000 issue, and the lack of historical experience in
addressing it, however, could result in unforeseen risks.
The Company bills and collects for medical services from numerous third
party payors in operating its business. These third parties include fiscal
intermediaries that process claims and make payments on behalf of the
Medicare program as well as insurance companies, HMO's and other private
payors. As part of the Company's Year 2000 strategy, a comprehensive survey
has been completed of all significant payors, principal clients, suppliers,
and other vendors to assess their timeline for Year 2000 compliance and the
impact to the Company of any potential interruptions in services or payments
and the Company has been assured that such third party systems are or will be
Year 2000 compliant.
The foregoing assessment is based on information currently available to the
Company. The Company can provide no assurance that applications and equipment
that the Company believes to be Year 2000 compliant will not experience
problems. Failure by the Company or third parties on which it relies to resolve
Year 2000 problems could have a material adverse effect on the Company's results
of operations.
FACTORS TO BE CONSIDERED
The part of this Quarterly Report on Form 10-Q captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains certain forward-looking statements which involve risks and
uncertainties. Readers should refer to a discussion under "Factors to be
Considered" contained in Part I, Item 1 of the Company's Annual Report on Form
10-K for the year ended January 31, 1999 concerning certain factors that could
cause the Company's actual results to differ materially from the results
anticipated in such forward-looking statements. This discussion is hereby
incorporated by reference into this Quarterly Report.
-22-
<PAGE>
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
Exhibit 10.10 Asset Purchase Agreement made as of July 14, 1999, by and
among PresGar Imaging L.C., Innovative Clinical Solutions,
Ltd., Phymatrix Management Company, Inc., Phymatrix
Diagnostic Imaging, Inc., Biltmore Imaging Center, Inc.,
BabRad, Inc., Phymatrix Diagnostic Imaging Northeast,
Inc., and Deerco, Inc., for the sale of the Imaging Division
Exhibit 10.11 (a) Confirmatory Revolving Note dated as of February 1, 1998 in
principal amount of $10.9 million payable by Chancellor
Development Corp. to Innovative Clinical Solutions, Ltd.
Exhibit 10.11 (b) Confirmatory Guarantee of Abraham D. Gosman dated as of
February 1, 1998 in favor of Innovative Clinical Solutions,
Ltd.
Exhibit 10.11 (c) Confirmatory Stock Pledge Agreement made as of November 30,
1999 by and among Abraham D. Gosman, Chancellor Partners
Limited Partnership I, Chancellor Development Corp. and
Innovative Clinical Solutions, Ltd.
Exhibit 10.11 (d) Letter Agreement dated November 30, 1999 by and between PBG
Medical Mall MOB 1 Properties, Ltd. and Innovative Clinical
Solutions, Ltd. regarding Interest and Lease Payments
Exhibit 27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on September 13, 1999 with the
Securities and Exchange Commission reporting under Item 2 the sale of the
Diagnostic Imaging Division.
-23-
<PAGE>
SIGNATURES
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, on the 15th day of December, 1999.
INNOVATIVE CLINICAL SOLUTIONS, LTD.
By: /s/ Gary S. Gillheeney
-----------------------------------------
Chief Financial Officer and Treasurer
-24-
<PAGE>
Exhibit 10.10
ASSET PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement") is made as of the 14th day of
July, 1999, by and among PresGar Imaging, L.C., a Florida Limited Liability
Company, together with any one or more affiliates to which it assigns its rights
(but not its obligations) hereunder (collectively the "PURCHASER"), Innovative
Clinical Solutions, Ltd., a Delaware corporation ("ICSL"), PhyMatrix Management
Company, Inc., a Florida corporation ("PMC"), PhyMatrix Diagnostic Imaging,
Inc., a Delaware corporation ("PDI"), Biltmore Imaging Center, Inc., an Arizona
corporation ("BILTMORE"), BabRad, Inc., a New York corporation ("BABRAD"),
PhyMatrix Diagnostic Imaging Northeast, Inc., a Delaware corporation ("PDI NE"),
and Deerco, Inc., a New York corporation ("DEERCO," and collectively with PMC,
PDI, Biltmore and BabRad, the "SELLER GROUP").
WHEREAS, PMC, Biltmore, PDI NE, BabRad, Deerco and PDI, each direct or
indirect subsidiaries of ICSL, own the assets used by and administer the
following diagnostic imaging centers: (i) the Bensonhurst imaging center (the
"BENSONHURST CENTER"), (ii) the Queens Open MRI imaging center (the "RAY-X
CENTER"), (iii) the Highway imaging center (the "HIGHWAY CENTER"), (iv) the five
Bab nuclear radiology centers (the "BAB CENTERS"), (v) Biltmore Advanced Imaging
Center (the "BILTMORE CENTER"), (vi) Central Magnetic Imaging North and South
Centers (the "CMI NORTH & SOUTH Centers") and (vii) Central Magnetic Imaging
Center of Palm Beach County (the "CMI-PALM BEACH CENTER," and collectively with
the Bensonhurst Center, the Ray-X Center, the Highway Center, the Bab Centers,
the Biltmore Center, and the CMI North & South Centers, the "DIAGNOSTIC
CENTERS");
WHEREAS, Purchaser desires to purchase and PMC, PDI NE, Biltmore,
BabRad, Deerco and PDI collectively desire to sell, the assets related to the
Diagnostic Centers.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants set forth in this Agreement and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
respective meanings set forth below:
1.01 "Assumed Obligations" shall have the meaning set forth in Section
2.01(b).
1.02 "Balance Sheets" means the balance sheets dated April 30, 1999 of
the Seller Group relating to the Business, appearing in the Financial
Statements, and the accompanying schedules thereto.
1.03 "Balance Sheet Date" means April 30, 1999.
<PAGE>
1.04 "Business" means, collectively, the business of owning the assets
of and operating and/or administering the Diagnostic Centers.
1.05 "Closing" means the closing of the transactions contemplated by
this Agreement with respect to the purchase and sale of the Transferred Assets
and the assumption of the Assumed Obligations.
1.06 "Closing Date" shall have the meaning set forth in Section 5.01.
1.07 "Diagnostic Centers" shall have the meaning set forth in the
recitals.
1.08 "Disclosure Schedule" means the disclosure schedule attached
hereto as Schedule 1.
1.09 "Eligible Employee" shall have the meaning set forth in Section
3.02.
1.10 "Financial Statements" means the financial statements of the
Seller Group relating to the Business attached hereto as EXHIBIT A consisting of
the Balance Sheets and the statements of operations for the one year and three
month periods ended January 31 and April 30, 1999, respectively.
1.11 "HSR Act" shall have the meaning set forth in Section 11.04.
1.12 "ICSL Group" means, collectively, ICSL and the Seller Group.
1.13 "Liens" shall have the meaning set forth in Section 2.01.
1.14 "Material Adverse Effect" shall have the meaning set forth in
Section 7.01.
1.15 "Permitted Liens" shall mean:
(a) liens for taxes not due;
(b) pledges or deposits made in the ordinary course
of business in connection with workers' compensation,
unemployment insurance and other social security legislation;
(c) easements, rights-of-way, restrictions and other
similar encumbrances which are not material, and which do not
materially detract from the value of any such properties or
assets or materially interfere with any present use of such
properties or assets;
(d) liens on deposits which have been made to secure
the performance of bids, contracts (other than for borrowed
money), leases, statutory obligations,
-2-
<PAGE>
surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course
of business;
(e) statutory and contractual liens in favor of
landlords or lessors securing leases; and
(f) liens arising pursuant to Assumed Obligations.
1.16 "Transferred Assets" means the assets listed on EXHIBIT B hereto.
1.17 References to the "knowledge" of any party regarding the existence
of any factual matter shall refer to the knowledge that the officers and
directors of such party, in the exercise of their corporate law fiduciary
responsibilities, had regarding such matter.
2. PURCHASE AND SALE OF ASSETS
2.01 PURCHASE OF ASSETS.
(a) ASSETS. Upon the terms and subject to the conditions set forth in
this Agreement, at the Closing the Seller Group will sell, transfer and assign
to the Purchaser, free and clear of all liens, pledges, security interests,
charges, claims or encumbrances other than Permitted Liens (collectively,
"LIENS"), those assets, properties and rights related to the ownership and
operation of the Diagnostic Centers, which are all listed or described on
EXHIBIT B hereto (collectively, the "TRANSFERRED ASSETS"). Excluded from the
Transferred Assets are cash and cash equivalents, accounts receivable, books and
records (other than patient records which are expressly included in Transferred
Assets), and all other assets, properties and rights not expressly listed or
described on EXHIBIT B hereto.
(b) LIABILITIES. Upon the terms and subject to the conditions set forth
in this Agreement, at the Closing the Purchaser will assume only those
obligations related to the Transferred Assets that are expressly identified on
EXHIBIT C hereto (the "ASSUMED OBLIGATIONS") and will thereafter timely perform
the Seller Group's obligations under each and timely pay and discharge the same
when due.
3. OTHER PROVISIONS RELATING TO THE PURCHASE AND
SALE OF THE TRANSFERRED ASSETS
3.01 FURTHER ASSURANCES. At any time and from time to time after the
Closing, at the request and at the expense of the Purchaser, and without further
consideration, the ICSL Group will execute and deliver such other instruments of
sale, transfer, conveyance, assignment and confirmation as may be reasonably
requested by the Purchaser in order to more effectively transfer, convey and
assign to the Purchaser and to confirm Purchaser's title to the Transferred
Assets.
-3-
<PAGE>
4. PURCHASE PRICE
4.01 PURCHASE PRICE. In consideration for the Transferred Assets and
the other covenants and agreements set forth herein, including the assumption of
the Assumed Obligations, the Purchaser will pay to ICSL Group or their
designee(s), an aggregate of Thirty-Three Million Five Hundred Fifty Thousand
Dollars ($33,550,000) less the outstanding amount at Closing of the "Long-Term
Obligations" identified as such on EXHIBIT C (currently estimated to be
approximately $4,000,000) and the amount mutually agreed to by the parties at
the Closing to adjust for modifications in the Contracts as a result of the
transactions contemplated by this Agreement (which amount is currently estimated
by the parties to be approximately $1,500,000), payable by certified or bank
check or wire transfer at the Closing.
4.02 PURCHASE PRICE ALLOCATION. The Purchase Price shall be allocated
among the Transferred Assets as reasonably determined by the parties and set
forth on EXHIBIT D attached hereto, which the parties agree to attach to this
Agreement on or before the Closing Date. The parties agree that any reporting of
the Purchase Price or the allocation thereof on any federal or state tax return
shall be consistent with EXHIBIT D.
5. CLOSING; CLOSING DELIVERIES
5.01 CLOSING. The closing of the sale of the Transferred Assets and the
assumption of the Assumed Obligations pursuant to this Agreement (the "CLOSING")
shall take place no more than three business days after expiration of the
applicable HSR Act waiting period and the fulfillment or satisfaction of all
conditions to closing described in Section 6, at 10:00 a.m., local time, at the
offices of Nutter, McClennen & Fish, LLP, One International Place, Boston,
Massachusetts, and otherwise on such date as may be mutually agreed upon by the
parties (the "CLOSING DATE").
5.02 CLOSING DELIVERIES OF THE SELLER GROUP. At the Closing, as a
condition of the Purchaser's obligations to consummate the transactions
contemplated by this Agreement, the ICSL Group shall cause to be delivered to
the Purchaser the following (or receive the Purchaser's written waiver with
respect thereto):
(a) BILLS OF SALE AND ASSIGNMENT. Simultaneously with the
Closing, the Seller Group will deliver, if applicable, to the Purchaser
or its designee(s), Bills of Sale in the form attached hereto as
EXHIBIT E, an Assignment and Assumption Agreement in the form attached
hereto as EXHIBIT F, and other transfer documents which will be
sufficient to vest good and valid title to the tangible Transferred
Assets free and clear of any and all Liens.
(b) RESOLUTIONS. A copy of the resolutions of the Board of
Directors of each member of the Seller Group certified by a duly
elected officer as being complete and correct as of such date and
satisfactory in form and substance to the Purchaser, authorizing and
approving the execution, delivery and performance of this Agreement and
the
-4-
<PAGE>
transactions contemplated hereby and the acts of the officers and
employees of the Seller Group in carrying out the terms and provisions
hereof.
(c) CLOSING CERTIFICATE. A certificate of an officer of ICSL
delivered pursuant to Sections 6.01(a) and (b).
(d) ORGANIZATIONAL DOCUMENTS. A copy of the certificate of
incorporation, certified as of a recent date by the Secretary of State
of the state of incorporation for each of the members of the Seller
Group, and a copy of the By-laws of each member of the Seller Group,
certified by a duly elected officer of such company; a certificate or
certificates of good standing, also certified as of a recent date by
the Secretary of State of the state of incorporation for each of the
members of the Seller Group; and certificates of foreign qualification
with respect to all jurisdictions in which the Seller Group, by the
conduct of their business, are required to be so qualified.
(e) OPINIONS OF COUNSEL. An opinion of counsel for the ICSL
Group in a form mutually agreed to by the parties.
5.03 CLOSING DELIVERIES OF PURCHASER. At the Closing, as a condition of
the ICSL Group's obligation to consummate the transactions contemplated by this
Agreement, the Purchaser shall deliver or cause to be delivered to the ICSL
Group the following (or receive the ICSL Group's written waiver with respect
thereto):
(a) PURCHASE PRICE. The Purchaser must pay the Purchase Price
as provided in Section 4.01.
(b) ASSIGNMENT AND ASSUMPTION AGREEMENT. An Assignment and
Assumption Agreement in the form attached hereto as EXHIBIT F pursuant
to which the Purchaser shall assume and undertake to perform the
Assumed Obligations pursuant to Section 2.01(b).
(c) RESOLUTIONS. A copy of the resolutions of the Board of
Directors of the Purchaser certified by a duly elected officer as being
complete and correct as of such closing date, authorizing and approving
the execution, delivery and performance of this Agreement and the
transactions contemplated hereby and the acts of the officers and
employees of the Purchaser in carrying out the terms and provisions
hereof.
(d) ORGANIZATIONAL DOCUMENTS. A copy of the Purchaser's
Articles of Organization, certified as of a recent date by the
Secretary of State of the state of organization of the Purchaser and a
copy of the Regulations and Operating Agreement of the Purchaser,
certified by a member or manager; a certificate of active status, also
certified as of a recent date by the Secretary of State of the state of
organization of the Purchaser; and certificates of foreign
qualification with respect to all states in which the Purchaser, by the
conduct of its business, is required to be so qualified.
-5-
<PAGE>
(e) CLOSING CERTIFICATE. A certificate of a member of the
Purchaser delivered pursuant to Sections 6.02(a) and (b).
(f) OPINION OF COUNSEL. An opinion of counsel for the
Purchaser in a form mutually agreed to by the parties.
6. CONDITIONS
6.01 CONDITIONS TO PURCHASER'S OBLIGATIONS. At the Closing, it shall be
a condition of Purchaser's obligation to consummate the transactions
contemplated by this Agreement that the following shall be true:
(a) REPRESENTATIONS AND WARRANTIES TRUE. All of the
representations and warranties of the ICSL Group contained in this
Agreement shall be true, correct and complete in all material respects
as of the Closing Date. On such date, a duly elected and currently
serving officer of ICSL shall have executed and delivered to the
Purchaser a certificate to such effect.
(b) PERFORMANCE. The ICSL Group shall have performed and
complied in all material respects with all covenants and agreements
contained herein required to be performed or complied with by them
prior to or at the Closing Date. A duly elected and currently serving
officer of ICSL shall have executed and delivered to the Purchaser a
certificate to such effect.
(c) CLOSING DELIVERIES. The ICSL Group shall have delivered
all of the resolutions, certificates, documents and instruments
required to be delivered by it by this Agreement.
(d) ORDERS, DECREES, JUDGMENTS. No order, decree or judgment
of any court or governmental body shall have been issued and remain in
effect at such date restraining, prohibiting, restricting or delaying
the consummation of the transactions contemplated by this Agreement.
(e) CONSENTS. All consents or approvals required for the
consummation of the transactions contemplated by this Agreement by any
third party shall have been obtained, except where the failure to
obtain any such consent or approval would not have a Material Adverse
Effect (as defined below).
(f) GOVERNMENTAL APPROVALS. All approvals, consents, permits
or licenses from any federal, state or local governmental agency or
body required in connection with the consummation of the transactions
contemplated hereby shall have been duly obtained to the extent that
such approvals, consents, permits or licenses can be legally obtained
prior to
-6-
<PAGE>
such date, except where the failure to obtain any such approval,
consent, permit or license would not have a Material Adverse Effect (as
defined below).
(g) HSR ACT REQUIREMENTS. The filing and waiting requirements
under the HSR Act shall have been complied with and shall have expired
or terminated.
6.02 CONDITIONS TO THE ICSL GROUP'S OBLIGATIONS. At the Closing, it
shall be a condition to the ICSL Group's obligation to consummate the
transactions contemplated by this Agreement that the following shall be true:
(a) REPRESENTATIONS AND WARRANTIES TRUE. All of the
representations and warranties of the Purchaser contained in this
Agreement shall be true, complete and correct in all material respects
as of the Closing Date. On such date, a member of the Purchaser shall
have executed and delivered to the ICSL Group a certificate to such
effect.
(b) PERFORMANCE. The Purchaser shall have performed and
complied with all agreements and covenants contained herein required to
be performed or complied with by the Purchaser prior to or at the
Closing Date. A member of the Purchaser shall have delivered a
certificate to the ICSL Group to such effect.
(c) CLOSING DELIVERIES. The Purchaser shall have delivered the
Purchase Price and all of the resolutions, certificates, documents and
instruments required to be delivered by it by this Agreement.
(d) ORDERS, DECREES, JUDGMENTS. No order, decree or judgment
of any court or governmental body shall have been issued and remain in
effect at such date restraining, prohibiting, restricting or delaying
the consummation of the transactions contemplated by this Agreement.
(e) GOVERNMENTAL APPROVALS. All approvals, consents, permits
or licenses from any federal, state or local governmental agency or
body required in connection with the consummation of the transactions
contemplated hereby shall have been obtained, except where the failure
to obtain any such approval, consent, permit or license would not have
a Material Adverse Effect.
(f) HSR ACT REQUIREMENTS. The filing and waiting requirements
under the HSR Act shall have been complied with and shall have expired
or terminated.
-7-
<PAGE>
7. REPRESENTATIONS AND WARRANTIES OF THE
ICSL GROUP RELATING TO THE TRANSFERRED ASSETS
The members of the ICSL Group jointly and severally represent and
warrant to the Purchaser that, except as disclosed in the DISCLOSURE SCHEDULE,
the following representations and warranties are true and correct as of the date
hereof. Disclosure appearing on the DISCLOSURE SCHEDULE with respect to any
particular representation or warranty shall be deemed disclosure with respect to
every other representation and warranty, as applicable. Subject to the rights of
the Purchaser pursuant to Section 13.01(b) of this Agreement, the ICSL Group may
attach the DISCLOSURE SCHEDULE to this Agreement after the execution hereof by
delivering a copy of the DISCLOSURE SCHEDULE to the Purchaser with a notice
stating that it is to be attached to this Agreement as the DISCLOSURE SCHEDULE.
7.01 ORGANIZATION. Each corporation constituting the Seller Group is a
corporation organized, existing, and in good standing under the laws of the
State of its incorporation. Each member of the Seller Group is qualified or
licensed and in good standing as a foreign corporation in those states listed on
the DISCLOSURE SCHEDULE, which are the only jurisdictions in which the property
owned, leased or operated by it or the nature of the business conducted by it in
connection with the Business makes such qualification or licensing necessary,
except where failure to qualify would not result in a material adverse effect on
the Business taken as a whole (a "Material Adverse Effect").
7.02 POWER AND AUTHORITY. Each member of the Seller Group has corporate
power and authority to carry on its business as now being conducted and to own,
operate and lease its properties in the places where such business is now
conducted and where such properties are now owned, leased or operated. This
Agreement and the transactions contemplated hereby have been approved by all
necessary corporate action on the part of the ICSL Group. Each member of the
ICSL Group has 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 the ICSL Group in connection
herewith constitute the legal, valid and binding obligations of the ICSL Group
enforceable against them in accordance with their respective terms.
7.03 COMPLIANCE. The execution and delivery of this Agreement, together
with all documents and instruments contemplated herein (the "Transaction
Documents") and the consummation of the transactions contemplated thereby by the
ICSL Group will not (i) violate any provision of the organizational documents of
the ICSL Group, (ii) violate any material provision of or result in the breach
of or entitle any party to accelerate (whether after the giving of notice or
lapse of time or both) any material obligation under, any mortgage, lien, lease,
contract, license, instrument or any other agreement to which any member of the
ICSL Group is a party, (iii) result in the creation or imposition of any
material lien, charge, pledge, security interest or other material encumbrance
upon the Transferred Assets or (iv) to the best of the ICSL Group's knowledge,
violate or conflict with any court order, judgment or decree, or any law,
ordinance
-8-
<PAGE>
or regulation to which any member of the ICSL Group or the Transferred Assets is
subject, except for such violation or conflict that would not result in a
Material Adverse Effect.
7.04 APPROVALS. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority or other
person is required in connection with the execution and delivery of this
Agreement by the ICSL Group or the consummation by the ICSL Group of the
transactions contemplated hereby, except for the filing to be made in accordance
with the HSR Act and except where failure to obtain or make such consent,
approval, order, authorization, declaration or filing would not result in a
Material Adverse Effect.
7.05 FINANCIAL INFORMATION AND RECORDS; UNDISCLOSED LIABILITIES.
(a) RECORDS. The books of account and related records of the
Seller applicable to the Business and the Transferred Assets are
correct and complete.
(b) FINANCIAL STATEMENTS. The Financial Statements (a)
correctly reflect the books of account and records of the Seller Group;
(b) have been prepared in accordance with generally accepted accounting
principles, consistently applied throughout the indicated periods
("GAAP"), except that the Financial Statements contain no footnotes and
the interim Financial Statements contain no year-end adjustments; and
(c) fairly present the financial condition, assets and liabilities and
results of operation of the Business at the dates and for the relevant
periods indicated.
(c) UNDISCLOSED LIABILITIES. The Seller Group has no
liabilities applicable to the Business or the Transferred Assets,
except: (a) those reflected or reserved for within the Financial
Statements in the amounts shown therein; (b) those not required under
GAAP to be reflected or reserved for within the Financial Statements
that are expressly quantified and set forth on SCHEDULE 7.05(c)
Disclosure Schedule; and (c) those of the same nature as those set
forth within the Financial Statements that have arisen or will arise in
the ordinary course of business after the date of the Balance Sheet
through the Closing Date, all of which have been consistent in amount
and character with past practice and experience, and none of which,
individually or in the aggregate, has had or will have a Material
Adverse Effect on the Business.
7.06 CONDUCT OF BUSINESS SINCE THE BALANCE SHEET DATE. Since the
Balance Sheet Date, no member of the Seller Group has taken or agreed to take
any action that would obligate any member of the Seller Group to have done or
failed to do any of the following with respect to the Business, except where the
consequence of such action would not have a Material Adverse Effect:
(a) entered into any transaction, agreement or commitment with
respect to the Business, other than in the ordinary course of business;
-9-
<PAGE>
(b) incurred indebtedness for borrowed money;
(c) mortgaged, pledged or otherwise encumbered (except through
a Permitted Lien), or, other than in the ordinary course of business,
sold, transferred or otherwise disposed of, any of the Transferred
Assets; or
(d) made any investment of a capital nature or entered into a
commitment for such investment with respect to the Business.
7.07 LEASED AND TANGIBLE PERSONAL PROPERTIES.
(a) LIST OF REAL PROPERTY LEASED. The Seller Group owns no
real property comprising Transferred Assets. SCHEDULE 7.07(a) of the
Disclosure Schedule sets forth as of the date hereof a correct and
complete list of all real property possessed and used by any member of
the Seller Group under any lease agreement comprising a Transferred
Asset (the "LEASED PROPERTY"). All Leased Property is in condition and
repair adequate for its current use.
(b) STATUS OF LEASES. Each contract pertaining to Leased
Property is in full force and effect and such Leased Property is
subject to no term or condition other than as contained in such
contract. The Seller Group has complied with all commitments and
obligations on its part to be performed or observed under each such
contract, except for such noncompliance which will not, individually or
in the aggregate, have a Material Adverse Effect upon the tenant's
right of possession and use. To the knowledge of the Seller Group, each
party to each such contract other than any member of the Seller Group
has complied with all commitments and obligations on its part to be
performed or observed thereunder, except for such noncompliance which
is not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect upon tenant's right of possession and use. No
member of the ICSL Group has waived any material obligation of any
landlord or any right of such member or any other under any lease or
sublease of Leased Property. No member of the Seller Group has received
any notice of a default, offset or counterclaim under any such contract
and no event or condition has occurred or presently exists that
constitutes a default or, after notice or lapse of time or both and
without a timely cure, would constitute a default under any such
contract, except for such notices, defaults, offsets or counterclaims
which are not reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect upon tenant's right of possession or
use. No security interests, charges or other encumbrance of any kind
attach to any leasehold interest of the Seller Group under any lease or
sublease. SCHEDULE 7.07(b) of the Disclosure Schedule identifies each
existing lease or sublease of Leased Property which will have to be
assigned upon the Closing under circumstances requiring the consent or
approval by another person.
(c) NO ADVERSE ACTIONS. There are no pending nor, to the
knowledge of the ICSL Group, threatened actions or proceedings
(including condemnation and foreclosure)
-10-
<PAGE>
involving, or that might have a Material Adverse Effect upon the
interest of the Seller Group in any Leased Property.
(d) TITLE TO TANGIBLE ASSETS. The Seller Group has good and
marketable title to all tangible personal property comprising
Transferred Assets ("TANGIBLE PERSONAL PROPERTY"), free and clear of
all liens, security interests, charges or encumbrances of any kind,
except as identified in SCHEDULE 7.07(d) of the Disclosure Schedule and
liens the presence of which would not have a Material Adverse Effect
upon ownership or transferability. The Seller Group makes no
representation as to the operating condition or state of repair of any
of Tangible Personal Property, or as to their suitability or adequacy
for the purposes for which they are presently being used by any member
of the Seller Group in its conduct of the Business, and Purchaser
herein acknowledges that it is acquiring the Tangible Personal
Property, in an AS IS, WHERE IS condition.
(e) TANGIBLE PERSONAL PROPERTY LEASES. Each Tangible Personal
Property lease or sublease is in full force and effect. The Seller
Group has complied with all material commitments and obligations on its
part to be performed or observed under each such lease or sublease, and
has received no notice of a default, offset or counterclaim under any
such lease or sublease, and no event or condition has occurred or
presently exists which constitutes a material default or, after notice
or lapse of time or both, would constitute a material default
thereunder.
7.08 PROPRIETARY RIGHTS. SCHEDULE 7.08 of the Disclosure Schedule
contains a complete and accurate listing of all proprietary rights that comprise
Transferred Assets, which are limited to all registered service marks, medical
equipment and billing and collection licenses and any other material licenses,
assignments or other rights relating to the operation of the Business and other
material proprietary rights that are attributable to the conduct of, used in, or
otherwise related to the Business (collectively the "PROPRIETARY RIGHTS").
Except as identified in such Schedule, the ICSL Group maintains sole, valid and
transferable right, title and interest in and to each such Proprietary Right,
the same are enforceable and unencumbered by any encumbrance, none infringe the
rights of others (nor has any claim been made that there is any such
infringement), and no royalty or other payment is required in connection with
the ownership, use or enjoyment of such Transferred Assets by the ICSL Group. No
claim has been asserted against any member of the ICSL Group with respect to the
ownership, possession or use of any of such Proprietary Rights or to the effect
that such member is infringing on or otherwise acting adversely to the rights of
any person in respect of any of such Proprietary Rights, and, to the ICSL
Group's knowledge, no valid basis for such claim exists. SCHEDULE 7.08 of the
Disclosure Schedule contains a correct and complete listing of all material
computer software, databases and programs used by the Seller Group in the
conduct of the Business that are being purchased under this Agreement. All such
items are owned or properly licensed by the Seller Group, and, except as
disclosed in SCHEDULE 7.08 of the Disclosure Schedule, may be transferred to
Purchaser without the consent of another.
-11-
<PAGE>
7.09 CONTRACTS. Set forth on the DISCLOSURE SCHEDULE is a complete and
correct list of all material agreements, contracts and commitments (collectively
"CONTRACTS") entered into in connection with the Business and to which a member
of the Seller Group is a party or by which such party or any of such party's
properties used in the Business is bound. Except as set forth on the DISCLOSURE
SCHEDULE, the ICSL Group has made, or prior to Closing will make, available to
the Purchaser complete and correct copies of all such Contracts (together with
all amendments thereto). All such Contracts are in full force and effect on the
date hereof and, to the knowledge of the ICSL Group, all parties thereto have
performed all obligations required to be performed by them to the date hereof
except where the failure to perform would not constitute a material default
thereunder. At the CMI North and South Centers, CMI-Palm Beach Center and the
Biltmore Center, members of the Seller Group have entered into arrangements with
radiologists to provide professional interpretation of diagnostic imaging
studies on a percentage of net collected revenue or on a per study basis. At the
other Diagnostic Centers members of the Seller Group have entered into service
agreements with radiologists that state that such members will provide
administrative services on a fixed fee basis. Except as set forth in SCHEDULE
7.09 of the Disclosure Schedule, no such Contract contains a non-competition
agreement, "most favored nation" clause, exclusive dealings provision or other
provision that would restrict Purchaser's right to freely deal with other third
parties, nor extend benefits to any contracting party (other than Purchaser as
assignee of the Seller Group) that would not exist if the Closing were not to
occur, or impose obligations on Purchaser or its affiliates upon and after
Closing that either extend to their business and operations other than the
Diagnostic Centers or would not be imposed on any member of the Seller Group if
the Closing were not to occur.
7.10 TITLE TO ASSETS. The Seller Group will transfer to the Purchaser
at the Closing, good, marketable and undivided title to and possession of all of
the owned Transferred Assets, free and clear of any Liens.
7.11 LITIGATION. There are no claims, actions, suits or proceedings
(arbitration or otherwise) pending, or, to the best of the ICSL Group's
knowledge, threatened against any member of the Seller Group with respect to the
Business at law or in equity in any court or before or by any governmental
authority which would have a Material Adverse Effect. No member of the Seller
Group is in default in respect of any judgment, order, writ, injunction or
decree of any court or other governmental authority with respect to the Business
or the transactions contemplated by this Agreement.
7.12 EMPLOYMENT MATTERS.
(a) COMPLIANCE WITH EMPLOYMENT LAWS. Except as stated in
SCHEDULE 7.12(a) of the Disclosure Schedule or to the extent any such
non-compliance (of which it has no knowledge) would not reasonably
involve aggregate expenditures in excess of $25,000, each member of the
Seller Group has, with respect to the Business, complied, and is in
compliance, with all laws relating to the employment of labor,
including, without limitation, all laws and provisions thereof relating
to wages, hours, equal opportunity,
-12-
<PAGE>
collective bargaining, the payment of social security and other taxes,
and occupational safety and health;
(b) LABOR AGREEMENTS. No member of the Seller Group is a party
to or otherwise bound by any labor union or collective bargaining
agreement with respect to the Business, and there are no pending labor
negotiations with or union organizing efforts by any employees of any
member of the Seller Group working in the Business or with any union
representing or attempting to represent any such employees. No member
of the ICSL Group has knowledge of any grievance under a collective
bargaining agreement by an employee of any member of the Seller Group
that has not been resolved. To the knowledge of the ICSL Group, no key
employee or agent or group of employees or agents of any member of the
Seller Group whose principal responsibilities are associated with the
operation of the Business has or have any plans to terminate employment
by or agency with such member or would not be available for employment
by the Purchaser;
(c) NON-COMPETITION AGREEMENTS. To the knowledge of the Seller
Group, no employee of any member of the Seller Group is subject to any
secrecy or non-competition agreement or any other agreement or
restriction of any kind that would impede in any material way the
ability of such employee to carry out fully all activities of such
employee in furtherance of the Business.
7.13 PERMITS. Except as identified in SCHEDULE 7.13 of the Disclosure
Schedule, the Seller Group holds all governmental permits, certificates,
licenses, franchises, privileges, approvals, registrations and authorizations
required under any applicable law or otherwise advisable in connection with the
operation of the Business (for purposes of this Section only, each a "PERMIT"
and collectively, "PERMITS"). Each Permit is valid, subsisting and in full force
and effect, but, except as stated in SCHEDULE 7.13 of the Disclosure Schedule is
non-assignable. The Seller Group is in material compliance with and has
fulfilled and performed its material obligations under each Permit, and no
event, condition or state of facts exists (or would exist upon the giving of
notice or lapse of time or both) that could constitute a material breach or
default under any Permit. No member of the ICSL Group has received any notice of
any violation of law as related to a Permit, and no event has occurred or
condition or state of facts exists that, to the ICSL Group's knowledge, could
reasonably give rise to any such violation. No member of the ICSL Group has
received any notice of non-renewal of any Permit. The ICSL Group makes no
representation or warranty about the requirement or lack of requirement to
obtain any Permit to engage in the practice of medicine or that the Business
does not violate any New York statute, rule or regulation prohibiting the
corporate practice of medicine or splitting fees with non-physicians.
7.14 INSURANCE. All general liability insurance policies with respect
to which any member of the ICSL Group is the owner, insured or beneficiary and
which is applicable to any of the Transferred Assets or the Business have been
issued on an "claims made" basis and are reasonable, in both scope and amount,
in light of the risks attendant to the Business and
-13-
<PAGE>
comparable in coverage to policies customarily maintained by others engaged in
similar lines of business.
7.15 TAXES. Except as disclosed in SCHEDULE 7.15 of the Disclosure
Schedule, the Seller Group has filed or caused to be filed on a timely basis, or
will file or cause to be filed on a timely basis, all tax returns that are
required to be filed by it with respect to the Business prior to the Closing
Date, pursuant to the law of each governmental authority with taxing power over
it. All such filed tax returns were or will be, as the case may be, correct and
complete. The Seller Group has paid or will pay all taxes that have or will
become due as shown on such filed tax returns or pursuant to any assessment
received as an adjustment to such tax returns, except (a) such taxes, if any, as
are being contested in good faith and disclosed on SCHEDULE 7.15 (which remain
the obligation of the Seller Group); (b) such taxes as are fully reserved for
within the Financial Statements; and (c) such taxes accruing after April 30,
1999 that will be due on or before the Closing Date. No claim has been made by a
taxing authority of a jurisdiction where any member of the Seller Group does not
file any tax return that it is or may be subject to taxation in that
jurisdiction. The Seller Group has withheld and paid all taxes required to have
been withheld in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party.
7.16 ENVIRONMENTAL MATTERS. Except as disclosed in SCHEDULE 7.16
of the Disclosure Schedule:
(a) COMPLIANCE; NO LIABILITY. The Seller Group has managed the
Business in material compliance with all applicable Environmental Laws
(as defined in subsection (d) below). The Seller Group is not subject
to any liability, penalty or expense (including legal fees) as a result
of its operation of the Business, and Purchaser will not suffer or
incur any loss, liability, penalty or expense (including legal fees) by
virtue of any violation by any member of the Seller Group of any
Environmental Law, any environmental activity conducted by such member,
or any environmental condition existing on or with respect to any
Leased Property on or prior to the Closing Date, in each case whether
or not the member permitted or participated in such act or omission.
(b) TREATMENT; CERCLIS. The Seller Group has not treated,
recycled, released or disposed of any Regulated Material (as defined in
subsection (h) below) on any Leased Property, and no member of the
Seller Group has knowledge of any other person treating, recycling,
releasing or disposing of any Regulated Material on any part of the
Leased Property. No member of the ICSL Group has transported, or
arranged for the transport of, any Regulated Material in connection
with the Business to any location that is listed or proposed for
listing on the National Priorities List pursuant to Superfund or on
CERCLIS or to any other location that is the subject of a federal,
state or local enforcement action or other investigation that may lead
to claims against such member for cleanup costs, remedial action,
damages to natural resources, to other property or for personal injury,
including claims under Superfund. To the knowledge of the Seller Group,
none of the
-14-
<PAGE>
Leased Property is listed or proposed for listing on the National
Priorities List pursuant to Superfund, CERCLIS or any state or local
list of sites requiring investigation or cleanup.
(c) NOTICES; EXISTING CLAIMS; CERTAIN REGULATED MATERIALS;
STORAGE TANKS. No member of the Seller Group has received any request
for information, notice of claim, demand or other notification that it
is or may be potentially responsible with respect to any investigation,
abatement or cleanup of any threatened or actual release of any
Regulated Material in connection with the Business nor is required to
place any notice or restriction relating to the presence of any
Regulated Material upon any Leased Property. There has been no past,
and there is no pending or contemplated, claim by any member of the
Seller Group under any Environmental Law based on actions of others
that may have impacted on the Leased Property, and no member of such
Group has entered into any agreement with any person regarding any
Environmental Law, remedial action or other environmental liability or
expense in connection with the Business. No member of the Seller Group
knows of any storage tank to be located on the Leased Property, whether
underground or aboveground.
(d) Certain of the capitalized terms used in subsections (a),
(b) or (c) above, or in this subsection, shall be deemed to have the
following meanings:
(i) "CERCLIS" means the United States Comprehensive
Environmental Response Compensation Liability Information
System, as promulgated under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
by the Superfund Amendments and Reauthorization Act of 1986.
(ii) "ENVIRONMENTAL LAW" means any applicable law
relating to public health and safety or protection of the
environment, including common law nuisance, property damage
and law similar to such common law theories.
(iii) "NATIONAL PRIORITIES LIST PURSUANT TO
SUPERFUND" means the list of Regulated Materials sites
established by the United States Environmental Protection
Agency.
(iv) "PCBS" means polychlorinated biphenyls.
(v) "REGULATED MATERIAL" means any pollutant,
contaminant, waste or chemical, or any toxic, radioactive,
ignitable, corrosive, reactive or otherwise hazardous
substance as defined by any Environmental Law, and any other
substance or material, in each case that is regulated by any
applicable Environmental Law, expressly including petroleum,
petroleum-related material, crude oil or any fraction thereof,
PCBs and friable asbestos.
-15-
<PAGE>
(vi) "SUPERFUND" means the United States
Comprehensive Environmental Response Compensation and
Liability Act of 1980, 42 U.S.C. Sections 6901 et seq., as
amended.
7.17 EMPLOYEE BENEFIT PLANS.
(a) LIST OF EMPLOYEE BENEFIT PLANS. Except as set forth in
SCHEDULE 7.17(A) of the Disclosure Schedule, no member of the Seller
Group, maintains or contributes to, nor is committed to establish,
adopt or implement, any of the following agreements, plans or
arrangements, whether oral or written and whether formal or informal
with respect to any of its employees that perform service for the
benefit of the Business, or any of the dependents and beneficiaries of
such employees: (a) pension, profit sharing, stock bonus, stock option,
supplemental retirement or deferred compensation plans (whether or not
qualified or defined in Sections 3(2), 3(34) or 3(35) of the United
States Employee Retirement Income Security Act of 1974, as amended, and
the applicable rulings and regulations thereunder ("ERISA") or in
Sections 414(i) or 414(j) of the Internal Revenue Code of 1986, as
amended (the "CODE")); (b) medical, surgical, health care,
hospitalization, dental, vision, life insurance, disability, severance,
sickness or accident plans (whether or not as defined in Section 3(1)
of ERISA); or (c) other benefit plans. All such plans, contracts or
arrangements set forth on SCHEDULE 7.17(a) of the Disclosure Schedule
are hereinafter in this Section collectively referred to as "BENEFIT
PLANS" and separately as a "BENEFIT PLAN.")
(b) WRITTEN CONTRACTS, ABSENT EMPLOYEES. SCHEDULE 7.17(b) of
the Disclosure Schedule identifies each employee of any member of the
Seller Group who normally performs service related to the Business and
is currently (A) absent from active employment due to short or long
term disability, or (B) employed pursuant to a written contract or
agreement specifying the term of employment.
(c) CONTINUATION OF RIGHTS. With respect to continuation
rights arising under federal or state law as applied to Benefit Plans
that are group health plans (as defined in Section 601, ET SEQ. of
ERISA), SCHEDULE 7.17(c) of the Disclosure Schedule identifies each
employee, former employee and qualifying dependent who has elected
continuation coverage as of or prior to June 30, 1999 and whose
coverage period had not expired as of such date.
(d) CONTRIBUTIONS TO BENEFIT PLANS. With respect to those
Benefit Plans set forth in SCHEDULE 7.17(a) of the Disclosure Schedule:
(a) all contributions required to be made to or in support of the
Benefit Plans as of the date of this Agreement have been made, (b) a
proper accrual has been made on the books of the Seller Group for all
contributions due in the current fiscal year on or prior to the Closing
Date but not made as of the date of this Agreement, and (c) no
contribution has been made in support of any Plan that is in excess of
the allowable deduction for federal income tax purposes for the year
with respect to which the
-16-
<PAGE>
contribution was made (whether under Section 162, Section 280G, Section
404, Section 419 or Section 419A of the Code or otherwise).
7.18 NO REFERRALS BY INTERESTED PARTIES. Except as identified in
SCHEDULE 7.18 of the Disclosure Schedule, from and after commencement of
administration of the Business by the Seller Group at each Diagnostic Center,
and through the Closing Date, there have been no referrals of Medicare or
Medicaid patients to any member of the Seller Group by physicians owning any
equity interest, whether direct or indirect, in such member or, to the knowledge
of the Seller Group, in any of the Diagnostic Centers, or having any financial
relationship, other than the right to receive a fee for professional services
rendered, with such member, to the knowledge of the Seller Group, or Center
(other than Medical Directors.)
7.19 RELATED PARTY TRANSACTIONS. SCHEDULE 7.19 of the Disclosure
Schedule identifies each entity, related through "common ownership or control"
to any member of the Seller Group or, to the knowledge of the Seller Group, a
Diagnostic Center under the definitions of such quoted term set forth under
regulations promulgated by the federal Medicare program or by the Medicaid
program of any state, that has transacted business with any member of the Seller
Group or, to the knowledge of the Seller Group, with a Diagnostic Center. For
each such entity, the Schedule also states the nature of the transaction and the
nature of the relationship, including, but not limited to, the percentage of
common ownership or relationship that creates control. A copy of each contract
and written agreement between such entity and the applicable member of the
Seller Group or Diagnostic Center have been or will be delivered to the
Purchaser prior to or at the Closing.
7.20 DIAGNOSTIC CENTER OPERATION. Each of the Diagnostic Centers is
certified for participation in the Medicare, Medicaid and CHAMPUS programs, has
a current and valid provider contract with each of such programs, is in
compliance in all material respects with the conditions of participation of each
of such programs and has received all approvals or qualifications necessary for
capital reimbursement, except where the failure to be so certified, to have such
contracts to be in such compliance or to have such approvals or qualifications
would not have a Material Adverse Effect on the Business or financial condition
of any particular Diagnostic Center. No member of the ICSL Group has received
notice from the regulatory authorities which enforce the statutory or regulatory
provisions in respect of any of the Medicare, Medicaid or CHAMPUS programs of
any pending or threatened investigation with respect to the operation of any
Diagnostic Center.
7.21 PERIODIC ASSESSMENTS ON HEALTH CARE ENTITIES. Except as disclosed
in SCHEDULE 7.21 of the Disclosure Schedule, each member of the Seller Group has
timely filed all material reports required of it by federal or state agencies
having jurisdiction over any aspect of the operation of the Diagnostic Centers
and has timely paid all periodic assessments imposed by law or regulation with
respect to the revenues derived from such operation, and will be solely
responsible for the payment of any such assessment that becomes payable after
the Closing Date as a result of the operation of any of the Diagnostic Centers
on or before such Date.
17
<PAGE>
7.22 DISCLOSURE. None of the representations or warranties contained in
this Section 7 and none of the information contained in the Schedules referred
to in such Section is false or misleading in any material respect or omits to
state a fact herein or therein necessary to make the statements herein or
therein not misleading in any material respect. The ICSL Group shall, between
the date of this Agreement and the Closing Date, timely provide to the Purchaser
such additional documents and information concerning the Business or Transferred
Assets as may have a Material Adverse Effect upon the accuracy or completeness
of the foregoing warranties and representations, the Scheduled information or
other written information furnished by the ICSL Group to Purchaser.
8. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the ICSL Group, except as set
forth in the Purchaser's DISCLOSURE SCHEDULE, that the following representations
and warranties are true and correct on the date hereof:
8.01 ORGANIZATION. The Purchaser is a limited liability company
organized, existing and in active status under the laws of the state of its
incorporation. The Purchaser is duly qualified or licensed and in good standing
as a foreign corporation in those states listed on the DISCLOSURE SCHEDULE,
which are the only jurisdictions in which the property owned, leased or operated
by the Purchaser or the nature of the business conducted by the Purchaser makes
such qualification or licensing necessary, except where failure to qualify would
not result in a material adverse effect on the business of the Purchaser.
8.02 POWER AND AUTHORITY. The Purchaser has full corporate power and
authority to carry on its business as now being conducted and to own, operate
and lease its properties in the places where such business is now conducted and
such properties are now owned, leased or operated. This Agreement and the
transactions contemplated hereby have been duly approved by the Board of
Directors of the Purchaser. The Purchaser has 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 the Purchaser in connection herewith constitute the legal, valid and binding
obligations of the Purchaser enforceable against it in accordance with their
respective terms.
8.03 COMPLIANCE. The execution and delivery of this Agreement and the
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby by the Purchaser will not (i) violate any provision of the
organizational documents of the Purchaser, (ii) violate any material provision
of or result in the breach of or entitle any party to accelerate (whether after
the giving of notice or lapse of time or both) any material obligation under,
any mortgage, lien, lease, contract, license, instrument or any other agreement
to which the Purchaser is a party, (iii) result in the creation or imposition of
any material lien, charge, pledge, security interest or other material
encumbrance upon any property of the Purchaser or (iv) to the best of the
Purchaser's knowledge, violate or conflict with any court order, judgment or
decree, or any
-18-
<PAGE>
law, ordinance or regulation to which the Purchaser or its
property is subject, except for any such violation or conflict that would not
result in a material adverse effect on the business or operations of the
Purchaser.
8.04 LITIGATION. There are no material claims, actions, suits or
proceedings (arbitration or otherwise) pending or, to the best of the
Purchaser's knowledge, threatened against the Purchaser at law or in equity in
any court or before or by any governmental authority which would have a material
adverse effect on the business or operations of the Purchaser. The Purchaser is
not in default in respect of any judgment, order, writ, injunction or decree of
any court or other governmental authority with respect to the transactions
contemplated by this Agreement.
8.05 APPROVALS. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority or other
person is required in connection with the execution and delivery of this
Agreement by the Purchaser or the consummation by the Purchaser of the
transactions contemplated thereby.
9. COVENANTS OF THE ICSL GROUP
9.01 COOPERATION. The ICSL Group shall use reasonable 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.
9.02 ACCESS. Until the Closing, the ICSL Group shall give the
Purchaser, its attorneys, accountants and other authorized representatives
access, upon reasonable notice and at reasonable times, to the ICSL Group's
offices, suppliers, employees, business and financial records, contracts,
business plans, budgets and projections, agreements and commitments and other
documents and information concerning the Seller Group and the Business (the
"Information") and persons employed by or doing business with the Seller Group,
except such documents covered by the attorney-client privilege. In order that
the Purchaser may have full opportunity to make such examination and
investigation as it may desire of the Business, the ICSL Group will furnish the
Purchaser and its 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
Seller Group to cooperate fully with the representatives of the Purchaser in
connection with such review and examination; provided, however, that the
Purchaser will hold the documents and information concerning the ICSL Group and
the Business confidential in accordance with Section 11.02 hereof.
9.03 ACTIONS PRIOR TO CLOSING. The Seller Group shall conduct the
Business pending the Closing only in the ordinary and usual course consistent
with past practice. Without limiting the generality of the foregoing, the Seller
Group will not, except in the ordinary and usual course, without the prior
written consent of the Purchaser, except to the extent that a Material Adverse
Effect would not result, (i) make any acquisition or disposition of assets used
in connection with the Business; (ii) enter into any contract (other than this
Agreement or as otherwise provided for
19
<PAGE>
in this Agreement) or terminate any contract or other right relating to the
Business; or (iii) make any loans, advances or capital contributions to, or
investments in, any other entity or person involved in the operation of the
Business, other than travel or other advances to employees in the ordinary
course of business consistent with past practice.
9.04 COVENANT NOT TO COMPETE. For a period of three years from and
after the Closing Date, no member of the ICSL Group, nor any subsidiary thereof
shall, directly or indirectly:
(a) own, administer, operate, control or participate in the
ownership, management, operation or control of, or be engaged or
otherwise connected as a stockholder, partner, member, or otherwise
with, any business that at any time during such period directly or
indirectly owns, administers or operates diagnostic imaging centers
within 25 miles of any of the Diagnostic Centers; or
(b) solicit any employee, independent contractor or vendor of
the Purchaser to terminate his, her or its employment, consulting
arrangement or vending arrangement with the Purchaser.
Notwithstanding the foregoing, the following shall not be a violation
of this Section 9.04:
(a) the ownership of not more than two percent of any publicly
traded company that conducts any prohibited activities;
(b) ICSL or any member of the ICSL Group engaging in the
business of providing (A) clinical investigative site management and
outcomes research services, (B) network management services to
independent physician associations and specialty care physician
networks and management and consulting services to hospitals and (C)
management and consulting services to managed care companies; and
(c) Any entity which is not currently an affiliate of ICSL
which acquires a controlling interest in ICSL from conducting any of
the business operations of such entity or its subsidiaries.
10. COVENANTS OF PURCHASER
10.01 COOPERATION. The Purchaser covenants and agrees that it shall use
its best efforts in good faith to perform and fulfill 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.
10.02 TAXES AND FEES. The Purchaser shall pay all sales, use, transfer,
recordation and documentary taxes and fees, if any, arising out of the transfer
of the Transferred Assets pursuant to this Agreement.
-20-
<PAGE>
10.03 EMPLOYEES OF THE SELLER GROUP. Except as provided in Section
10.03(c) below, Purchaser will offer employment after the Closing Date, on terms
and conditions to be determined by Purchaser in its sole discretion, to all of
the employees of the Seller Group whose principal current duties are involved
with the operation of the Business.
(a) WORKERS' COMPENSATION. The Seller Group shall continue to
be responsible for each workers' compensation claim and premium
relating to the Business which is based on an injury occurring on or
prior to the Closing Date, regardless of the date on which such claim
is filed, and shall indemnify and hold Purchaser harmless against all
Damages arising out of or relating to all such claims and premiums in
accordance with Section 12 hereof. Purchaser shall be responsible for
all workers' compensation claims relating to the Business based on
injuries occurring after the Closing Date, and shall indemnify and hold
the Seller Group harmless against all Damages arising out of or
relating to all such claims in accordance with Section 12 hereof.
(b) DESIGNATION OF PURCHASER AS SUCCESSOR EMPLOYER. If
requested by Purchaser, the Seller Group shall consent to the
designation of Purchaser as successor employer of the former employees
of a member of the Seller Group employed in the Business after the
Closing Date for purposes of unemployment insurance, payroll taxes or
workers' compensation contribution premium ratings under applicable
federal or state law.
(c) EMPLOYEE BENEFIT PLANS.
(i) Purchaser shall not be required to maintain, or
cause to be maintained, any Benefit Plan for the benefit of
individuals employed by the Seller Group on the Closing Date
who accept Purchaser's offer of employment, nor to provide any
retiree health or life benefits with respect to such employees
or to any other former employees of the Seller Group or to
their spouses or dependents under any of its existing or new
benefit plans.
(ii) The Seller Group shall remain responsible for
all unemployment compensation claims arising out of
terminations of its employees who do not accept Purchaser's
offer of employment on or prior to the Closing Date, and
Purchaser shall be responsible for any such claims arising out
of terminations after the Closing Date of former employees of
the Seller Group accepting the Purchaser's offer of
employment.
(iii) The Seller Group shall remain responsible for
all benefits payable to each of its employees who, as of the
close of business on the day immediately preceding the Closing
Date, shall be totally and permanently disabled in accordance
with the applicable provisions of any of health, accident,
sickness, salary continuation, or disability benefit (whether
short-term or long-term) plans or programs of the Seller
Group. As of the Closing, any employee who is on
-21-
<PAGE>
approved leave of absence from any member of the Seller Group,
including any employee receiving benefits under any short-term
disability plan or program of such member, or on workers'
compensation leave, shall be deemed to be an employee of the
Seller Group until such time as such employee is no longer on
such approved leave. At the time such employee is available to
return to work, such employee shall be offered employment by
the Purchaser in accordance with the terms of this Section if
his or her principal job duties, at the time of commencement
of such leave, shall have been involved with the operation of
the Business. If at such time the subject employee is eligible
for long-term disability benefits and declines the Purchaser's
employment offer, such employee shall receive such benefits
under the long-term disability plan or program of the Seller
Group.
(d) NO ERISA LIABILITY TO PURCHASER. Nothing in this Agreement
shall be construed to constitute a sale of assets under Section 4204 of
ERISA, and Purchaser shall have no obligation to contribute to, and
shall incur no withdrawal liability, as defined in Section 4201 of
ERISA, or any other liability, cost or expense, whether prior to or
after the Closing, with respect to, any multiemployer plan (as defined
in Section 4001(a)(3) of ERISA) to which the Seller Group or any of its
affiliates contributes or has ever had an obligation to contribute.
10.04 RECORD RETENTION. The Seller Group shall retain the books and
records of the Diagnostic Centers not transferred to Purchaser hereunder for a
period of not less than three years following the Closing Date; subject to a
right of prior disposal of any of the same following its furnishing to Purchaser
of reasonable notice of such intent and to Purchaser's right to obtain from the
Seller Group those books and records which it intends to dispose of. The
Purchaser shall have the further right, at its expense, (i) to have reasonable
access to and examination of such retained books and records during the subject
three year period or until such earlier date on which the Seller Group shall
have disposed of such books and records as provided above, upon reasonable
notice to the Seller Group and during normal business hours, and (ii) to make
copies of the same, subject to the obligation to maintain the confidentiality of
such books and records in accordance with the reasonable direction of the Seller
Group.
11. MUTUAL COVENANTS
11.01 GENERAL COVENANTS. Following the execution of this Agreement,
the Purchaser and the ICSL Group 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;
-22-
<PAGE>
(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 or to comply with the requirements of
the HSR Act;
(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 having, or which, insofar as can
reasonably be foreseen could have, a Material Adverse Effect 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; and
(e) 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 (other than HSR Act filings).
11.02 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 independently developed, (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 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.
-23-
<PAGE>
11.03 BROKER'S FEE. Except as otherwise provided herein, the Purchaser
and ICSL agree that each party is solely responsible for any financial advisory
fee, brokerage commission, finder's fee or like payment due any person or firm
retained by such party in connection with this Agreement or otherwise.
11.04 HART-SCOTT-RODINO FILING.
(a) Purchaser and the ICSL Group agree to file with the Antitrust
Division of the United States Department of Justice and the Federal Trade
Commission a Notification and Report Form in accordance with the notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") and to use their best efforts to achieve the prompt
termination or expiration of the waiting period or any extension thereof
provided for under the HSR Act as a prerequisite to the consummation of the
transactions provided for herein. The Purchaser shall bear the expense of any
filing fees required under the HSR Act as a result of the proposed acquisition
of the Business by Purchaser.
(b) Nothing in this Section 11.04 shall be construed as requiring any
party to this Agreement or its affiliates to (i) sell or otherwise dispose of
any of its assets or voting securities other than as otherwise contemplated by
this Agreement and (ii) take any action which either would have a Material
Adverse Effect on the operations, business or financial condition of any such
party or its affiliates or would materially impair the value of the Business.
11.05 ACCOUNTS RECEIVABLE. For 180 days after Closing, the Purchaser
will collect the accounts receivable of the ICSL Group
existing at the Closing, except for accounts receivable
related to personal injury services (the "Seller
Receivables"), using the same diligence and efforts as
Purchaser uses to collect its own accounts receivable. The
Purchaser will remit to the ICSL Group payments collected by
the Purchaser on the Seller Receivables no less frequently
than weekly. The ICSL Group and the Purchaser shall cooperate
in the collection of the Seller Receivables and the ICSL Group
shall have the ability to assist Purchaser in the collection
of the Seller Receivables. After 180 days, Purchaser's
obligation to collect the Seller Receivables shall cease, and
the ICSL Group shall assume full responsibility for such
collection. The ICSL Group shall use only commercially
reasonable efforts to collect all Seller Receivables. If the
ICSl Group at any time receives payment for post-Closing
accounts receivable of the Purchaser, or if the Purchaser at
any time shall receive accounts receivable of the ICSl Group,
each party agrees to forthwith remit such payment to the other
party promptly, but not later than one week after receipt of
such payment. In determining the proper application of payment
with respect to any account receivable, payment will be
applied towards the invoice referenced in each particular
payment or, in the absence of any such reference, to the
oldest invoice for such vendor.
-24-
<PAGE>
12. SURVIVAL AND INDEMNIFICATION
12.01 SURVIVAL. All representations and warranties made in this
Agreement, or in any instrument or document furnished in connection with this
Agreement or the transactions contemplated hereby, shall expire six (6) months
after the Closing Date.
12.02 AGREEMENT BY THE PURCHASER REGARDING NO OTHER REPRESENTATIONS OR
WARRANTIES BY THE ICSL GROUP. The Purchaser agrees that except for the
representations and warranties (including the Schedules with respect thereto)
made by the ICSL Group expressly set forth in Section 7 of this Agreement, no
member of the ICSL Group nor any affiliate, agent or representative thereof has
made and shall not be construed as having made to the Purchaser or to any
representatives or affiliates thereof, and neither the Purchaser nor any
affiliates, agents or representatives thereof has relied upon, any
representation or warranty of any kind.
12.03 AGREEMENTS TO INDEMNIFY.
(a) As used in this Section 12:
(i) "Indemnified Claims" means assertions of indemnification
obligations hereunder made by an Indemnified Party.
(ii) "Damages" means damages, liabilities, losses, judgments,
settlements, and expenses, including, without limitation, all
reasonable attorneys' fees; provided that, in no event shall
"Damages" mean consequential, special or punitive damages
(except where an underlying cause of action giving rise to any
such Damages is fraud or intentional misrepresentation).
(iii) "Indemnified Party" means (a) with respect to the ICSL
Group's obligations hereunder, the Purchaser and each of its
subsidiaries and affiliates, and (b) with respect to the
Purchaser's obligations hereunder, the ICSL Group and each of
their subsidiaries and affiliates.
(iv) "Indemnifying Party" means (a) the ICSL Group, jointly
and severally with respect to indemnity obligations owed by
the ICSL Group on and after the Closing, and (b) the
Purchaser, with respect to indemnity obligations owed by the
Purchaser on and after the Closing.
(b) On the terms and subject to the limitations set forth in this
Agreement, each Indemnifying Party shall indemnify, defend and hold each
Indemnified Party harmless from, against and in respect of any and all Damages
incurred by any Indemnified Party arising from or in connection with any
material breach of any representation or warranty, or any breach or
non-fulfillment of any covenant or agreement, in each case made by the
Indemnifying Party in this Agreement.
-25-
<PAGE>
12.04 LIMITATIONS OF INDEMNITY OBLIGATIONS.
(a) Except as otherwise explicitly provided in this Agreement or by
statute to the extent that statutory remedies cannot legally be waived by the
person entitled thereto, and except for fraud, deceit or intentional
misrepresentation by the Purchaser or a member of the ICSL Group, the indemnity
obligations of the Indemnifying Party shall expire eighteen (18) months after
the Closing Date and after consummation of the transactions contemplated by this
Agreement the sole and exclusive remedy of the Purchaser or the ICSL Group in
this Agreement are as set forth in this Section 12. Each party acknowledges and
agrees that the other parties would not have entered into this Agreement but for
the inclusion herein of this Section 12.04.
(b) The aggregate indemnity obligations of the ICSL Group under this
Agreement shall not in any event exceed $24,000,000.
(c) An Indemnified Party shall be entitled to indemnification only if
the aggregate and collective Damages for which it or he otherwise would be
entitled to indemnification under this Agreement exceed $460,000, in which event
it or he shall be entitled to indemnification of the full amount of Damages for
which it would be entitled to indemnification under this Section 12 exceeding
such amount.
12.05 NOTICE OF CLAIM. An Indemnified Party shall promptly notify the
Indemnifying Party in writing (the "Claim Notice") of any Indemnified Claim
asserted by a third person that might give rise to any indemnity obligation
hereunder (a "Third Party Claim"), specifying in reasonable detail the nature
thereof and indicating the amount (estimated if necessary) of the Damages that
have been or may be sustained by the Indemnified Party. Failure of an
Indemnified Party to promptly give such notice shall not relieve an Indemnifying
Party of its obligation to indemnify under this Section 12, except to the extent
that such failure is actually and materially prejudicial to the rights or
obligations of the Indemnifying Party, in which event the Indemnifying Party's
obligation shall be reduced by the amount of damages it suffers as a direct
result of the failure. Together with or following such Claim Notice, the
Indemnified Party shall deliver to the Indemnifying Party copies of all notices
and documents received by such Indemnified Party relating to the Third Party
Claim (including court papers).
12.06 DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS. An Indemnifying
Party shall have the right (without prejudice to the right of an Indemnified
Party to participate at his or its own expense through counsel of his or its own
choosing) to defend against any Third Party Claim at his or its expense and
through counsel of his or its own choosing and to control such defense if he or
it gives written notice of his or its intention to do so within 15 business days
of his or its receipt of a Claim Notice of such Third Party Claim. The
Indemnified Party shall cooperate fully in the defense of such Third Party Claim
and shall make available to the Indemnifying Party or his or its counsel all
pertinent information under its or his control relating thereto. The Indemnified
Party shall have the right to elect to settle any Third Party Claim; provided,
however, the Indemnifying Party shall not have any indemnification obligation
with respect to any monetary
-26-
<PAGE>
payment to any third party required by such settlement unless the Indemnifying
Party shall have consented in writing thereto. The Indemnifying Party shall have
the right to elect to settle any Third Party Claim subject to the written
consent of the Indemnified Party which consent shall not be unreasonably
withheld; provided, however, that if the Indemnified Party fails to give such
written consent within 15 business days of being requested to do so, the
Indemnified Party shall, at its or his expense, assume the defense of such Third
Party Claim and regardless of the outcome of such matter, the Indemnifying
Party's liability hereunder shall be limited to the amount of any such proposed
settlement.
13. TERMINATION
13.01 TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) By the Purchaser or ICSL if:
(i) consented to by the other of those named
parties;
(ii) if the Closing shall not have occurred on or
before August 15, 1999, unless the failure
of the Closing to have occurred by such date
is due to the failure of the party seeking
to terminate this Agreement to perform or
observe the covenants and agreements of such
party set forth herein;
(iii) any court or governmental body 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
(iv) the other party commits any material breach
of its representations, warranties or
covenants set forth herein and such breach,
if curable, has not been cured within thirty
(30) days after notice is given to terminate
this Agreement as a result of such breach.
(b) By the Purchaser, if within 24 hours after the ICSL
Group delivers to the Purchaser a final DISCLOSURE
SCHEDULE (i) the Purchaser determines that the
information disclosed in the DISCLOSURE SCHEDULE is
materially different than that which the Purchaser
expected to be in the DISCLOSURE SCHEDULE based upon
its due diligence investigation to the date of such
receipt and (ii) the Purchaser provides notice to the
ICSL Group of its determination.
-27-
<PAGE>
Upon the occurrence of any of the events specified in this Section
13.01 (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.
13.02 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 13.01, this Agreement, except
for the provisions of Sections 11.02, 12.01, 13 and 14, 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 13.02 shall relieve any party to this Agreement of liability for breach
of this Agreement.
14. MISCELLANEOUS
14.01 NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, addressed to the receiving party's address set
forth below or to such other address as a party may designate by notice
hereunder, and either (j) delivered by hand, (ii) made by facsimile
transmission, (iii) sent by recognized overnight courier, or (iv) sent by
registered or certified mail, return receipt requested, postage prepaid.
If to Purchaser:
PresGar Imaging, L.C.
15310 Amberly Drive, Suite 315
Tampa, Florida 33647
Attn: Gary W. Wright
Facsimile telephone number: 813/977-0143
with a copy to:
Jeremy P. Ross
Bush Ross Gardner Warren & Rudy, P.A.
220 South Franklin Street
Tampa, Florida 33602
Facsimile telephone number: 813/223-9620
If to the ICSL Group (or any member thereof):
Innovative Clinical Solutions, Ltd.
10 Dorrance Street, Suite 400
Providence, RI 02903
Attn: President
Facsimile telephone number: 401/831-6758
-28-
<PAGE>
with a copy to:
Nutter, McClennen & Fish, LLP
One International Place
Boston, MA 02110-2699
Attn: James E. Dawson, Esq.
Facsimile telephone number: (617) 973-9748
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 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.
14.02 ENTIRE AGREEMENT. It is agreed that all offers, statements of
intent, understandings and agreements heretofore had among the parties or their
affiliates respecting this transaction are merged in this Agreement (including
the Schedules and Exhibits thereto), which fully and completely expresses the
agreement of the parties, and that there are no other representations,
warranties or agreements.
14.03 WAIVER. No waiver of any breach of any provision of this
Agreement shall constitute a waiver of any other breach of that or any other
provision hereof.
14.04 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 Delaware, without giving effect to the conflict of law
principles thereof.
14.05 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 nevertheless
shall remain in full force and effect.
14.06 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
-29-
<PAGE>
14.07 PUBLICITY. None of the parties hereto shall issue any press
release or otherwise make any public statement with respect to the execution of,
or the transactions contemplated by, this Agreement without the prior written
consent of the others, except as may be required by applicable state or federal
securities or other laws.
14.08 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.
14.09 EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
14.10 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
expressed 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.
14.11 SCHEDULES. All information disclosed in a particular schedule to
this Agreement shall be deemed to be disclosed with respect to all other
schedules to this Agreement as if such information had been set forth in such
other schedules.
14.12 LIMITATION ON DAMAGES. Neither the ICSL Group nor the Purchaser
shall be liable for punitive, special or consequential damages in connection
with this Agreement or the transactions contemplated thereby (except where an
underlying cause of action giving rise to any such damages is fraud or
intentional misrepresentation).
IN WITNESS WHEREOF, Purchaser and the members of the ICSL Group have
executed this Agreement as of the day and year first above written.
PRESGAR IMAGING, L.C.
By PresGar Management, a member
By: /s/ Gary W. Wright
-----------------------------------
Gary W. Wright, a managing member
INNOVATIVE CLINICAL SOLUTIONS, LTD.
BY: /s/ Frederick R. Leathers
-----------------------------------
Name: Frederick R. Leathers
Title: Treasurer
-30-
<PAGE>
PHYMATRIX MANAGEMENT COMPANY, INC.
BY: /s/ Frederick R. Leathers
--------------------------------
Name: Frederick R. Leathers
Title: Chief Financial Officer
PHYMATRIX DIAGNOSTIC IMAGING, INC.
By: /s/ Frederick R. Leathers
--------------------------------
Name: Frederick R. Leathers
Title: Chief Financial Officer
PHYMATRIX DIAGNOSTIC IMAGING, NORTHEAST,
INC.
By: /s/ Frederick R. Leathers
---------------------------------
Name: Frederick R. Leathers
Title: Chief Financial Officer
BABRAD, INC.
By: /s/ Frederick R. Leathers
----------------------------------
Name: Frederick R. Leathers
Title: Treasurer, Chief Financial
Officer
DEERCO, INC.
By: /s/ Frederick R. Leathers
----------------------------------
Name: Frederick R. Leathers
Title: Treasurer, Chief Financial
Officer
BILTMORE IMAGING CENTER, INC.
BY: /s/ Frederick R. Leathers
----------------------------------
Name: Frederick R. Leathers
Title: Treasurer, Chief Financial
Officer
<PAGE>
EXHIBIT 10.11(a)
CONFIRMATORY REVOLVING NOTE
$10,900,000 As of February 1, 1998
FOR VALUE RECEIVED, the undersigned, Chancellor Development Corp., a
Delaware corporation, having an address at 197 First Avenue, Needham Heights,
Massachusetts 02494 (the "Maker") hereby promises to pay to the order of
Innovative Clinical Solutions, Ltd., a Delaware corporation of 10 Dorrance
Street, Providence, Rhode Island 02903, the principal amount of Ten Million Nine
Hundred Thousand Dollars ($10,900,000) or so much thereof as shall be hereafter
advanced from time to time by the holder hereof, on or before July 15, 2000,
with interest through July 15, 2000 in the amount of $892,113 which amount has
been satisfied by agreement of the parties and no further interest shall be due
and payable for such period.
Payments of principal and interest shall be made in lawful money of the
United States of America at 10 Dorrance Street, Providence, Rhode Island 02903,
or at such place as the holder hereof shall have designated to the Maker in
writing.
This Note may be prepaid by the Maker in whole or in part at any time
or from time to time, any such prepayments to be applied first to accrued
interest and then to principal in the order of their maturities.
Maker hereby confirms that advances evidenced by this Note commenced
February 1, 1998 and that interest has been paid through October 31, 1999.
Notwithstanding anything contained herein to the contrary, the holder hereof
shall be under no obligation to make further advances hereunder from and after
the date hereof except in the holder's sole and absolute discretion.
If any of the following events ("Events of Default") shall occur:
(a) if the Maker, or any guarantor hereof, shall default
in the payment of principal and interest on this Note when and as
herein set forth; or
(b) if the Maker, or any guarantor hereof, shall make an
assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts as they become due, or shall file a
voluntary petition in bankruptcy, or shall be adjudicated a bankrupt or
insolvent, or shall file any answer admitting or not contesting the
material allegations of a petition filed against the Maker, or any such
guarantor, in any such proceeding, or shall seek or consent to or
acquiesce in the appointment of any trustee, receiver or liquidator of
the Maker, or any such guarantor, or of all or any substantial part of
the properties of the Maker, or any such guarantor; or
<PAGE>
(c) if within sixty (60) days after entry of a final judgment
in excess of $250,000 against the Maker, or any guarantor hereof, such
judgment shall not have been discharged or execution thereof stayed
pending appeal; or if, within sixty (60) days after the expiration of
any such stay, such judgment shall not have been discharged;
(d) if at any time in the reasonable judgment of Lender the
value of the Shares, as such term is defined in that certain Pledge
Agreement amongst the Lender, the Guarantor and the Maker of even date
herewith (the "Pledge Agreement"), shall be less than seventy-five
percent (75%) of the outstanding principal balance of this Note as
determined by an appraiser selected by Maker from a list of three
unrelated appraisers submitted by Lender to Maker, such selection to be
made within ten (10) days of the submission thereto to Maker, and if
within ten (10) days after notice thereof by Lender to Guarantor,
Guarantor shall not have granted the Lender a first security interest
in collateral which when aggregated with all other collateral
theretofor provided by the Guarantor or Maker to Lender has a value in
the reasonable judgment of Lender equal to or in excess of seventy-five
percent (75%) of the principal balance of this Note;
(e) if the Guarantor shall breach any of the covenants and
agreements contained in that certain Confirmatory Guaranty of even date
herewith, or the Pledge Agreement and such breach remains uncured after
fifteen (15) days' written notice from the Lender;
(f) there shall be a material adverse change in the financial
condition of Guarantor;
then and in any such event the holder of this Note may at any time (unless all
defaults shall have theretofore been remedied) at its option, declare this Note
to be due and payable, whereupon the same shall forthwith mature and become due
and payable together with interest accrued thereon without presentment, demand,
protest or further notice, all of which are hereby expressly waived by the
Maker. Commencing July 16, 2000, interest ("Default Interest") shall accrue at
"prime rate" announced from time to time in the Wall Street Journal per annum
plus 2% until such default is cured or waived or until this Note together with
all Default Interest is paid in full.
In case any one or more Events of Default shall occur and be
continuing, the holder of this Note may proceed to protect and enforce the
rights of such holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained in
this Note, or for an injunction against a violation of any of the terms hereof,
or in aid of the exercise of any power granted hereby or by law. In case of a
default in the payment of any principal of or Regular Interest on this Note, the
Maker will pay to the holder hereof such further amount as shall be sufficient
to cover the cost and expenses of collection, including without limitation
reasonable attorneys' fees. No course of dealing and no delay on the part of
<PAGE>
any holder of this Note in exercising any right, power or remedy shall operate
as a waiver thereof or otherwise prejudice such holder's rights, powers and
remedies. No right, power or remedy conferred by this Note upon any holder
hereof shall be exclusive of any other right, power or remedy referred to herein
or now or hereafter available at law, in equity, by statute or otherwise.
The Maker and each endorser and guarantor or other parties to this
Note, if any, and each of them, severally (a) waive notice of and consent to any
and all amendments, extensions and renewals of this Note, any and all advances,
extensions, settlements, compromises, favors and indulgences, any and all
receipts, substitutions, additions and releases of persons primarily or
secondarily liable, and any and all acceptances by the holder hereof of
negotiable instruments, commercial paper and other property, and agree that none
of the foregoing, should there be any, shall discharge or affect in any way the
liability of the Maker, any endorser, any guarantor or any other party to this
Note or any of them hereunder; (b) agree that all rights and remedies of the
holder of this Note hereunder shall survive any discharge, moratorium or other
relief granted any person primarily or secondarily liable in any proceeding
under federal or state law relating to bankruptcy, insolvency or the relief or
rehabilitation of debtors, and any consent by the holder of this Note to, or
participation by the holder of this Note in the proceeds of, any assignment,
trust or mortgage for the benefit of creditors, or any composition or
arrangement of debts, may be made without the Maker, any endorser, any guarantor
or any other party to this Note or any of them being discharged or affected in
any way thereby; (c) waive any right to require marshalling or exhaustion or any
right or remedy against any person, collateral or other property; and (d) waive
presentment, demand, protest and notice of default, non-payment and protest and
all demands, notices and suretyship defenses generally.
Any notice or demand to the Maker required or permitted under this Note
shall be in writing and shall be deemed given upon the mailing of such notice or
demand to the Maker by certified or registered mail, postage prepaid at the
address set forth in the first paragraph hereof or at such other address as may
be designated by the Maker from time to time.
This Note shall be governed by the laws of the Commonwealth of
Massachusetts.
WITNESS: CHANCELLOR DEVELOPMENT
CORP., a Delaware corporation
/s/ Richard Mikels By: /s/ Abraham D. Gosman
- --------------------------- ------------------------
Name: Abraham D. Gosman
Title: President
Dated: November 30, 1999
<PAGE>
EXHIBIT 10.11(B)
CONFIRMATORY GUARANTY
For valuable consideration, the receipt of which is hereby
acknowledged, and in consideration of Innovative Clinical Solutions, Ltd.
(hereinafter called "Lender") having made or now or in the future making,
advances or otherwise giving credit to CHANCELLOR DEVELOPMENT CORP., a Delaware
corporation (hereinafter called Borrower), pursuant to that certain Confirmatory
Revolving Note of even date in the original principal amount of $10,900,000 made
by Borrower to the order of Lender (the "Note"), the undersigned does hereby
confirm that it has unconditionally guaranteed to Lender, its successors and
assigns, full and prompt payment at maturity of all present and future
obligations of Borrower to Lender under the Note, including all renewals and
extensions thereof of substitutions therefor.
Notice of acceptance of and action taken by Lender from time to time
under this Guaranty are hereby waived, and this Guaranty shall operate as a
continuing and absolute Guaranty covering obligations of Borrower to Lender
under the Note (and renewals and extensions thereof or substitutions therefor).
Upon any "Event of Default" (as that term is defined in the Note) by
Borrower under the Note, the liability of the undersigned shall be effective
immediately, without demand, presentment, protest or notice of any kind, all of
which are hereby waived, and without any suit or action against Borrower and
without further steps to be taken or further conditions to be performed by
Lender or anyone. Failure of Lender to make any demand or otherwise to proceed
against the undersigned with respect to any default by Borrower or the
undersigned shall not constitute a waiver of Lender's right to proceed with
respect to any or all other defaults by Borrower or the undersigned.
Guarantor shall provide Lender with his personal balance sheet for the
six and twelve month periods ending on June 30 and December 31 respectively
within thirty (30) days of the expiration of each such period, in each case
certified by the Guarantor as being true, complete, and correct in all material
respects.
The liability of the undersigned shall not be terminated or otherwise
affected or impaired by Lender's granting time to Borrower (regardless of the
number or length of such grants of time) or by any other indulgence or
indulgences granted by Lender to Borrower, or by Lender's heretofore, now or
hereafter acquiring, releasing or in any way modifying any guaranty from any
other person or persons or any collateral or other security in whatever form for
any of the obligations hereby guaranteed, whether or not notice thereof shall
have been or be given to the undersigned, or by any failure on Lender's part to
take any action with respect to, or to realize upon any security, rights,
endorsements or guaranties which Lender may now or hereafter hold with respect
to any obligation hereby guaranteed, or by any alteration or modification of any
such obligation to which Lender may agree, or because of any fraud, illegal or
improper acts of Borrower or because Borrower may, by operation of law or
otherwise, be relieved of liability
<PAGE>
upon its obligations to Lender hereby guaranteed.
Any and all sums at any time due from Lender to the undersigned and any
and all securities or other property, real or personal, of the undersigned in
the possession of Lender, whether as pledged property or as a result of
foreclosure or otherwise, shall at all times constitute security for any and all
obligations, and Lender may apply or set off such sums against any obligation at
any time, whether or not such obligation is then due, and whether or ot other
collateral is considered by Lender as adequate.
This Guaranty shall be binding upon the heirs, personal representatives and
assigns of the undersigned. The death or incapacity of the undersigned shall not
relieve his estate of any liability or obligation occurring prior to such death
or incapacity, nor accruing prior to the expiration of ten (10) days next
following the receipt by Lender of notice of such death or incapacity.
For the purposes of this Guaranty, the term "obligations" shall mean
and include, without limitation, all indebtedness, liabilities and amounts,
liquidated or unliquidated, owing by Borrower to Lender at any time under the
Note. Said term shall also include all interest, charges, costs and expenses
(including reasonable attorneys' fees) now due or that may hereafter become due
from Borrower to Lender under the Note from time to time.
This instrument is intended to take effect as a sealed instrument and
this instrument and all rights, duties and remedies of the parties shall be
governed as to interpretation, validity, effect and enforcement, and in all
other respects of the same or different nature, by the domestic law of the
Commonwealth of Massachusetts. Any and all payments by the undersigned to Lender
under or pursuant to this Guaranty shall be made at 10 Dorrance Street,
Providence, Rhode Island 02903, or such other place as Lender shall designate in
writing to the undersigned.
WITNESS my hand and seal as of the 1st day of February, 1998.
Witness: /s/ Richard Mikels /s/ Abraham D. Gosman
--------------------- ------------------------
Abraham D. Gosman
Dated: November 30, 1999
<PAGE>
EXHIBIT 10.11(c)
CONFIRMATORY STOCK PLEDGE AGREEMENT
THIS AGREEMENT is made as of the __ day of November, 1999 by and among
ABRAHAM D. GOSMAN (the "Pledgor") and CHANCELLOR PARTNERS LIMITED PARTNERSHIP I,
a Delaware limited partnership ("Partners"), both having an address at 513 North
County Road, Palm Beach, Florida 33480; CHANCELLOR DEVELOPMENT CORP., a Delaware
corporation, having a mailing address at 197 First Avenue, Needham Heights,
Massachusetts 02494 (the "Borrower", and together with the Pledgor and Partners,
hereinafter collectively referred to as the "Borrowing Parties"); and INNOVATIVE
CLINICAL SOLUTIONS, LTD., a Delaware corporation, having its principal address
at 10 Dorrance Street, Providence, Rhode Island 02903 (the "Lender").
WITNESSETH :
WHEREAS, the Borrower has executed and delivered to the Lender a
Confirmatory Revolving Note of even date in the original principal amount of TEN
MILLION NINE HUNDRED THOUSAND DOLLARS ($10,900,000.00) made by the Borrower to
the order of the Lender (the "Note") which, among other things, was given in
confirmation of certain advances made by Lender to the Borrower commencing
February 1, 1998, and to evidence advances hereafter to be made by Lender to the
Borrower in the Lender's sole and absolute discretion as set forth in the Note;
WHEREAS, the Pledgor has executed and delivered that certain Guaranty
of even date (the "Guaranty") in favor of Lender whereby Pledgor, among other
things, has guaranteed the payment and performance of the Note;
WHEREAS, the Pledgor, being a shareholder of the Borrower and the owner
of the capital stock of the general partner of Partners, has received and shall
receive a direct benefit from advances made by the Lender to the Borrower under
the Note and otherwise;
WHEREAS, the Lender has made advances from time to time to the
Borrower;
WHEREAS, it was a condition precedent to the willingness of the Lender
to make the advances confirmed and evidenced by the Note that (i) the Pledgor
and Partners pledge the Windrows Pledged Shares and the ICSL Pledged Shares (as
such terms are hereinafter defined) (collectively all such shares being
hereinafter sometimes referred to as the "Pledged Shares"), and (ii) the Pledgor
previously delivered the Windrows Pledged Shares to Lender; and
WHEREAS, to secure the advances the Pledgor and the Borrower
simultaneously
<PAGE>
execute and deliver this Agreement to and with the Lender confirming
Pledgor's pledge of the Windrows Pledged Shares and the ICSL Pledged Shares;
NOW, THEREFORE, in confirmation of the Lender's inducement to make the
advances made and to be made as set forth above, and in order to induce the
Lender to accept the Note and to enter into or accept all documents, instruments
and agreements given by either or both of the Borrowing Parties in connection
with the Note (collectively, together with the Note, the Guaranty, and this
Agreement, the "Loan Documents"), and in consideration therefor, and for Ten
Dollar ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, and in consideration of the mutual
covenants set forth herein, the parties hereto hereby agree as follows:
1. PLEDGE. (a) The Pledgor hereby confirms that prior to the date
hereof pledged, granted a security interest in, mortgaged, assigned,
transferred, delivered, and set over unto the Lender, its successors and
assigns, all of the Pledgor's right, title and interest in and to Four Thousand
Six Hundred Seventy-Two and Five-Tenths (4,672.5) shares of common stock, $.01
par value per share, of The Windrows at Princeton Corporation ("Windrows"), a
Delaware corporation, registered in the name of the Pledgor (collectively, the
"Pledged Shares"), and the certificates representing or evidencing the Pledged
Shares, with stock powers attached duly endorsed in blank, as security for all
indebtedness, covenants, liabilities, obligations, agreements and undertakings
(other than the Lender's obligations) by any one or more of the Borrowing
Parties, as applicable under the Note and the other Loan Documents (collectively
hereinafter, the "Obligations").
(b) Pledgor and Partners on the date hereof hereby pledge,
grant a security interest in, mortgage, assign, transfer and set over under the
Lender its successors and assigns subject to the prior pledges of such shares to
the institutions designated herein, shares of the common stock of Innovative
Clinical Solutions, Ltd., a Delaware corporation, f/k/a PhyMatrix, Inc. ("ICSL")
represented by the certificates for such shares as follows (collectively the
"ICSL Pledge Shares") as security for the Obligations with stock powers
attached:
(i) Certificate No. PMC1657 for 2,117,419 shares
registered in the name of Abraham D. Gosman
previously pledged to John Fish of Boston,
Massachusetts;
(ii) Certificate No. PMC1275 representing 2,168,707 shares
registered in the name of Chancellor Partners Limited
Partnership I previously pledged to John Fish of
Boston, Massachusetts;
(iii) Certificate No. PMC1658 representing 2,000,000 shares
initially registered in the name of Gosman Marital
Trust and now registered in the name of Abraham D.
Gosman and previously pledged to Colonial Bank;
<PAGE>
(iv) Certificate No. PMC1012 representing 1,200,000 shares
registered in the name of Chancellor Partners Limited
Partnership I and previously pledged to Chase
Manhattan Bank; and
(v) Certificate No. PMC1273 representing 300,000 shares
registered in the name of Chancellor Partners Limited
Partnership I and previously pledged to Chase
Manhattan Bank; and
(vi) Approximately 500,000 shares which cannot presently
be located with respect to which Pledgor shall
execute, acknowledge and deliver all documents
reasonably required to allow the transfer agent to
issue a replacement certificate or certificates which
such replacement certificates shall be delivered to
Lender.
Lender acknowledges that its rights herein are subject to the prior pledges of
such shares as heretofore indicated as the same may be amended from time to
time; provided, however, that Pledgor will execute no amendments to any such
pledge agreements which will materially and adversely affect the Lender's
interest herein without the prior written consent of Lender.
2. REPRESENTATIONS AND WARRANTIES. The Borrowing Parties jointly and
severally represent and warrant that at the time of the pledge of the Windrows
Pledged Shares, February 1, 1998 and as of the date hereof as follows:
(i) except as set forth herein, the Pledgor has good and valid
title to the Pledged Shares free and clear of any liens, charges or encumbrances
thereon or affecting the title thereto;
(ii) the Borrower (a) is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, (b) has the corporate power and holds all licenses necessary to
carry on its business as it is being conducted and (c) is duly qualified to
transact business as a foreign corporation in each jurisdiction in which
qualification is required and where failure to do so would have a material
adverse effect on the business of the Borrower;
(iii) the Pledged Shares have been duly and validly authorized and
issued and are fully paid and non-assessable and constitute all of the issued
and outstanding shares of capital stock of Windrows and ICSL owned by the
Pledgor and Partners;
(iv) the Windrows Pledged Shares represent 93.45% of the
outstanding shares of capital stock of Windrows;
<PAGE>
(v) there are no outstanding subscriptions, warrants, calls,
options, rights, commitments, securities or agreements calling for the issuance
of, or convertible or exchangeable into, any shares of capital stock of Windrows
or for the issuance of any securities convertible or exchangeable, actually or
contingently, into such shares;
(vi) the Borrowing Parties have full power, authority and legal
right and have any approval required by law to enter into and carry out the
terms, provisions and agreements hereof and to make the representations and
warranties contained herein;
(vii) the execution, delivery and performance of a) this Agreement
by the Borrowing Parties and (b) the Note and the delivery of the Windrows
Pledged Shares to the Lender by the Pledgor do not contravene and will not
result in the breach of any of the terms and provisions of, or constitute a
default under, the charter documents of the Borrower or violate any statute,
ordinance, by-law, code, rule, ruling, regulation, restriction, order, judgment,
decree, writ, judicial or administrative interpretation or injunction of any
Governmental Authority having jurisdiction over the Borrowing Parties, or any
property owned by any one or more of the Borrowing Parties;
(viii) except as previously disclosed by Pledgor to Lender, Pledgor
has already obtained or filed, as the case may be, no consent or approval or
other authorization of, or exemption by, or declaration or filing with, any
Person (as that term is hereinafter defined) and no waiver of any right by any
Person is required to authorize or permit, or is otherwise required as a
condition to the delivery of the Windrows Pledged Shares to the Lender by the
Pledgor or the pledge of the ICSL Pledged Shares by Pledgor and Partners, the
execution and delivery of the Note by the Borrower, and of this Agreement by the
Borrowing Parties and the performance of their respective obligations hereunder
or as a condition to the validity (assuming the due authorization, execution and
delivery by the Lender of this Agreement) or enforceability of any of the same;
(ix) this Agreement and the previous delivery of the Windrows
Pledged Shares to the Lender confirm the previously created duly perfected first
and prior possessory security interest in the Windrows Pledged Shares in the
Lender's favor; and
(x) this Agreement represents the legal, valid and binding
obligation of each of the Borrowing Parties enforceable against each of them in
accordance with its terms.
3. COVENANTS. The Pledgor covenants that, until such time as the
Obligations have been fully paid and performed, the Pledgor,
(i) shall not, directly or indirectly, sell, assign, exchange,
convey, pledge, alienate, hypothecate, gift, devise or otherwise transfer or
grant any option with respect to any of the Pledgor's rights to the Pledged
Shares, whether voluntarily or by operation of law;
<PAGE>
(ii) except as previously disclosed by Pledgor to Lender, Pledgor
shall not, directly or indirectly, create or suffer to exist any lien, security
interest or other charge or encumbrance against, in or with respect to any of
the Pledged Shares; except for the pledge hereunder and the security interest
created hereby or any prior pledge disclosed herein;
(iii) shall warrant and defend the title to the Pledged Shares and
the lien thereon conveyed to the Lender by this Agreement against the claims of
all Persons except the claims of such Persons previously disclosed by Pledgor to
Lender;
(iv) shall pay, when due, all taxes and any other charges which
may form the basis of a lien, claim or expense upon or in connection with the
Pledged Shares or any interest therein;
(v) will not permit Windrows to issue any additional shares of
any class of capital stock or pay any cash dividends;
(vi) will provide to Lender quarterly and annual financial
statements of Windrows within thirty (30) days of the close of each Windrows
fiscal quarter and within sixty (60) days of the closing of Windrows' fiscal
year;
(vii) will cause Windrows to provide Lender with all information
concerning Windrows' business, and financial condition as Lender may reasonably
request within ten (10) days of any such request;
(viii) will not permit Windrows to create any liens against its
property or assets, except (a) liens existing on the date hereof , or any
substitution or replacement thereof (provided that there is no shortening of the
maturity of the obligations secured thereby and that the total amount of the
obligation does not exceed $ 76,500,000) (b) liens for taxes not yet due and
payable or (c) liens for services by materialmen or contractors providing
services or materials to Windrows; and
(ix) without limiting the covenants set forth above in clause (ii)
of this Section 3, shall provide written notice to the Lender of all
encumbrances of any kind or nature hereafter placed on the Pledged Shares, such
notice to be delivered to the Lender within five (5) days of the occurrence of
any such encumbrance.
(x) at the request of the Lender, Pledgor and Partners will each
execute one or more financing statements pursuant to the Uniform Commercial Code
in order for Lender to project its security interest in the Pledged Shares.
The Borrowing Parties jointly and severally covenant that (a) they
shall not either
<PAGE>
knowingly or negligently (with or without knowledge) take any action which
would in any manner impair the value of any of the Pledged Shares, (b) shall
not agree to a termination of, any supplement to or any amendment or
modification of the charter documents of Windrows and (c) no additional
shares of capital stock or other securities of Windrows having voting rights,
actually or contingently, shall be issued, sold or otherwise disposed of by
Windrows after the date hereof other than to the Pledgor pursuant to a
Reorganization (as hereinafter defined in Section 4).
4. STOCK DIVIDENDS; REORGANIZATIONS. In the event of any one or more
reclassifications, changes, exchanges, stock splits, stock dividends, stock
consolidations, or other subdivisions or combinations of the shares of any class
of Windrows' or ICSL's capital stock or of any immediate or remote successor to
substantially all of Windrows' or ICSL's business or assets pursuant to any one
or more of the events described in this sentence, or consolidations of Windrows
or any such successor with, or mergers of Windrows, ICSL or any such successor
into, other corporations, or other recapitalizations or reorganizations
affecting Windrows, ICSL or any such successor, or any one or more sales or
conveyances to another corporation of Windrows' or ICSL's property or any such
successor as an entirety or substantially as an entirety (a "Reorganization"),
the Pledgor shall pledge as collateral hereunder all securities and property
which come to the Pledgor as a result of that and subsequent Reorganizations,
except for securities and property surrendered or canceled pursuant to any of
same, along with appropriate stock transfer powers duly endorsed in blank, and
all other instruments the Lender may deem necessary or desirable to vest or
confirm title to same or facilitate foreclosure, assignment, sale or other
transfer thereof. Such securities and property shall stand pledged and assigned
in the same manner as the property described in Section 1 hereof and the term
"Pledged Shares" shall include such securities and property.
5. PLEDGED SHARES, VOTING POWER, DIVIDENDS, ETC. (a) Unless and until an
Event of Default (as hereinafter defined), the Pledgor shall have the right to
exercise all voting, consensual and other powers of ownership pertaining to the
Windrows Pledged Shares; PROVIDED, HOWEVER, that no vote shall be cast or
consent given which would be inconsistent with or violate any of the provisions
of this Agreement or the Note.
If any Event of Default shall have occurred, then and whether or not
the Lender exercises any available option to declare a default under the Note or
seeks or pursues any other relief or remedy available to the Lender under the
Note:
(i) upon written notice from the Lender to the Pledgor, the
Lender shall have the right to vote and exercise all consensual and other powers
of ownership pertaining to the Windrows Pledged Shares in such manner as the
Lender in its sole and absolute discretion may determine and, if the Lender
shall so request in writing, the Pledgor agrees to execute and deliver to the
Lender such additional powers, authorizations, proxies, dividends and such other
documents as the Lender may request to secure to the Lender the rights, powers
and authorities
<PAGE>
intended to be conferred upon the Lender by this Section 5(a); and
(ii) if the Lender shall so request in writing, the Pledgor agrees
to execute and deliver to the Lender appropriate additional dividend,
distribution and other orders and documents to that end.
Following an event of Default, the Pledgor may continue to vote the Windrows
Pledged Shares as permitted hereunder, unless and until the Lender elects its
rights to Vote the Windrows Pledged Shares under clause (ii) above.
(b) So long as the Note has not been paid in full, the Lender shall
have the right to vote and give all consents, waivers and ratifications with
respect to the ICSL Pledged Shares in such manner as Lender , in its sole and
absolute discretion may determine, the power being deemed irrevocable and
coupled with an interest; subject, however, to the rights of any prior pledges
pursuant to any pledge disclosed herein. If Lender shall so request in writing,
the Pledgor and Partners agree each to execute and deliver to the Lender such
additional powers, authorizations, proxies, dividends and such other documents
as Lender may request to secure to the Lender the rights, power and authorities
intended to be conferred upon the Lender by this Section 5(b).
6. SALE OF PLEDGED SHARES AFTER AN EVENT OF DEFAULT. If any Event of
Default shall have occurred, then, at the Lender's option, in addition to any
rights and remedies the Lender may otherwise have, and without further demand,
advertisement or notice, and in any manner necessary to comply with the
applicable requirements of the Uniform Commercial Code, except as expressly
provided for in subsection (i) of this Section 6, the Lender may apply the cash,
if any, then held by it as collateral hereunder, for the purposes and in the
manner provided in Section 7 hereof, or if there shall be no such cash or the
cash so applied shall be insufficient to make in full all payments provided in
subsections (i) and (ii) of Section 7 hereof, the Lender may:
(i) subject to the provision of any prior pledge disclosed
herein, elect to sell the Pledged Shares or its rights in and to them, or any
part thereof, in one or more sales, at public or private sale, conducted by any
officer or agent of, or auctioneer or attorney for, the Lender, at the Lender's
place of business or elsewhere, for cash or on credit, and at such reasonable
price or prices as the Lender shall determine, and the Lender may be the
purchaser of any or all of the Pledged Shares so sold. The Lender may, in its
reasonable discretion, at any such sale restrict the prospective bidders or
purchasers as to their number, nature of business and investment intention,
including, without limitation, a requirement that the Persons making such
purchases represent and agree to the satisfaction of the Lender that they are
purchasing the Pledged Shares for their account, for investment, and not with a
view to the distribution or resale of any thereof. Upon any such sale the Lender
shall have the right to deliver, assign and transfer the Pledged Shares so sold
directly to the purchaser thereof. Each purchaser (including the Lender) at any
such sale shall hold the Pledged Shares so sold, absolutely free from any claim
or right of whatever kind,
<PAGE>
including, without limitation, any equity or right of redemption, of the
Pledgor, which the Pledgor hereby specifically waives, to the extent the
Pledgor may lawfully do so, and all rights of redemption, stay or appraisal
which the Pledgor has or may have under any rule of law or statute now
existing or hereafter adopted. The Lender shall give the Pledgor at least ten
(10) days' written notice (which shall constitute reasonable notice) of any
public or private sale and shall state the time and place fixed for such
sale. Any such public sale shall be held at such time or times within
ordinary business hours as the Lender shall fix in the notice of such sale.
At any such sale the Pledged Shares may be sold in one lot as an entirety or
in separate lots. The Lender shall not be obligated to make any sale pursuant
to any such notice. The Lender, without notice or publication, may adjourn
any public or private sale from time to time by announcement at the time and
place fixed for such sale, or any adjournment thereof, and any such sale may
be made at any time or place to which the same may be so adjourned without
further notice or publication. In case of any sale of all or any part of the
Pledged Shares on credit, the Pledged Shares so sold may be retained by the
Lender until the selling price is paid by the purchaser thereof, but the
Lender shall not incur any liability in case of the failure of such purchaser
to take up and pay for the Pledged Shares so sold, and in case of any such
failure, such Pledged Shares may again be sold under and pursuant to the
provisions hereof; or
(ii) proceed by a suit or suits at law or in equity to foreclose
upon this Agreement and sell the Pledged Shares, or any portion thereof, under a
judgment or decree of a court or courts of competent jurisdiction.
The Lender, as attorney-in-fact pursuant to Section 10 hereof may, in
the name and stead of the Pledgor, make and execute all conveyances, assignments
and transfers of the Pledged Shares sold pursuant to subsection (i) or (ii) of
this Section 6. If so requested by the Lender, the Pledgor shall ratify and
confirm any sale or sales by executing and delivering to the Lender or to such
purchaser or purchasers, all such instruments as may, in the judgment of the
Lender, be reasonably necessary or appropriate for such purpose.
The receipt by the Lender of the purchase money paid at any such sale
made by it shall be a sufficient discharge therefor to any purchaser of the
Pledged Shares, or any portion thereof, sold as aforesaid; and no such purchaser
(or his or its representatives or assigns), after paying such purchase money and
receiving such receipt, shall be bound to see to the application of such
purchase money or any part thereof or in any manner whatsoever be answerable for
any loss, misapplication or nonapplication of any such purchase money, or any
part thereof, or be bound to inquire as to the authorization, necessity,
expediency or regularity of any such sale.
The curing of any Event of Default shall not divest the Lender of its
rights under this Section 6 or any other provision of this Agreement unless and
until the Lender waives said rights in writing.
7. APPLICATION OF PROCEEDS. The proceeds of any sale, or of collection,
of all or any
<PAGE>
part of the Pledged Shares shall be applied by the Lender, without any
marshaling of assets, towards payment of the items immediately set forth
below, in the following order:
(i) all costs and expenses of such sale, including, without
limitation, reasonable compensation to the Lender and its agents, attorneys and
counsel, and all other expenses, liabilities and advances made or reasonably
incurred by the Lender in connection therewith; and
(ii) the Obligations (in such order as the Lender, in its sole and
absolute discretion, shall determine);
after which, any surplus from such proceeds shall be paid to the Pledgor and the
Pledgor's successors assigns, heirs, executors or administrators, or to whomever
may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.
8. EVENTS OF DEFAULT. For purposes of this Agreement, an Event of
Default shall mean the occurrence of any one of the following events:
(i) any default by the Pledgor, the Guarantor and/or the Borrower
in the due observance or performance of any covenant or agreement of the
Pledgor, the Guarantor and/or the Borrower, as the case may be, contained herein
or any Loan Documents or any breach by the Pledgor, the Guarantor and/or the
Borrower of any representation or warranty contained herein or in any of the
Loan Documents, and, in each case, failure by the defaulting party or parties to
cure such default within thirty (30) days after the date such party or parties
firstreceive written notice of such default from the Lender,; or
(ii) any one or more Events of Default (as that term is defined
in the Note) under the terms of the Note or any other Loan Document.
9. OBLIGATIONS WITH RESPECT TO THE PLEDGED SHARES. The Lender shall have
no duty as to the collection or protection of the Pledged Shares or any income
thereon, nor as to the preservation of any rights pertaining thereto, beyond the
safe custody thereof. The Lender may exercise its rights with respect to the
Pledged Shares without resorting or regard to other security or sources of
reimbursement.
10. LENDER APPOINTED ATTORNEY-IN-FACT; INDEMNITY. The Lender, is hereby
appointed as attorney-in-fact, with full power of substitution, of the Pledgor
for the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instruments which such attorney-in-fact may deem
necessary or advisable to accomplish the purposes hereof. The power of attorney
conferred on Lender pursuant to the provisions of this Section 10, being coupled
with an interest, shall be irrevocable until all of the Obligations have been
fully paid and performed and shall not be affected by any disability or
incapacity which the
<PAGE>
Pledgor may suffer and shall survive the same. Such power of attorney is
provided solely to protect the interests of the Lender and shall not impose
any duty on the Lender to exercise any such power, and neither the Lender nor
such attorney-in-fact shall be liable for any act, omission, error in
judgment or mistake of law, except as the same may result from its gross
negligence or wilful misconduct.
The Pledgor shall and hereby agrees to indemnify and save harmless the
Lender from and against any liability or damage which it may incur, in good
faith and without negligence, arising out of the execution and delivery of the
Pledge Agreement.
Each of the parties hereby covenants and agrees that it will not
commence, bring, or otherwise, directly or indirectly, voluntarily join in any
lawsuit, action or proceeding in which the interests of any other party (the
"Other Party") hereto are adverse to the interests of such party which arise out
of or relate to the execution and delivery of the Pledge Agreement or the
exercise and/or performance of any of the Lender's powers and duties
specifically set forth herein and in connection with the enforcement of this
Agreement (an "Activity"), provided the Other Party has acted in good faith and
without negligence with respect to such Activity.
The indemnity provisions of this Section 10 shall survive the complete
payment and performance of the Obligations.
11. REMEDIES CUMULATIVE. The rights and remedies set forth under this
Agreement are in addition to all other rights and remedies afforded to the
Lender under any of the other Loan Documents or at law or in equity, all of
which are hereby reserved by the Lender, and this Agreement is made and accepted
without prejudice to any such rights and remedies. All of the rights and
remedies of the Lender under each of the Loan Documents shall be separate and
cumulative and may be exercised concurrently or successively in the Lender's
sole and absolute discretion.
12. TERMINATION OF PLEDGE. This Agreement shall be terminated upon the
complete payment and performance of the Obligations. Upon the termination of
this Agreement, the Lender shall forthwith assign, transfer and deliver to the
Pledgor, without representation, warranty or recourse, all of the Pledged
Shares, if any, then held by it in pledge hereunder as security for the
Obligations and shall execute any instrument reasonably requested by the Pledgor
to evidence the termination of this Agreement.
13. NOTICES. Any notice, request, demand, statement or consent made
hereunder shall be in writing and shall be deemed duly given if personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally recognized commercial overnight delivery service with provisions for
a receipt, postage or delivery charges prepaid, and shall be deemed given when
postmarked or placed in the possession of such mail or delivery service and
addressed as follows:
<PAGE>
IF TO THE PLEDGOR Abraham D. Gosman
AND PARTNERS: 513 North County Road
Palm Beach, Florida 33480
IF TO THE BORROWER: Chancellor Development Corp.
197 First Avenue
Needham Heights, Massachusetts 02494
IF TO THE LENDER: Innovative Clinical Solutions, Ltd.
10 Dorrance Street
Providence, Rhode Island 02903
or at such other place as any of the parties hereto may from time to time
hereafter designate to the others in writing. Any notice given to the Pledgor or
the Borrower by the Lender at any time shall not imply that such notice or any
further or similar notice was or is required.
14. GENERAL PROVISIONS.
No term or condition of this Agreement will be deemed to have been
waived or amended unless expressed in writing, and the waiver of any condition
or the breach of any term will not be a waiver of any subsequent breach of the
same or any other term or condition. This Agreement shall be binding upon, and
inure to the benefit of, the parties, their heirs, executors, personal
representatives, nominees or assigns. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
such counterparts taken together shall be deemed to constitute one and the same
instrument. The Borrowing Parties agree that they will, at any time and from
time to time, upon request of Lender, do, execute, acknowledge and deliver, or
will cause to be done, executed, acknowledged or delivered, all such further
acts, deeds, assignments, conveyances and assurances as may reasonably be
required for effecting the purposes of this Agreement. This Agreement, the
interpretation and enforcement thereof, shall be governed by the laws of the
Commonwealth of Massachusetts.
As used herein, the term "Person" shall mean any individual,
corporation, general partnership, limited partnership, limited liability
company, limited liability partnership, stock company, or association, joint
venture, company, trust, bank, trust company, land trust, business trust,
unincorporated association, unincorporated organization, governmental authority
or any other entity of any kind or nature.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal on the day and year first above written.
WITNESS: PLEDGOR:
/s/ Richard Mikels /s/ Abraham D. Gosman
- ------------------------- ------------------------------
Name: Abraham D. Gosman
WITNESS: BORROWER:
CHANCELLOR DEVELOPMENT CORP, a
Delaware corporation
/s/ Richard Mikels By: /s/ Abraham D. Gosman
- --------------------------- ----------------------------
Name: Richard Mikels Name: Abraham D. Gosman
Title: President
WITNESS: PARTNERS:
THE CHANCELLOR PARTNERS LIMITED
PARTNERSHIP I
BY CLP, INC.
ITS GENERAL PARTNER
/s/ Richard Mikels By: /s/ Abraham D. Gosman
- --------------------------- ---------------------------------
Abraham D. Gosman
President
WITNESS: LENDER:
INNOVATIVE CLINICAL SOLUTIONS, LTD.,
a Delaware corporation
/s/ James P. Redding By: /s/ Michael T. Heffernan
- --------------------------- -------------------------------
Name: Name: Michael T. Heffernan
Title: President
90051gos1.icsl
<PAGE>
November 30, 1999
Innovative Clinical Solutions, Ltd.
10 Dorrence Street
Providence, Rhode Island 02903
Gentlemen:
Reference is made to those four certain Lease Agreements between the
undersigned and the following entities which are affiliated with you with
respect to the space indicated in the office building known as the Medical
Mall at Palm Beach Gardens located at 3801 PGA Boulevard, Palm Beach Gardens,
Florida 33401 (the "Mall") as follows:
1. Lease with PhyMatrix Management Company, Inc., a Florida
corporation, dated January 31, 1997 with respect to Suite No. 801 ("Lease
801").
2. Lease with PhyMatrix Management Company, Inc. dated January 31, 1997
with respect to Suite 701 ("Lease 701").
3. Lease with Clinical Studies, Ltd. a Delaware corporation, dated
September 25, 1997 with respect to Suite 802 ("Lease 802").
4. Lease with First Choice Home Care, Inc., a Delaware corporation,
dated July 15, 1997 with respect to Suite 107 ("Lease 107").
In consideration of Innovative Clinical Solutions, Ltd.'s agreement to
waive any interest through and including July 15, 2000, on that certain
Promissory Note of Abraham D. Gosman payable to your order dated as of
February 1, 1998 in an original principal face amount of $10,900,000, the
parties hereby agree as follows:
1. That Lease 107 shall be terminated effective November 30, 1999 and
any claim for unpaid rent with respect to Lease 107 is waived;
2. That Lease 802 shall be terminated effective November 30, 1999 and
any claim for unpaid rent with respect to Lease 802 is waived;
3. That the parties hereto further agree to execute an amendment in a
mutually agreed-upon form with respect to Lease 701 providing that
Lease 701 shall be amended to: (i) waive any claim for unpaid rent
with respect to Lease 701 through
<PAGE>
Page 2
November 15, 1999
the end of the current term without extension; (ii) grant PhyMatrix
Management Company, Inc. the right to sublet the Premises (for the
remainder of the current term without extension) at prevailing
market rates and subject to customary tenant concession without
prior written consent of Landlord; and (iii) remove the option to
renew or extend the term of Lease 701 beyond the initial term.
4. That the parties hereto further agree to execute an amendment in a
mutually-agreed upon form with respect to Lease 801 providing that
Lease 801 shall be amended to: (i) waive any claim for unpaid rent
with respect to the Lease through the end of the current term
without extension; (ii) to provide that the "Premises" shall
substitute Suites 600 and 701B, which total 6,400 square feet, for
Suite 801; (iii) grant PhyMatrix Management Company, Inc. the right
to sublet the Premises (for the remainder of the current term without
extension) at prevailing market rates and subject to customary tenant
concession without prior written consent of Landlord; and (iv) remove
the option to renew or extend the term of Lease 801 beyond the
initial term.
5. In the event the Mall is sold on or prior to July 15, 2000, the
undersigned shall pay ICSL in cash the sum of (i) $666,603.00 plus
(ii) $892,113.00 minus (iii) the product of (x) the number of days
from November 1 through the date of payment multiplied by (y)
$3,457.80, whereupon such payment ICSL shall assign Leases 701 and
801, and any subleases thereto, to the undersigned.
Please acknowledge your agreement to waive interest in accordance with
this letter on the copy of which is enclosed.
PBG Medical Mall
Mob1 Properties, Ltd., a Florida
Limited Partnership
By: /s/ Abraham D. Gosman
----------------------------
Abraham D. Gosman
General Partner
ACCEPTED AND AGREED:
Innovative Clinical Solutions, Ltd.
By: /s/ Michael T. Heffernan
-------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> USD
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> JAN-31-1999 JAN-31-1999 JAN-31-2000 JAN-31-2000
<PERIOD-START> AUG-01-1998 FEB-01-1998 AUG-01-1999 FEB-01-1999
<PERIOD-END> OCT-31-1998 OCT-31-1998 OCT-31-1999 OCT-31-1999
<EXCHANGE-RATE> 1 1 1 1
<CASH> 24,237 24,237 38,017 38,017
<SECURITIES> 0 0 0 0
<RECEIVABLES> 65,774 65,774 47,684 47,684
<ALLOWANCES> (46,775) (46,775) (19,690) (19,690)
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 185,697 185,697 99,302 99,302
<PP&E> 12,773 12,773 15,387 15,387
<DEPRECIATION> (1,939) (1,939) (4,035) (4,035)
<TOTAL-ASSETS> 318,496 318,496 158,927 158,927
<CURRENT-LIABILITIES> 28,241 28,241 47,617 47,617
<BONDS> 100,000 100,000 100,000 100,000
0 0 0 0
0 0 0 0
<COMMON> 333 333 320 320
<OTHER-SE> 182,480 182,480 3,879 3,879
<TOTAL-LIABILITY-AND-EQUITY> 318,496 318,496 158,927 158,927
<SALES> 67,946 229,502 44,371 154,887
<TOTAL-REVENUES> 67,946 229,502 44,371 154,887
<CGS> 0 0 0 0
<TOTAL-COSTS> 0 0 0 0
<OTHER-EXPENSES> 80,128 228,362 52,150 198,570
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 1,608 5,254 2,207 6,925
<INCOME-PRETAX> (13,790) (4,114) (9,986) (50,608)
<INCOME-TAX> (4,671) (1,499) (53) 47
<INCOME-CONTINUING> (9,119) (2,615) (9,933) (50,655)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> (51,552) (51,552) 0 (49,632)
<CHANGES> 0 0 0 0
<NET-INCOME> (60,671) (54,167) (9,933) (100,287)
<EPS-BASIC> (1.81) (1.63) (0.28) (2.79)
<EPS-DILUTED> (1.81) (1.63) (0.28) (2.79)
</TABLE>
