PHYMATRIX CORP, 10-K, 1999-04-30

PHYMATRIX CORP
10-K, 1999-04-30
MISC HEALTH & ALLIED SERVICES, NEC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM 10-K

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(Mark One)

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended January 31, 1999

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ___ to ____.

Commission file number 0-27568

PHYMATRIX CORP.
(Exact name of registrant as specified in its charter)

Delaware 65-0617076
(State of incorporation) (I.R.S. Employer Identification No.)

10 Dorrance Street, Suite 400, Providence, Rhode Island 02903
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (401) 831-6755

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

COMMON STOCK, PAR VALUE $ 0.01 PER SHARE

Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such Reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

On April 9, 1999, the aggregate market value of the Common Stock of the
registrant held by non-affiliates of the registrant was $39,979,551. On April
9, 1999, the number of outstanding shares of the registrant's Common Stock,
par value $0.01 per share, was 32,697,844.

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PART I

ITEM 1. BUSINESS

GENERAL

PhyMatrix Corp. (together with its subsidiaries, the "Company" or
"PhyMatrix") is repositioning itself as a company that provides diverse
services supporting the needs of the pharmaceutical and managed care
industries. The Company is focusing its operations on two integrated business
lines: pharmaceutical services, including investigative site management,
clinical and outcomes research and disease management, as well as multi and
single-specialty provider network management. Historically, the Company has
been an integrated medical management company that provides medical
management services to the medical community, certain ancillary medical
services to patients and medical real estate development and consulting
services to related and unrelated third parties. In August 1998, the Company
announced that it planned to change this business model. The Company is in
the process of terminating its management of individual and group physician
practices and divesting itself of related assets, and selling and divesting
itself of its ancillary medical service businesses, such as diagnostic
imaging, radiation therapy, lithotripsy services, home healthcare and
infusion therapy. The Company also has significantly downsized its medical
facility development and consulting services. The Company currently estimates
that by the end of its current fiscal year it will have exited a majority of
its physician practice management ("PPM") and ancillary medical service
businesses.

The Company's strategic goal is to become a leader in the development
of innovative healthcare solutions capable of meeting the current and
emerging research, marketing and operations demands of the pharmaceutical and
managed care industries services. The Company believes that significant
synergy exists among its pharmaceutical services and provider network
management divisions. The Company intends to leverage its key competencies -
clinical trial site management, outcomes research and network management
services - to provide solutions that benefit both pharmaceutical and managed
care companies. Through the Company's ability to access clinical
practitioners and patients, the Company will attempt to accelerate the rate
of Food and Drug Administration ("FDA") approval of pharmaceutical products
for its clients and enhance market acceptance of such products.

The Company provides its clinical and outcomes research services
through a wholly-owned subsidiary, Clinical Studies, Ltd. ("CSL"), a
multi-therapeutic site management organization ("SMO") based in Providence,
Rhode Island. CSL, which was acquired by the Company in October 1997,
provides clinical investigative site management services to 38 research
facilities in 16 states. The Company owns and centrally manages Phase I
through IV research facilities to conduct clinical trials for the
pharmaceutical and biotechnology industries and contract research
organizations ("CROs") and provides a broad range of pre- and post-FDA
approval services designed to expedite new product approval and market
acceptance. The Company has participated in over 600 clinical trials for
approximately 100 clients and enrolled over 20,000 patients. The Company
conducts clinical research in over 10 therapeutic areas, with focused
expertise in central nervous system, asthma and allergy, respiratory,
oncology, endocrinology and women's health. The Company also designs and
conducts customized economic and epidemiological research. The Company
provides an environment for proactively collecting medical and economic data,
thereby linking clinical with "real life" marketing considerations and
quality cost-effective patient outcomes. The Company believes that a critical
element of its ability to expedite the clinical process is its relationship
with existing networks of approximately 9,000 physicians who have more than 8
million member patients.

The Company provides network management services to independent physician
associations ("IPAs"), specialty care physician networks and hospitals. The
Company provides services to IPAs through management service organizations
("MSOs") in which the Company has ownership interests. The Company provides
services to hospitals and specialty care networks primarily through management
agreements. The Company offers these organized groups of physicians
comprehensive network management services to enable them to fulfill their
obligations to managed care organizations. These services include network
development, medical management and managed care contracting. The Company also
provides management expertise and services to managed care organizations. These
services allow managed care organizations to provide efficient, cost-effective
healthcare delivery while maintaining access to high-quality providers.

<PAGE>

Upon the completion of the sale of a majority of its non-core assets, the
Company intends to change its name to Innovative Clinical Solutions, Ltd.

CLINICAL RESEARCH INDUSTRY OVERVIEW

The clinical research industry is driven by the need of the
pharmaceutical, biotechnology and medical device companies to thoroughly test
new drugs and medical devices prior to commercialization in accordance with
strict government regulations imposed by the FDA in the United States and
various international authorities.

Competitive and cost-containment pressures are forcing the pharmaceutical
and biotechnology industries to become more efficient in developing new drugs.
To improve returns on research and development investments, pharmaceutical and
biotechnology companies ("Sponsors") are expanding their product pipelines and
attempting to shorten the product development process. In response to similar
pressures in the healthcare industry, many hospitals, physicians and other
healthcare providers have added clinical research capabilities as an additional
revenue source. Clinical research allows healthcare providers to extend their
core competencies and leverage their direct access to patients.

Sponsors have attempted to create process efficiencies, control fixed
costs and expand capacity by outsourcing certain drug development and clinical
research activities to CROs and SMOs. The amount of clinical research that is
outsourced varies by Sponsor. In general, the Company believes that Sponsors
will continue to increase the amount of outsourcing for a variety of reasons,
including the ability to obtain temporary access to a particular therapeutic
focus and expertise to develop products for many diseases.

The global pharmaceutical and biotechnology industries spent
approximately $35.0 billion in 1997 on research and development.
Approximately $7.0 billion in total was outsourced, including approximately
$3.0 billion outsourced to CROs and approximately $4.0 billion outsourced to
investigative sites.

CLINICAL INVESTIGATIVE SITE MANAGEMENT SERVICES

The Company provides clinical investigative site management services to 38
research facilities in 16 states. The Company both owns and centrally manages
Phase I through IV research facilities to provide a broad range of pre- and
post-FDA approval services designed to expedite new product approval and market
acceptance. The Company conducts clinical research in a wide variety of
therapeutic areas, including central nervous system, asthma and allergy,
respiratory, oncology, endocrinology and women's health. Services include
project initiation (contracting, budgeting and regulatory), project management,
patient recruitment and data collection.

The Company believes that the size, therapeutic breadth and depth,
experience and national scope of its SMO business together with its strong
relationships with physicians and managed care companies offer it a competitive
advantage as the SMO industry evolves. The Company is able to provide
pharmaceutical companies and CROs with access to patients and cost-effective
organization of data collection.

Clinical trials represent one of the most expensive and time-consuming
parts of the overall drug development process. The trial's success depends on
the successful recruitment of experienced physicians (and other medical
professionals) to serve as investigators for the clinical trials. The Company
has direct access to approximately 80 investigators through its 38 sites. The
speed with which trials can be completed is significantly affected by the rate
at which patients who satisfy the requirements of the trial's protocol can be
identified and enrolled. The Company believes it has an advantage in its
ability to enroll qualified patients due to its relationship with networks of
approximately 9,000 primary care and specialty-care physicians with over 8
million member patients.

The information generated during clinical trials is critical for gaining
marketing approval from the FDA or other regulatory agencies. Clinical trials
must be monitored for strict adherence to good clinical practices ("GCP"). The
Company's training programs, standard operating procedures and quality assurance
and control programs aid the clinical investigators and their staff in following
GCP and the established protocols of the studies. The Company

<PAGE>

has adopted standard operating procedures which are intended to satisfy
regulatory requirements and serve as a tool for controlling and enhancing the
quality of the Company's nationwide clinical services.

When prospective patients are enrolled in a clinical trial, they are
required to review information about the drug and its possible side effects and
sign an informed consent form to record their knowledge and acceptance of
potential side effects. Patients also undergo a medical examination to determine
whether they meet the requirements of the study protocol. Patients then receive
the drug under investigation and are examined by the investigator as specified
by the study protocol. Investigators are responsible for administering drugs to
patients, as well as examining patients and conducting necessary tests. The
Company's clinical research coordinators are responsible for completing Case
Report Forms and tracking the patients' visits throughout the period of the
study. The data is reviewed by clinical research associates from either the
Sponsor or CRO and sent to the Sponsor for analysis.

The Company's contracts provide a fixed price for each component or
service delivered. The ultimate contract value depends on such variables as the
number of research sites selected, patients enrolled and other services required
by the Sponsor. The Company's contracts range in duration from several months to
several years. Revenue is earned as patient visits are conducted and such
services are provided. Costs associated with contract revenue are recognized as
incurred. Cash flows vary with each contract, although generally a portion of
the contract fee is paid at the time the trial begins, with the balance paid as
pre-determined contract milestones are satisfied.

Generally, Sponsors may terminate a contract with the Company with or
without cause. In the event of termination, the Company is entitled to payment
for all work performed through the date of notice of termination and for costs
associated with termination of the study. Clinical trials may be terminated for
several reasons, including unexpected results or adverse patient reactions to
the drug, inadequate patient enrollment, manufacturing problems resulting in
shortage of the drug and decisions by the Sponsor to de-emphasize or terminate
either a particular trial or drug. A Sponsor's decision to terminate a sizable
trial in which the Company participates could have a material adverse effect on
the Company's business and results of operations.

OUTCOMES RESEARCH

The Company designs and conducts customized economic and
epidemiological research for the pharmaceutical, biotechnology, medical
device and managed care industries. The Company also has expertise in
developing patient registries and designing disease management programs. The
Company provides an environment for proactively collecting medical and
economic data, thereby linking clinical research with "real life" marketing
considerations and quality cost-effective patient outcomes. These services
enable regulators, healthcare providers, pharmaceutical and biotechnology
companies and others to assess information concerning new medical therapies,
including pricing and cost-effectiveness of new medical therapies.

PROVIDER NETWORK MANAGEMENT

INDUSTRY OVERVIEW

The Health Care Financing Administration ("HCFA") estimates that
national healthcare spending in 1996 exceeded $1 trillion, or 9% of the gross
domestic product ("GDP"). HCFA projects that annual healthcare spending will
increase at a compound annual growth rate of over 8% to $1.5 trillion, or 16%
of the GDP by year 2000. Increasing concern over the cost of healthcare in
the United States has led to numerous initiatives to contain the growth of
healthcare expenditures, particularly in the government entitlement programs
of Medicare and Medicaid. These concerns and initiatives have contributed to
the growth of managed care. From 1991 to 1996, HMO enrollment in the United
States increased from 37 million to 60 million. As markets evolve from
traditional fee-for-service medicine to managed care, HMOs and healthcare
providers confront market pressures to provide high quality healthcare in a
cost-effective manner. Managed care typically involves a third party
(frequently the payor) governing the provision of healthcare with the
objective of ensuring delivery in a high quality and cost effective manner.
One method for achieving this objective is the implementation of capitated
payment systems in which traditional fee-for-service methods of compensating
healthcare providers are replaced with systems that create incentives for the
provider to manage the healthcare needs of a defined population for a set fee.

<PAGE>

PROVIDER NETWORK MANAGEMENT SERVICES

The Company provides network management expertise and services to single
and multi-specialty healthcare providers and managed care organizations. These
services allow managed care organizations to provide efficient, cost-effective
healthcare delivery while maintaining access to high-quality providers. The
Company also offers comprehensive network managed care services to organized
groups of physicians, enabling them to fulfill their obligations to managed care
organizations.

The Company actively pursues contractual arrangements with managed care
organizations. The Company develops specialty care networks within which the
affiliated physicians are responsible for providing all or a portion of
specific healthcare services to a particular patient population. The Company
provides managed care contracting services to national and local physician
specialty care networks containing over 3,000 physician members. Through its
specialty care networks, the Company facilitates the delivery of healthcare
services to approximately 8 million member patients. The Company provides
services, including initiating and completing contract negotiations, claim
adjudication processing, financial, quality assurance and utilization
management reporting, credentialing, network management (such as provider
relations and recruitment), financial management (which involves risk pool
management) and providing payment arrangements for providers and shared
member services with health plans. The Company plans to continue to increase
its managed care capabilities into additional specialty care physician
networks and expand existing relationships with established managed care
organizations. Currently, the Company does not share in any downside
capitation risk. The Company's network specialties include allergy,
chiropractic, dermatology, gastroenterology, hospitalist, podiatry, pulmonary
and urology.

The Company manages IPAs through MSOs in which the Company has ownership
interests. The Company operates six MSOs in three states, providing network
management services to more than 5,000 physicians, primarily in the Northeast.

An IPA is generally composed of a group of independent physicians who
form an association for the purpose of contracting as a single entity.
Participation in IPAs and specialty care networks allow individual
practitioners to access patients in their respective areas through contracts
with HMOs without having to join a group practice. The IPA structure not only
increases the contracting power of the constituent practices, but also
provides a foundation for the development of an integrated physician network.
IPAs provide or contract for medical management services to assist physician
networks in obtaining and servicing managed care contracts. As a result,
previously unaffiliated physicians can assume and more effectively manage
capitated risk. The Company believes that organized providers of healthcare,
like IPAs, will play a significant role in delivering cost effective, quality
medical care.

The MSO is a joint venture between a physician organization (usually an
IPA, although sometimes a hospital) and a management organization, such as
the Company. The Company generally affiliates with an MSO by acquiring an
equity interest in it. The MSO enters into a long-term management services
agreement with an IPA or other physician organization pursuant to which the
MSO provides management services to the IPA or organization. The MSO then
enters into a services agreement with the Company pursuant to which the
Company provides some or all of the management services that the MSO is
required to provide to its affiliated physicians. The fee paid to the Company
is generally either a fixed amount per enrollee or a specified percentage of
capitated revenues. In addition, the Company may be entitled to participate
in risk pools. Currently, the Company does not share in any downside risk.
The fees are set to be competitive within the geographic area in which the
IPA is located.

The Company has formed an MSO with Beth Israel Medical Center and
physician organizations that represent approximately 1,000 primary care and
specialty physicians of Beth Israel and St. Luke's-Roosevelt Hospital Center,
the hospitals that comprise Greater Metropolitan Health Systems, Inc. This MSO
provides the physicians and hospitals with medical management and contract
negotiation support for risk agreements with managed care payors. The Company
and Beth Israel Medical Center also have entered into a management agreement to
expand both organizations' involvement in pharmaceutical industry-sponsored
research. The Company and Beth Israel will work with many leading pharmaceutical
companies on Phase I through Phase IV clinical trials.

<PAGE>

The Company is focused on integrating its network physicians with its
clinical site management services because it believes that doing so will
provide the IPA physicians with enhanced clinical information, the
opportunity to generate more revenue and an enhanced reputation by
participating in trials.

BUSINESSES HELD FOR SALE

During August 1998, the Board of Directors approved, consistent with
its goal of repositioning the Company, a plan to divest and exit the
Company's PPM business and certain of its ancillary services businesses,
including diagnostic imaging, lithotripsy and radiation therapy. After
further evaluation, the Company also decided to divest its home health
business and exit its infusion therapy businesses. Net loss for the year
ended January 31, 1999 includes an extraordinary item of $96.8 million which
is primarily a non-cash charge resulting from divestitures or disposals that
had occurred subsequent to August 1998, as well as the write-down of the
assets of businesses identified to be divested or disposed subsequent to
January 31, 1999.

From August 1998 through April 15, 1999, the Company has divested eight
physician practices, terminated its relationships with four employed
physicians and sold two radiation therapy centers and an equity investment in
a lithotripsy business.

As of April 15, 1999, the Company's assets held for sale has remaining
affiliations through management and/or employment agreements with
approximately 150 physicians in eight states, 14 diagnostic imaging centers
in four states, seven radiation therapy centers in three states and six
mobile lithotripters.

The Company is continuing to provide information to and negotiate with
various purchasers of its remaining businesses. Based upon current fair market
value estimates, the Company expects to realize net proceeds of approximately
$100.8 million from the sale of these remaining businesses identified to be
divested or disposed and has recorded this amount as an asset held for sale on
the balance sheet at January 31, 1999.

REAL ESTATE SERVICES SEGMENT

The Company historically has provided real estate services to related and
unrelated third parties primarily for the establishment of various healthcare
related facilities, including health parks, medical malls and medical office
buildings. The Company's real estate services have included project finance
assistance, project management, construction management, construction design
engineering, consulting, asset conversions, due diligence services, physician
recruitment, leasing and marketing.

Under its development agreements, the Company is generally obligated to
secure funding for and guaranty the maximum cost of a project. In order to
minimize the risks from these obligations, the Company enters into construction
agreements with general contractors to construct the project for a "guaranteed
maximum cost." Furthermore, each construction agreement provides for
indemnification of the Company by the general contractor for certain losses and
damages. Each construction agreement also requires the contractor to obtain and
maintain a performance bond and a labor and material payment bond, written by a
surety company with a Best's Key Guide Rating of not less than A+12 and
satisfactory to the owner of the land on which a project is developed and the
construction lender.

POTENTIAL LIABILITY AND INSURANCE

The Company is subject to medical malpractice, personal injury and other
liability claims related to the operation of its clinical studies business,
healthcare facilities and provision of other healthcare services.

<PAGE>

Clinical trials involve the testing of approved and non-approved drugs on
human beings. This testing carries with it a significant risk of liability for
personal injury or death to participants resulting from an adverse reaction to,
or improper administration of, the trial drug. Many clinical trial participants
are seriously ill and are at great risk of further illness or death as a result
of factors other than their participation in the trial. The Company contracts on
behalf of Sponsors with physicians who render professional services, including
administering the drugs being tested, to participants in these trials. Company
personnel and subcontractors also render professional services to participants
in trials and are materially involved in the patient treatment process.
Consequently, the Company may be subject to claims in the event of personal
injury or death of persons participating in clinical trials and arising from
professional malpractice of physicians with whom it has contracted and its own
employees. To date, the Company has not received any claims resulting from
either the testing of new drugs or professional malpractice.

The Company believes that the risk of liability associated with clinical
trials is mitigated by various regulatory requirements, including the role of
independent review boards ("IRBs"). An IRB is an independent committee that
includes medical and non-medical personnel and is obligated to protect the
interests of patients enrolled in the trials. The FDA requires each human
clinical trial to be reviewed and approved by the IRB at each research site.
After the trial begins, the IRB monitors the protocol and the measures designed
to protect patients, such as the requirement to obtain informed consent. In
addition, regulations governing the conduct of clinical trials and the
protection of human subjects place responsibility for proper study conduct and
subject protection directly on the principal investigator at each location where
a study is performed.

The Company maintains liability and medical professional insurance
policies with such coverages and deductibles as are deemed appropriate by
management, based upon historical claims, industry standards and the nature and
risks of its business. There can be no assurance that a future claim will not
exceed available insurance coverages or that such coverages will continue to be
available for the same scope of coverages at reasonable premium rates. Any
substantial increase in the cost of such insurance or the unavailability of any
such coverages could have a material adverse effect on the Company's business.

GOVERNMENT REGULATION

The clinical investigation of new drugs is highly regulated by government
agencies to ensure the products are safe and effective before broad public use.
Before a new drug may be approved and marketed, the drug must undergo extensive
testing and regulatory review in order to determine that the drug is safe and
effective. The standard for the conduct of clinical research and development
studies comprises GCP, which stipulates procedures designed to ensure the
quality and integrity of data obtained from clinical testing and to protect the
rights and safety of clinical subjects. While GCP has not been formally adopted
by the FDA nor, with certain exceptions, by similar regulatory authorities in
other countries, some provisions of GCP have been included in regulations
adopted by the FDA. Furthermore, in practice, the FDA and many other regulatory
authorities require that study results submitted to such authorities be based on
studies conducted in accordance with GCP.

The clinical investigative site management services provided by the
Company are ultimately subject to FDA regulation in the United States. The
Company is obligated to comply with FDA requirements governing such
activities as obtaining patient informed consents, verifying qualifications
of investigators, reporting patients' adverse reactions to drugs and
maintaining thorough and accurate records. The Company must maintain
documents for each study for specified periods, and such documents may be
reviewed by the study sponsor and the FDA during audits. If FDA audits
indicate that the Company has failed to adequately comply with federal
regulations and guidelines, it could have a material adverse effect on the
Company's results of operations, financial condition and reputation. In
addition, non-compliance with GCP can result in the disqualification of data
collected during a clinical trial.

The Company is also subject to various government regulations related to
the businesses held for sale.

REIMBURSEMENT AND COST CONTAINMENT

Approximately 16% of the net revenues of the Company for its fiscal year
ended January 31, 1999 was derived from payments made by government sponsored
health care programs (principally, Medicare and Medicaid). As a

<PAGE>

result, any change in reimbursement regulations, policies, practices,
interpretations or statutes could adversely affect the operations of the
Company. Congress has passed a fiscal year 1996 budget resolution that calls for
reductions in the rate of spending increases over the next seven years of $270
billion in the Medicare program and $182 billion in the Medicaid program.
Through the Medicare program, the federal government has implemented a
resource-based relative value scale ("RBRVS") payment methodology for physician
services. RBRVS is a fee schedule that, except for certain geographical and
other adjustments, pays similarly situated physicians the same amount for the
same services. The RBRVS is adjusted each year and is subject to increases or
decreases at the discretion of Congress. The implementation of RBRVS may result
in reductions in payment rates for procedures provided by physicians under
current contract with the Company. RBRVS-type payment systems have also been
adopted by certain private third party payors and may become a predominant
payment methodology. A broader implementation of such programs would reduce
payments by private third party payors and could indirectly reduce the Company's
operating margins to the extent that the cost of providing management services
related to such procedures could not be proportionately reduced. To the extent
the Company's costs increase, the Company may not be able to recover such cost
increases from government reimbursement programs. In addition, because of cost
containment measures and market changes in nongovernmental insurance plans, the
Company may not be able to shift cost increases to nongovernmental payors. The
Company expects a reduction from historical levels in per patient Medicare
revenue received by certain of the physician groups with which the Company
contracts; however, the Company does not believe such reductions would, if
implemented, result in a material adverse effect on the Company.

In addition to current governmental regulation, the Clinton Administration
and several members of Congress have proposed legislation for comprehensive
reforms affecting the payment for and availability of health care services.
Aspects of certain of such health care proposals, such as reductions in Medicare
and Medicaid payments, if adopted, could adversely affect the Company. Other
aspects of such proposals, such as universal health insurance coverage and
coverage of certain previously uncovered services, could have a positive impact
on the Company's business. It is not possible at this time to predict what, if
any, reforms will be adopted by Congress or state legislatures or when such
reforms would be adopted and implemented. As health care reform progresses and
the regulatory environment accommodates reform, it is likely that changes in
state and federal regulations will necessitate modifications to the Company's
agreements and operations. While the Company believes it will be able to
restructure in accordance with applicable laws and regulations, the Company
cannot assure that such restructuring in all cases will be possible or
profitable.

EMPLOYEES

As of January 31, 1999, the Company employed approximately 1,440
persons, primarily all of whom were full-time employees. The Company
believes that its labor relations are good.

ITEM 2. PROPERTIES

The Company leases approximately 19,000 square feet of space in
Providence, Rhode Island, where the Company's new headquarters are located. The
lease expires in 2005.

The Company also leases clinical research sites in 16 states. The Company
leases other locations, many of which are related to businesses held for sale.

ITEM 3. LEGAL PROCEEDINGS

The Company is subject to legal proceedings in the ordinary course of its
business. The Company does not believe that any such legal proceedings will have
a material adverse effect on the Company, although there can be no assurance to
this effect.

<PAGE>

practice-enhancement activities subjects a physician to disciplinary action for
a violation of a statute which prohibits fee-splitting. Some of the Company's
contracts with Florida physicians include provisions providing for such
payments. The Company has appealed the ruling to a Florida District Court of
Appeals and the Board of Medicine has stayed the enforceability of its ruling
pending the appeal. In the event the Board of Medicine's ruling is eventually
upheld, a party to an affected contract may initiate legal process to invalidate
the contract, or the Company may be forced to renegotiate those provisions of
the contracts which are affected by the ruling. While these contracts call for
renegotiation in the event that a provision is not found to comply with state
law, there can be no assurance that the contracts will not be invalidated or
that the Company would be able to renegotiate such provisions on acceptable
terms. The majority of the contracts affected by this ruling are with the
physician practices the Company has identified to be divested or disposed and
the assets related to these practices are included in assets held for sale at
January 31, 1999.

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

The following persons were elected as directors at the Annual Meeting
of the Company's stockholders held on January 26, 1999 to serve as directors
in the class of the Board of Directors whose terms expire at the annual
meeting of stockholders to be held in 2001.

Number of Shares/Votes
----------------------
Authority
For Withheld
--- --------

<S> <C> <C>
Abraham D. Gosman 18,907,827 315,315
Hugh L. Carey 16,915,779 2,307,363

</TABLE>

<PAGE>

PART II

ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol PHMX. The following table sets forth the range of high and low closing
prices per share of the Common Stock for the periods indicated, as reported on
the Nasdaq National Market.

1998 High Low
- -------------- -------- --------
<S> <C> <C>
First Quarter $ 16.25 $ 11.00
Second Quarter 16.38 11.13
Third Quarter 17.00 12.00
Fourth Quarter 15.75 12.38

1999
- --------------
First Quarter $ 13.44 $ 9.50
Second Quarter 10.50 5.75
Third Quarter 6.25 2.00
Fourth Quarter 3.32 1.63

2000
- --------------
First Quarter (through April 9, 1999) $ 2.63 $ 1.63

</TABLE>

On April 9, 1999, the last reported sales price for the Common Shares was
$1.72. On April 9, 1999, there were 217 record holders for the Common Stock.

The Company has never paid cash dividends on its capital stock and does
not anticipate paying cash dividends in the foreseeable future. The declaration
of dividends is currently restricted, in certain circumstances, by the Company's
revolving line of credit agreement, and it is anticipated that other loan
agreements the Company may enter into in the future will also contain
restrictions on the payment of dividends by the Company.

ITEM 6. SELECTED FINANCIAL DATA

The following selected historical financial data was derived from the
Company's Financial Statements, which have been audited by independent
accountants, PricewaterhouseCoopers LLP. During October 1997, a subsidiary of
the Company merged with CSL in a business combination that was accounted for as
a pooling of interests. Accordingly, the financial statements for all periods
prior to the effective date of the merger have been restated to include CSL. The
data presented below should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto, included elsewhere in
this Annual Report on Form 10-K. The amounts below are in thousands except per
share data.

<PAGE>

Combined Consolidated
Year Ended
--------------------------------------------------------------
December 31, January 31,
-------------------- -------------------------------------
1994 1995 1997 1998 1999
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues:
Net revenues from services $ 7,368 $ 61,712 $ 98,765 $ 155,946 $ 179,472
Net revenues from management service agreements -- 12,717 47,942 94,134 103,112
Net revenues from real estate services -- -- 19,049 31,099 8,694
------- --------- --------- --------- ---------
Total revenue 7,368 74,429 165,756 281,179 291,278

Operating expenses:
Salaries, wages and benefits 3,956 35,809 58,351 88,221 94,710
Depreciation and amortization 166 3,956 7,382 10,800 14,786
Rent expense 554 5,102 8,519 16,649 20,671
Earn out payment -- 1,271 -- -- --
Provision for closure loss -- 2,500 -- -- --
Gain on sale of assets -- -- (262) (1,891) (5,414)
Provision for write-down of notes receivable -- -- -- -- 2,674
Merger and other noncontinuing expenses related to CSL 922 2,133 1,929 11,057 --
Goodwill impairment write-down -- -- -- -- 9,093
Nonrecurring expenses -- -- -- -- 10,465
Other (primarily capitation expense) 3,070 27,493 66,694 132,177 181,813
------- --------- --------- --------- ---------
Income (loss) from operations (1,300) (3,835) 23,143 24,166 (37,520)
Interest expense, net 96 4,828 1,726 4,775 8,005
(Income) from investments in affiliates -- (569) (709) (731) --
------- --------- --------- --------- ---------
Net income (loss) before taxes and extraordinary item (1,396) (8,094) 22,126 20,122 (45,525)
Income tax expense (benefit) -- -- 6,836 9,823 (11,549)
------- --------- --------- --------- ---------
Net income (loss) before extraordinary item (1) (1,396) (8,094) 15,290 10,299 (33,976)
------- --------- --------- --------- ---------
Extraordinary item, net of tax of $0 -- -- -- -- 96,784
------- --------- --------- --------- ---------
Net income (loss) $(1,396) $ (8,094) $ 15,290 $ 10,299 $(130,760)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Net income (loss) per share- basic
Income (loss) before extraordinary item $ -- $ -- $ 0.56 $ 0.35 $ (1.02)
Extraordinary item, net of tax of $0 $ -- $ -- $ -- $ -- $ (2.89)
Net income (loss) $ -- $ -- $ 0.56 $ 0.35 $ (3.91)
Net income (loss) per share - diluted
Income (loss) before extraordinary item $ -- $ -- $ 0.55 $ 0.35 $ (1.02)
Extraordinary item, net of tax of $0 $ -- $ -- $ -- $ -- $ (2.89)
Net income (loss) $ -- $ -- $ 0.55 $ 0.35 $ (3.91)

Pro Forma Information (Unaudited) (2):
Adjustment to income tax expense $ -- $ -- $ 1,293 $ 624 $ --
Net income -- -- 13,997 9,675 --
Net income per share - basic $ -- $ -- $ 0.51 $ 0.33 $ --
Net income per share - diluted $ -- $ -- $ 0.51 $ 0.33 $ --

Weighted average shares outstanding - basic -- -- 27,295 29,690 33,401
Weighted average shares outstanding - diluted -- -- 27,682 30,229 33,401

</TABLE>

<PAGE>

Combined Consolidated
-------------------------- ------------------------------------------
December 31, January 31,
1994 1995 1997 1998 1999
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 2,518 $ (19,897) $ 111,811 $ 86,390 $ 111,185
Accounts receivable, net 3,993 22,921 41,744 57,252 15,276
Total assets 15,976 138,467 313,310 378,160 252,851
Total debt 1,532 97,090 118,830 134,359 117,657
Shareholders' equity 11,714 15,437 153,780 212,035 105,900

</TABLE>

(1) Provisions for income taxes have not been reflected in the combined
financial statements because there is no taxable income on a combined
basis.

(2) The pro forma net income and net income per share information reflect the
effect on historical results (prior to the merger with CSL) as if CSL had
been a C corporation rather than an S corporation and had paid income
taxes.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

INTRODUCTION

PhyMatrix is repositioning itself as a company that provides diverse
services supporting the needs of the pharmaceutical and managed care
industries. The Company is focusing its operations on two integrated business
lines: pharmaceutical services, including investigative site management,
clinical and outcomes research and disease management, as well as multi and
single-specialty provider network management. Historically, the Company has
been an integrated medical management company that provides medical
management services to the medical community, certain ancillary medical
services to patients and medical real estate development and consulting
services to related and unrelated third parties. In August 1998, the Company
announced that it planned to change this business model. The Company is in
the process of terminating its management of individual and group physician
practices and divesting itself of related assets, and selling and divesting
itself of its ancillary medical service businesses, such as diagnostic
imaging, radiation therapy, lithotripsy services, home healthcare and
infusion therapy. The Company also has significantly downsized its medical
facility development and consulting services. The Company currently estimates
that by the end of its current fiscal year it will have exited its physician
practice management ("PPM") and ancillary medical service businesses.

In January 1996, the Company changed its fiscal year end from December 31
to January 31.

RECENT EVENTS

During May 1998, the Company announced that the Board of Directors had
instructed management to explore various strategic alternatives for the Company
that could maximize stockholder value. During August 1998, the Company announced
that the Board of Directors approved several strategic alternatives to enhance
stockholder value. The Board authorized a series of initiatives designed to
restructure the Company as a significant company in pharmaceutical contract
research, specifically clinical trials site management and outcomes research.
The Company intends to link its nationally focused hospital affiliations and its
physician networks with its clinical trials site management and outcomes
research operations.

<PAGE>

Company is required to record these charges as an extraordinary item since
impairment losses are being recognized for divestitures and disposals
expected to be completed within two years subsequent to a pooling of
interests (the pooling of interests with CSL was effective October 15, 1997).
Based on fair market value estimates, which have primarily been derived from
letters of intent, letters of interest and discussions with prospective
buyers, the Company currently expects to realize net proceeds of
approximately $100.8 million from the sale of the businesses identified to be
divested or disposed and has recorded this amount as an asset held for sale
on the balance sheet at January 31, 1999.

During the fourth quarter ended January 31, 1999, the Company made the
decision to significantly downsize its real estate services segment and
recorded a goodwill impairment write-down of approximately $9.1 million which
eliminates the remaining goodwill of the real estate services segment.

YEAR ENDED JANUARY 31, 1999 TRANSACTIONS (ALL INFORMATION RELATED TO THE
NUMBER OF PHYSICIANS IS AS OF THE TRANSACTION DATE)

During February 1998, the Company purchased New England Research
Center, a clinical research center located in Massachusetts. At the time of
its acquisition, New England Research Center had over 50 ongoing studies,
primarily in allergy and asthma. In conjunction with the acquisition, the
Company entered into a 40-year agreement with the physicians and employees to
manage the clinical trials at New England Research Center. The purchase price
was approximately $5.7 million. Of such purchase price, approximately $1.5
million was paid in cash and 333,006 shares of Common Stock were issued
having a value of $4.3 million. The purchase price was allocated primarily to
management services agreements and is currently being amortized over 25 years.

During February 1998, the Company completed the formation of an MSO with
Beth Israel Medical Center and the physician organizations that represented more
than 1,700 physicians of Beth Israel and its parent corporation. The Company
owns one-third of the MSO. The Company provides management services for the MSO
which provides the physicians and hospitals with medical management and contract
negotiation support for risk agreements with managed care payors. In connection
with the formation of the MSO, PhyMatrix Management Company, Inc.
("Management"), a subsidiary of the Company, agreed with Beth Israel Medical
Center ("Beth Israel") that Management and its affiliates (including the
Company) would not, directly or indirectly, (i) operate, manage or provide risk
contract management services to any physicians, IPAs or group practices located
in New York County, Kings County or Westchester County, New York (the
"Restricted Zone") which are affiliated with a hospital or hospital system or
any affiliate (with certain exceptions) or (ii) participate with a hospital or
hospital system or any affiliate (other than Beth Israel) in an MSO or other
person that operates, manages or provides risk contract management services
within the Restricted Zone (with certain exceptions). In addition, the owners of
two-thirds of the MSO have the right to require the Company to purchase their
interests at the option price, which is based upon earnings, during years six
and seven.

During February 1998, the Company purchased a diagnostic imaging center
located in Delray Beach, Florida. The base purchase price was approximately $6.6
million. The base purchase price was paid in 495,237 shares of Common Stock of
the Company. There was also a potential contingent payment up to a maximum of
$2.0 million which was not earned. The purchase price was allocated to the
assets at fair market value including goodwill of $6.6 million. The resulting
intangible has been amortized over 25 years. At January 31, 1999, the Company
has recorded the estimated net realizable value of this business as assets held
for sale.

During March 1998, the Company entered into an administrative services
agreement with HIA Bensonhurst Imaging Associates, LLP, a diagnostic imaging
center in Brooklyn, New York. The consideration paid was approximately $5.1
million of Common Stock. There is also a contingent payment up to a maximum of
$1.9 million based on the center's earnings before taxes, which is payable in
cash and/or Common Stock of the Company. As of January 31, 1999, this contingent
payment has not been earned. The purchase price was allocated to the assets at
fair market value including management services agreements of $5.1 million. The
resulting intangible has been amortized over 25 years. At January 31, 1999, the
Company has recorded the estimated net realizable value of this business as
assets held for sale.

<PAGE>

was paid in cash and 143,026 shares of Common Stock were issued having a value
of $1.5 million. There are also contingent payments up to a maximum of $5.0
million payable in cash and Common Stock, with $4.0 million of such amount based
upon earnings during the three years after the closing date and the remaining
$1.0 million based upon the achievement of certain conditions during any
twelve-month period during the three years after the closing date. The Company
and LIPH, LLC are in dispute as to amounts owed to the Company primarily for
management services provided.

During April 1998, the Company acquired the business and certain assets of
a clinical research company in Massachusetts. The base purchase price was $2.6
million plus the assumption of liabilities of approximately $0.4 million. Of
such purchase price, $1.5 million was paid in 144,405 shares of Common Stock of
the Company, $70,000 is payable in shares of Common Stock on the first
anniversary of the closing date and $1.1 million is payable in shares of Common
Stock of the Company on the second anniversary of the closing date. In addition,
there is a contingent payment up to a maximum of $2.4 million payable in Common
Stock based on earnings before taxes during the next four years. As of January
31, 1999, this contingent payment has not been earned. The purchase price was
allocated to the assets at fair market value including goodwill of $2.7 million.
The resulting intangible is being amortized over 20 years.

During January 1999, the Company acquired the stock of, and entered into a
management agreement with, a clinical research company specializing in allergy
and asthma research located in Illinois. The purchase price for the stock was
approximately $4.2 million. Of such purchase price, $1.6 million was paid in
cash during March 1999 and $2.6 million is payable primarily under non-interest
bearing promissory notes between the second and fifth anniversaries of the
closing date. The purchase price was allocated to the assets at fair market
value including management service agreements of $3.5 million. The resulting
intangible is being amortized over 25 years.

ACCOUNTING TREATMENT

The terms of the Company's relationships with its remaining affiliated
physicians are set forth in various asset and stock purchase agreements,
management services agreements and employment and consulting agreements.
Through the asset and/or stock purchase agreement, the Company acquired the
equipment, furniture, fixtures, supplies and, in certain instances, service
agreements, of a physician practice at the fair market value of the assets. The
accounts receivable typically were purchased at the net realizable value. The
purchase price of the practice generally consisted of cash, notes and/or Common
Stock of the Company and the assumption of certain debt, leases and other
contracts necessary for the operation of the practice. The management services
or employment agreements delineate the responsibilities and obligations of each
party.

Net revenues from services is reported at the estimated realizable amounts
from patients, third-party payors and others for services rendered. Revenue
under certain third-party payor agreements is subject to audit and retroactive
adjustments. Provisions for estimated third-party payor settlements and
adjustments are estimated in the period the related services are rendered and
adjusted in future periods as final settlements are determined. The provision
and related allowance are adjusted periodically, based upon an evaluation of
historical collection experience with specific payors for particular services,
anticipated reimbursement levels with specific payors for new services, industry
reimbursement trends, and other relevant factors. Included in net revenues from
services are revenues from the diagnostic imaging centers in New York which the
Company operates pursuant to Administrative Service Agreements. These revenues
are reported net of payments to physicians.

Net revenues from management services agreements include the revenues
generated by the physician practices net of payments to physicians. The Company,
in most cases, is responsible and at risk for the operating costs of the
physician practices. Expenses include the reimbursement of all medical practice
operating costs as required under the various management agreements. For
providing services under management services agreements entered into prior to
April 30, 1996, physicians generally received a fixed percentage of net revenue
of the practice. "Net revenues" is defined as all revenue computed on an accrual
basis generated by or on behalf of the practice after taking into account
certain contractual adjustments or allowances. The revenue is generated from
professional medical services furnished to patients by physicians or other
clinicians under physician supervision. In several of the practices, the Company
has guaranteed that the net revenues of the practice will not decrease below the
net revenues that existed immediately prior to the agreement with the Company.
Under most management services agreements

<PAGE>

entered into after April 30, 1996, the physicians receive a portion of the
operating income of the practice which amounts vary depending on the
profitability of the practice. In 1997, the Emerging Issues Task Force of the
Financial Accounting Standards Board issued EITF 97-2 concerning the
consolidation of physician practice revenues. PPMs are required to
consolidate financial information of a physician where the PPM acquires a
"controlling financial interest" in the practice through the execution of a
contractual management agreement even though the PPM does not own a
controlling equity interest in the physician practice. EITF 97-2 outlines six
requirements for establishing a controlling financial interest. The Company
adopted EITF 97-2 in the fourth quarter of its fiscal year ended January 31,
1999. Adoption of this statement reduced previously reported revenues and
expenses for the years ended January 31, 1998 and 1997 by $65.4 million and
$42.2 million, respectively. During August 1998, the Company announced its
plan to divest and exit the PPM business. The Company is currently working to
complete these divestitures and the majority of these assets are recorded as
assets held for sale at January 31, 1999.

RESULTS OF OPERATIONS

The following table shows the percentage of net revenue represented by various
expense categories reflected in the Consolidated Statements of Operations. The
information that follows should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere herein.

1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%

Salaries, wages and benefits 32.5% 31.4% 35.2%
Supplies 20.6% 16.0% 16.4%
Depreciation and amortization 5.1% 3.9% 4.5%
Rent expense 7.1% 5.9% 5.1%
Provision for bad debts 2.9% 2.1% 2.8%
Gain on sale of assets (1.8%) (0.7%) (0.2%)
Provision for write-down of notes receivable 0.9% 0.0% 0.0%
Merger and other noncontinuing expenses related to CSL 0.0% 3.9% 1.2%
Goodwill impairment write-down 3.1% 0.0% 0.0%
Nonrecurring expenses 3.6% 0.0% 0.0%
Other (primarily capitation expense) 38.9% 28.9% 21.0%
----- ---- ----
112.9% 91.4% 86.0%

Interest expense, net 2.7% 1.7% 1.0%
(Income) from investment in affiliate 0.0% (0.3%) (0.4%)
----- ---- ----
Income (loss) before taxes and extraordinary item (15.7%) 7.2% 13.3%

Income tax expense (benefit) (4.0%) 3.5% 4.1%
----- ---- ----
Income (loss) before extraordinary item (11.7%) 3.7% 9.2%

Extraordinary item, net of tax 33.2% 0.0% 0.0%
----- ---- ----
Net income (loss) (44.9%) 3.7% 9.2%
----- ---- ----

</TABLE>

THE YEAR ENDED JANUARY 31, 1999 COMPARED TO THE YEAR ENDED JANUARY 31, 1998

The following discussion reviews the results of operations for the year
ended January 31, 1999 ("1999") compared to the year ended January 31, 1998
("1998").

<PAGE>

REVENUES

The Company currently derives revenues primarily from the following
segments: provider network management, site management organizations, real
estate services and assets held for sale. Revenues from provider network
management are derived from management services provided to hospitals,
management services to MSOs and administrative services to health plans which
include reviewing, processing and paying claims and subcontracting with
specialty care physicians to provide covered services. Revenues from site
management organizations are derived primarily from services provided to
pharmaceutical companies for clinical trials. Revenues from real estate
services are derived from the provision of a variety of services which
include development fees, general contracting management fees, leasing and
marketing fees, project cost savings income and consulting fees. Revenues
from assets held for sale are derived primarily from providing the following
services: physician practice management, diagnostic imaging, radiation
therapy, home healthcare, infusion therapy and lithotripsy.

Net revenues were $291.3 million during 1999. Of this amount, $93.5
million or 32.1% of such revenues was attributable to provider network
management; $33.7 million or 11.6% was related to site management
organizations; $8.7 million or 3.0% was attributable to real estate services;
and $155.4 million or 53.3% was attributable to assets held for sale.

Net revenues were $281.2 million during 1998. Of this amount, $67.8
million or 24.1% of such revenues was attributable to provider network
management; $30.0 million or 10.7% was related to site management
organizations; $31.1 million or 11.0% was attributable to real estate
services; and $152.3 million or 54.2% was attributable to assets held for
sale.

EXPENSES

The Company's salaries, wages, and benefits increased by $6.5 million
from $88.2 million or 31.4% of net revenues during 1998 to $94.7 million or
32.5% of net revenues during 1999. The increase is primarily attributable to
the additional salaries, wages and benefits from the acquisitions and
affiliations of the Company's businesses during 1998 and early 1999, offset
in part, by reductions in personnel in conjunction with the asset
divestitures.

<PAGE>

The Company's supplies expense increased by $15.1 million from $44.9
million or 16.0% of net revenues during 1998 to $60.0 million or 20.6% of net
revenues during 1999. The increase in supplies expense as a percentage of net
revenues was due to the growth of various ancillary services specifically
infusion services, that are more supply intensive and for which the cost of
pharmaceutical supplies is higher.

The Company's depreciation and amortization expense increased by $4.0
million from $10.8 million or 3.9% of net revenues during 1998 to $14.8 million
or 5.1% of net revenues during 1999. The increase is primarily a result of the
acquisitions completed after 1997 and the allocation of the purchase prices as
required by purchase accounting and also the effect of the Company's change in
policy regarding certain intangibles. Effective February 1, 1998, management
changed its policies regarding amortization of its management services agreement
intangible assets. The Company adopted a maximum of 25 years (from the inception
of the respective intangible asset) as the useful life for amortization of its
management services agreement intangible assets. Using the unamortized portion
of the intangible at January 31, 1998, the Company began amortizing the
intangible over the remainder of the 25 year useful life. These costs had
historically been charged to expense through amortization using the straight
line method over the periods during which the agreements are effective,
generally 30 to 40 years. This change represented a change in accounting
estimate and, accordingly, does not require the Company to restate reported
results for prior years. This change increased amortization expense relating to
existing intangible assets at January 31, 1998, by approximately $0.7 million
annually.

The Company's rent expense increased by $4.0 million from $16.6 million
or 5.9% of net revenues during 1998 to $20.6 million or 7.1% of net revenues
during 1999, primarily as a result of acquisitions of imaging centers and the
expansion of sites operated by the Company's site management organization.
Rent expense as a percentage of net revenue also varies depending upon the
size of each of the affiliated practice's offices, the number of satellite
offices and the current market rental rate for medical office space in a
particular geographic market.

The Company's provision for bad debt increased by $2.5 million from
$5.9 million or 2.1% of net revenues during 1998 to $8.4 million or 2.9% of
net revenues during 1999. The increase as a percentage of revenues is
primarily attributable to the additional provision required on the businesses
held for sale.

The Company's gain on sale of assets of $5.4 million during 1999
represents gains from the sale of real estate of approximately $4.5 million
during July 1998 and from the sale of a radiation therapy center of
approximately $0.9 million during February 1998. The gain on sale of assets of
$1.9 million during 1998 resulted from the sale of real estate and a radiation
therapy center.

The Company's provision for write-down on notes receivable of $2.7 million
during 1999 represents the write-down of several notes receivable, that were
collateralized by shares of Common Stock of the Company, to their net realizable
value.

The Company's merger and other noncontinuing costs of $11.1 million during
1998 represent the merger transaction costs, of $10.2 million, related to the
CSL merger as well as certain noncontinuing salary, consulting and management
fee expenses incurred by CSL.

The Company's goodwill impairment write-down of $9.1 million during 1999
represents the write-down of the remaining goodwill of the real estate services
segment. The asset of goodwill was determined to have been impaired because of
the Company's decision to significantly downsize the real estate segment and the
inability to generate future operating income without substantial revenue
growth, which is uncertain. Moreover, anticipated future cash flows of the real
estate segment indicate that the recoverability of the asset is not likely.

The Company's nonrecurring expenses of $10.5 million during 1999
primarily represent the termination of several physician management and
employment agreements prior to the Company's decision in August 1998 to
restructure as well as the write-off of the remaining investment in an
ambulatory surgery center.

The Company's other expenses increased by $32.0 million from $81.3
million or 28.9% of net revenues during 1998 to $113.3 million or 38.9% of
net revenues during 1999 primarily due to an increase in the Company's
provider network management services.

<PAGE>

The Company's extraordinary item of $96.8 million during 1999 represents
the charge resulting from divestitures or disposals that had occurred subsequent
to August 1998 as well as the write-down of the assets of the businesses being
held for sale at January 31, 1999. The carrying value of the assets of these
businesses was written down to their estimated net realizable value (less costs
to sell).

The Company's loss prior to income taxes and extraordinary charges
during 1999 was $45.2 million compared to income prior to income taxes and
extraordinary charges during 1998 of $20.1 million. The deterioration of
income during 1999 is primarily due to several factors, including: (i) The
downsizing of the real estate services segment which was done in connection
with the repositioning of the Company, and in part due to the resignation of
Bruce A. Rendina as Chief Executive Officer of the Company's real estate
services segment. The real estate services segment generated a pretax loss of
$8.5 million during 1999 (which included a goodwill impairment write-down of
$9.1 million) compared to pretax income of $24.7 million during 1998, (ii)
Nonrecurring charges of $10.5 million (described above), (iii) The
deterioration of the operating results during the second half of 1999 of
certain of the businesses divested or to be divested. The assets held for
sale segment generated pretax income, prior to extraordinary item, of $0.5
million during 1999 compared to pretax income of $13.4 million during 1998,
and (iv) The provision for write-down of notes receivable of $2.7 million
(described above).

The Company's income tax expense (benefit) decreased by $21.4 million from
$9.8 million or 32.4% of pretax income (prior to merger expenses of $10.2
million which are not tax deductible) during 1998 to $(11.5) million or 25.4% of
pretax loss (prior to extraordinary item) during 1999. The pro forma net income
and net income per share information in the consolidated statement of operations
reflect the effect on historical results as if CSL had been a C corporation
rather than an S corporation and had paid income taxes.

Prior to the merger with CSL, CSL had elected to be treated as S
corporation as provided under the Internal Revenue Code (the "Code"), whereby
income taxes are the responsibility of the stockholders. Accordingly, the
Company's statements of operations do not include provisions for income taxes
for income related to CSL. Prior to the merger, dividends were primarily
intended to reimburse stockholders for income tax liabilities incurred.

The pro forma net income and net income per share information in the
consolidated statement of operations reflect the effect on historical results as
if CSL had been a C corporation rather than an S corporation for income tax
purposes, and no tax benefit arose as a result of the change in tax status.

REAL ESTATE SERVICES

While the Company has historically derived significant revenues from real
estate services, in the future the Company anticipates that it will generate
significantly fewer revenues from such services. As a result, the Company
decided to significantly downsize its real estate services.

The Company has derived its real estate service revenues from the
provision of a variety of services. In rendering such services, the Company
generates income without bearing the costs of construction, expending
significant capital or incurring substantial indebtedness. Net revenues from
real estate services are recognized at the time services are performed. In some
cases, fees are earned upon the achievement of certain milestones in the
development process, including the receipt of a building permit and a
certificate of occupancy of the building.

During August 1998, Bruce A. Rendina resigned as CEO and President of
DASCO (the Company's real estate services subsidiary) and Vice Chairman of the
Company. During September 1998, Mr. Rendina entered into a Business Agreement
(the "Business Agreement") with the Company. The Business Agreement was entered
into in settlement of certain claims by both the Company and Rendina relating to
Mr. Rendina's future competition with the Company. The Business Agreement
provides that the Company has the exclusive development rights to 27 separate
projects located in 12 separate states. In addition, the Company and Mr. Rendina
have agreed to share fees with respect to five asset conversion projects and six
medical facility development projects whereby Mr. Rendina is entitled to the
first 25% of the projected development fees received on any shared fee
project and the Company and Mr. Rendina evenly split the remaining portion of
the fees for such projects. The Business Agreement also permits Mr. Rendina
and his affiliates to pursue independently the development of six separate
projects in five states. Finally, the Company and Mr. Rendina have provided
mutual releases of each other with respect to any event related to the
business and employment relationships of the parties.

During the fourth quarter ended January 31, 1999, the Company recorded a
goodwill impairment write-down of $9.1 million which eliminates the remaining
goodwill of the real estate services segment. The asset of goodwill was
determined to have been impaired because of the Company's decision to
significantly downsize the real estate segment and the inability to generate
future operating income without substantial revenue growth, which is uncertain.
Moreover, anticipated future cash flows of the real estate segment indicate that
the recoverability of the asset is not likely.

During 1999, the Company's real estate services generated revenues of $8.7
million and pretax income (prior to goodwill impairment write-down) of $0.6
million. In addition, the real estate services segment recorded a gain on sale
of real estate of $4.5 million during 1999.

<PAGE>

RESULTS OF OPERATIONS

THE YEAR ENDED JANUARY 31, 1998 COMPARED TO THE YEAR ENDED JANUARY 31, 1997

The following discussion reviews the results of operations for the year
ended January 31, 1998 ("1998") compared to the year ended January 31, 1997
("1997").

REVENUES

Net revenues were $281.2 million during 1998. Of this amount, $67.8
million or 24.1% of such revenues was attributable to provider network
management; $30.0 million or 10.7% was related to site management organizations;
$31.1 million or 11.0% was attributable to real estate services; and $152.3
million or 54.2% was attributable to assets held for sale.

Net revenues were $165.8 million during 1997. Of this amount, $16.5
million or 9.9% was related to provider network management; $18.0 million or
10.9% was related to site management organizations; $19.0 million or 11.5% was
attributable to real estate services; and $112.2 million or 67.7% was
attributable to assets held for sale.

<PAGE>

EXPENSES

The Company's salaries, wages and benefits increased by $29.8 million
from $58.4 million or 35.2% of net revenues during 1997 to $88.2 million or
31.4% of net revenues during 1998. The decrease as a percentage of net
revenues was primarily attributable to the Company's ability to spread its
salaries, wages and benefits over a revenue base which expanded rapidly due
to acquisitions and affiliations. In general, salaries, wages and benefits
vary depending on whether the physician practice is owned or managed.

The Company's supplies expense increased by $17.7 million from $27.2
million or 16.4% of net revenues during 1997 to $44.9 million or 16.0% of net
revenues during 1998. The increase in supplies expense was primarily a result of
the acquisition of additional physician practices. Supplies expense as a
percentage of net revenues also varies depending upon the type of physician
practices.

The Company's depreciation and amortization expense increased by $3.4
million from $7.4 million or 4.5% of net revenues during 1997 to $10.8 million
or 3.9% of net revenues during 1998. The increase was primarily a result of the
acquisitions completed after 1997 and the allocation of the purchase prices as
required by purchase accounting. During 1998, the Company sold assets that
resulted in net gains of $2.2 million. In addition, the Company recorded
nonrecurring charges of $0.3 million during 1998.

The Company's rent expense increased by $8.1 million from $8.5 million or
5.1% of net revenues during 1997 to $16.6 million or 5.9% of net revenues during
1998, primarily as a result of acquisitions and affiliations completed by the
Company. Rent expense as a percentage of net revenue varies depending upon the
size of each of the affiliated practice's offices, the number of satellite
offices and the current market rental rate for medical office space in a
particular geographic market.

The Company's merger and other noncontinuing costs of $1.9 million and
$11.1 million during 1997 and 1998, respectively, represent the merger
transaction costs, of $10.2 million, related to the CSL merger as well as
certain noncontinuing salary, consulting and management fee expenses incurred by
CSL. The merger transaction costs, of $10.2 million, were recorded during the
quarter ended October 31, 1997, which represents the quarter in which the
transaction closed.

The Company's income tax expense increased by $3.0 million from $6.8
million or 30.9% of pretax income during 1997 to $9.8 million or 32.4% of pretax
income (prior to merger costs of $10.2 million which are not tax deductible)
during 1998. The pro forma net income and net income per share information in
the consolidated statement of operations reflect the effect on historical
results as if CSL had been a C corporation rather than an S corporation and had
paid income taxes. The Company's pro forma income tax expense increased by $2.3
million from $8.1 million or 36.7% of pretax income during 1997 to $10.4 million
or 34.5% of pre tax income (prior to merger costs of $10.2 million which are not
tax deductible) during 1998.

REAL ESTATE SERVICES

During 1998, the Company's real estate services generated revenues of
$31.1 million and pretax income of $24.7 million. During the fourth quarter
ended January 31, 1998, the Company received $9.1 million for arranging the sale
of 21 medical office buildings with a total sales price of $200 million, which
approximated fair market value.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Cash used by operating activities was $4.9 million during 1999. Cash
used by operating activities was $2.3 million during 1998. At January 31,
1999, the Company's principal sources of liquidity consisted of working
capital of $111.2 million which included $10.1 million in cash, $10.8 million
in a tax refund receivable and $100.8 million in assets held for sale (see
below for further discussion of assets held for sale). The Company also had
$38.9 million of current liabilities, including approximately $12.2 million
of indebtedness maturing before January 31, 2000.

Cash used by investing activities was $12.5 million during 1999 and
primarily represented the funds required by the Company for acquisitions and
capital expenditures of $17.8 million, and advances under notes receivable of
$2.5 million, offset by net cash received from the sale of assets of $7.9
million. Cash used by investing activities was $34.6 million during 1998.
This primarily represented the funds required by the Company for acquisitions
and capital expenditures of $46.0 million, and the advances under notes
receivable of $3.3 million, offset by the repayments of notes receivable of
$10.2 million and cash received from the sale of land and two radiation
therapy centers of $4.0 million.

Cash used by financing activities was $22.0 million during 1999 and
primarily represented the repayment of debt of $10.2 million, purchase of
treasury stock of $0.8 million and a $10.9 million note to a company
principally owned by Mr. Gosman primarily related to the development of a
healthcare facility. Cash provided by financing activities was $4.8 million
during 1998, which was primarily composed of the borrowings (net of issuance
costs) from revolving lines of credit of $26.6 million and the release of
restricted cash collateralizing debt of $4.5 million offset by the repayment
of debt of $25.2 million and payment of dividends of $1.9 million (to the
stockholders of CSL prior to its merger with the Company).

In conjunction with various acquisitions that were completed through
January 31, 1999, the Company may be required to make various contingent
payments in the event that the acquired companies attain predetermined financial
targets during established periods of time following the acquisitions. If all of
the applicable financial targets were satisfied, for the periods covered, the
Company would be required to pay an aggregate of approximately $24.9 million
over the next four years, of which $2.3 million is accrued at January 31, 1999.
The payments, if required, are payable in cash and/or Common Stock of the
Company. In addition, in conjunction with the acquisition of a clinical research
center and in conjunction with a joint venture entered into by the Company
during the year ended January 31, 1998, the Company may be required to make
additional contingent payments based on revenue and profitability measures over
the next five years. The contingent payment will equal 10% of the excess gross
revenue, as defined, provided the gross operating margins exceed 30%.

During July 1997, the Company entered into a management services
agreement to manage a network of over 100 physicians in New York. In
connection with this transaction, the Company may expend, in certain
circumstances, up to $40 million (of which none has been expended as of
January 31, 1999) to be utilized for the expansion of the network.

During February 1998, the Company completed the formation on an MSO in
New York, one-third of which it owns. The owners of the remaining two-thirds
of the MSO have the right to require the Company to purchase their interests
at the option price, which is based upon earnings during years six and seven.

In conjunction with certain of its acquisitions the Company has agreed to
make payments in shares of Common Stock of the Company at a predetermined future
date. The number of shares to be issued are generally determined based upon the
average price of the Company's Common Stock during the five business days prior
to the date of issuance. As of January 31, 1999, the Company had committed to
issue $1.1 million of Common Stock of the Company using the methodology
discussed above. This amount is included in other long-term liabilities on the
balance sheet. The Company also guarantees a loan in the amount of $3.5
million which matures in March 2000.

In conjunction with the restructuring (as described earlier in "Recent
Events"), the Board of Directors approved its plan to divest and exit the
Company's PPM business and certain of its ancillary services businesses
including diagnostic imaging, lithotripsy, radiation therapy, home health and
infusion therapy. The revenue and pretax income of these businesses which
have been identified to be divested or disposed for the year ended January
31, 1999 were $155.4 million and $0.5 million. Net loss for the year ended
January 31, 1999 includes an extraordinary item of $96.8 million which is
primarily a non-cash charge related to these divestitures. In accordance with
APB 16, the Company is required to

<PAGE>

record these charges as an extraordinary item since impairment losses are
being recognized for divestitures and disposals expected to be completed
within two years subsequent to a pooling of interests (the pooling of
interests with CSL was effective October 15, 1997). Based on fair market
value estimates, which have primarily been derived from letters of intent,
letters of interest and discussions with prospective buyers, the net
realizable value of the assets identified to be divested or disposed was
$100.8 million at January 31, 1999.

In conjunction with a physician practice management agreement with a
physician practice in Florida, the Company has filed suit against the practice
to enforce the guarantees executed in connection with the management agreement.
The practice has filed a counterclaim. The Company intends to vigorously
prosecute and defend the case. However, if the Company is not successful it
may be required to record an impairment charge up to a maximum of $3.7 million.

The Board of Directors of the Company authorized a share repurchase
plan pursuant to which the Company may repurchase up to $15 million of its
Common Stock from time to time on the open market at prevailing market
prices. Through January 31, 1999, the Company had repurchased 304,000 shares
at a net purchase price of $0.8 million. Through April 22, 1999 the Company
has repurchased an additional 294,000 shares at a net purchase price of
approximately $0.6 million.

The development and implementation of the Company's management
information systems will require ongoing capital expenditures. The Company
has estimated the total costs to be incurred for completion of its Year 2000
strategy is approximately $3.0 million, which includes costs for new systems
and system upgrades which would have been incurred regardless of the need to
remedy the Year 2000 issue. The Company expects that its working capital of
$111.2 million at January 31, 1999, which includes cash of $10.1 million and
the expected cash to be generated from the assets held for sale, will be
adequate to satisfy the Company's cash requirements for the next 12 months.
The Company's capital needs over the next several years may exceed capital
generated from operations.

In September 1997, the Company entered into a secured credit agreement
with a bank providing for a $100 million revolving line of credit for working
capital and acquisition purposes. During December 1998, the Company amended the
credit agreement to reduce the availability thereunder, modify covenants and
provide for the expiration of the line of credit in March 1999. At January 31,
1999, $14.6 million was outstanding ($5.5 million of which was for letters of
credit). The credit agreement existing at January 31, 1999: (i) prohibited the
payment of dividends by the Company; (ii) limited the Company's ability to incur
indebtedness and make acquisitions except as permitted under the credit
agreement and (iii) required the Company to comply with certain financial
covenants which include minimum net cash flow requirements.

During March 1999, the Company obtained a new $30.0 million revolving
line of credit which has a three-year term and availability based upon
eligible accounts receivable. Approximately $9.2 million of proceeds from the
new line of credit were used to repay the previous line of credit. The new
line of credit is secured by the assets of the Company, limits the ability of
the Company to incur certain indebtedness and make certain dividend payments,
and requires the Company to comply with other customary covenants.

RISKS ASSOCIATED WITH YEAR 2000

The Year 2000 date change issue is believed to affect virtually all
companies and organizations. If not corrected, many computer applications could
fail or create erroneous results by or at the year 2000. The Company recognizes
the need to ensure its operations will not be adversely impacted by the
inability of the Company's information systems to process data having dates on
or after January 1, 2000 (the "Year 2000" issue). The Company expects to
complete its full assessment of the Year 2000 issue no later than May 31, 1999,
which is prior to any anticipated impact on its operating systems.

The Company has a committee, led by its Chief Information Officer, to
build, develop and implement the information systems required for its
pharmaceutical and provider network management services business lines and to
assess and remediate the effect of the Year 2000 Issue on the Company's
operations. The Company is contacting its clients, principal suppliers and other
vendors to assess whether their Year 2000 Issues, if any, will affect the
Company. There is no guarantee that the systems of other companies on which the
Company relies will be corrected in a timely manner or that the failure to
correct such systems will not have a material adverse effect on the Company's
systems. Many Year 2000 deficiencies have already been identified and addressed
through planned systems and infrastructure evolution, replacement or
elimination. The continuing program described below is designed to permit the
Company to identify and address all remaining Year 2000 systems and deficiencies
well in advance of the millennium change.

<PAGE>

The first phase of the program, conducting an inventory of all systems and
deficiencies that may be affected by the Year 2000 issue, is substantially
complete. The second phase of the program, the assessment and categorization of
all the inventoried systems and deficiencies by level of priority, reflecting
their potential impact on business continuation, is underway. Based on this
prioritization, the third phase will be to develop detailed plans to address
each Year 2000 issue and a general contingency plan in the event that any
critical systems cannot be made fully compliant by January 1, 2000.

The Company's information technology systems ("IT Systems") can be broadly
categorized into the following areas: (i) clinical studies information systems,
(ii) managed care information systems, (iii) other administrative information
systems including financial accounting, payroll, human resource and other
desktop systems and applications and (iv) information systems of businesses held
for sale.

The Company recognizes that investment in information systems is
integral to its operations. The majority of the Company's technology
expenditures are related to the development and implementation of both
clinical information and managed care information systems that are Year 2000
compliant. The clinical information systems are expected to be fully
operational at all sites by July 31, 1999. The managed care information
systems are expected to be fully operational by December 31, 1999. The
Company believes that the Year 2000 issue-related remediation costs incurred
through 1998 have not been material to its results of operations. The Company
has estimated the total costs to be incurred for completion of its Year 2000
strategy is approximately $3.0 million, which includes costs for new systems
and system upgrades which would have been incurred regardless of the need to
remedy the Year 2000 issue.

The Company's financial accounting system is fully Year 2000 compliant
at a total cost of approximately $30,000. Currently the Company is not
assessing Year 2000 compliance for the information systems of the businesses
held for sale since the Company expects these businesses to be divested by
December 31, 1999.

Risks involved in the managed care applications include the risk that
failures in the Company's managed care systems causing a backlog of claims or
failures at one or more of the Company's payors will cause a delay in the
payment of claims and capitation payments, either of which could negatively
affect cash flows of the Company. The Company intends to develop contingency
plans for failures at the Company's electronic trading partners. The Company
intends to have contingency plans in place by July 1999. The nature of the Year
2000 issue, and the lack of historical experience in addressing it, however,
could result in unforeseen risks.

The Company bills and collects for medical services from numerous third
party payors in operating its business. These third parties include fiscal
intermediaries that process claims and make payments on behalf of the Medicare
program as well as insurance companies, HMO's and other private payors. As part
of the Company's Year 2000 strategy, a comprehensive survey has been sent to all
significant payors to assess their timeline for Year 2000 compliance and the
impact to the Company of any potential interruptions in services or payments.
The Company is working to accumulate the results by July 31, 1999. The Company
is in the process of contacting its principal clients, suppliers and other
vendors concerning the state of their Year 2000 compliance. Until that effort is
completed, the Company cannot be assured that such third party systems are or
will be Year 2000 compliant and the Company is unable to estimate at this time
the impact on the Company if one or more third party systems is not Year 2000
compliant.

The foregoing assessment is based on information currently available to
the Company. The Company can provide no assurance that applications and
equipment that the Company believes to be Year 2000 compliant will not
experience problems. Failure by the Company or third parties on which it relies
to resolve Year 2000 problems could have a material adverse effect on the
Company's results of operations.

FACTORS TO BE CONSIDERED

THE PARTS OF THIS ANNUAL REPORT ON FORM 10-K TITLED "BUSINESS," "LEGAL
PROCEEDINGS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K,
THE WORDS "MAY," "WILL," "SEEK," "PLAN," "EXPECT," "BELIEVE," "ANTICIPATE,"
"CONTINUE," "ESTIMATE," "PROJECT," "INTEND" AND

<PAGE>

SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT REGARDING EVENTS, CONDITIONS AND FINANCIAL TRENDS THAT MAY AFFECT THE
COMPANY'S FUTURE PLANS OF OPERATIONS, BUSINESS STRATEGY, RESULTS OF OPERATIONS
AND FINANCIAL POSITION. THE COMPANY WISHES TO ENSURE THAT SUCH STATEMENTS ARE
ACCOMPANIED BY MEANINGFUL CAUTIONARY STATEMENTS PURSUANT TO THE SAFE HARBOR
ESTABLISHED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES
OF FUTURE PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE INCLUDED WITHIN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS. SUCH FORWARD-LOOKING STATEMENTS
SHOULD, THEREFORE, BE CONSIDERED IN LIGHT OF VARIOUS IMPORTANT FACTORS,
INCLUDING THOSE SET FORTH HEREIN, INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH
BELOW AND UNDER "BUSINESS - PHYSICIAN MANAGEMENT SERVICES" AND "BUSINESS -
GOVERNMENT REGULATION," AND OTHERS SET FORTH FROM TIME TO TIME IN THE COMPANY'S
REPORTS AND REGISTRATION STATEMENTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "COMMISSION"). THE COMPANY DISCLAIMS ANY INTENT OR OBLIGATION TO
UPDATE SUCH FORWARD-LOOKING STATEMENTS.

RISKS RELATED TO REPOSITIONING. During the last fiscal year, the Board
of Directors adopted strategic initiatives to reposition the Company along
two primary business lines: pharmaceutical services, including clinical and
outcomes research and provider network management services. There can be no
assurance that the Company will be successful in repositioning itself or that
these business lines will be profitable. The Company intends to grow these
business lines. The Company is subject to various risks associated with its
growth strategy, including the risk that the Company will be unsuccessful in
its effort to grow its businesses internally and that it will be unable to
identify, acquire and integrate acquisition candidates in the clinical
studies management area or to identify, affiliate with and manage additional
physician networks. Any failure of the Company to grow its business
internally and implement economically feasible affiliations and acquisitions
may have a material adverse effect on the Company. There can be no assurance
that the Company will be able to achieve synergies between its provider
network and clinical studies site management businesses.

ASSETS HELD FOR SALE. The Company's repositioning strategy involves the
sale of approximately $100.8 million of assets held for sale, the proceeds from
which would be used primarily for expansion of its clinical and outcomes
research and provider network management businesses. The Company also is
considering using proceeds to repurchase outstanding Common Stock and/or retire
debt. There can be no assurance that the Company will be able to sell these
businesses before the end of the current fiscal year or that the Company will
receive proceeds equal to the current estimated value of such assets. In
addition, there can be no assurance that the application of the net proceeds
from the sale will have a positive effect on the Company's business, future
results of operations or stock price.

DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS. The Company's investigative
site management revenues are dependent on research and development expenditures
by the pharmaceutical and biotechnology industries. The Company's operations
could be materially and adversely affected by general economic downturns in its
clients' industries, the impact of the current trend toward consolidation in
these industries or any decrease in research and development expenditures.

POTENTIAL LOSS OF CONTRACTS. Although the Company's clinical research
study contracts with Sponsors provide that it is entitled to receive fees earned
through the date of termination, as well as all non-cancelable costs, Sponsors
generally are free to terminate a clinical trial or the Company's contract
related thereto at any time. The length of a typical clinical trial contract
varies from several weeks to several years. Sponsors may terminate clinical
trials for several reasons, including unexpected results or adverse patient
reactions to a potential product, inadequate patient enrollment or investigator
recruitment, manufacturing problems resulting in shortages of a potential
product or decisions by the Sponsor to de-emphasize or terminate a particular
trial or development efforts with respect to a particular potential product. A
Sponsor's decision to terminate a trial in which the Company participates could
have a material adverse effect on the Company's business, results of operations
and financial condition.

GOVERNMENT REGULATION; POTENTIAL IMPACT OF REFORM. Demand for the
Company's clinical research site management services is largely a function of
the regulatory requirements associated with the approval of a new drug
application imposed by the FDA. These requirements are more stringent and thus
more burdensome than those

<PAGE>

imposed by many other developed countries. In recent years, efforts have been
made to streamline the drug approval process and coordinate United States
standards with those of other developed countries. Changes in the level of
regulation, including a relaxation in regulatory requirements or the
introduction of simplified drug approval procedures could have a material
adverse effect on the demand for the Company's clinical trial services. Several
competing proposals to reform the system of healthcare delivery in the United
States have been considered by Congress from time to time. The process by which
the government will pursue additional or modified proposals for national
healthcare reform and the precise nature of any such proposals is unclear at
this time. Some of the proposals put forth to date incorporate price controls on
drugs and limits on overall medical spending which may adversely affect
expenditures by the pharmaceutical and biotechnology industries for research and
development, which could have a material adverse effect on the Company's
business, results of operations and financial condition. At present, it is
impossible to predict the effect of any new legislation or changes in regulatory
environment on the Company. The failure of the Company to comply with applicable
regulations could result in the termination of on-going research or the
disqualification of data for submission to regulatory authorities. Further, the
issuance of a notice or finding by the FDA to either the Company or its clients
based upon a material violation by the Company of either Good Clinical Practices
or Good Laboratory Practices could have a material adverse effect on the
Company's business, results of operations and financial condition.

POTENTIAL LIABILITY FROM OPERATIONS. Clinical trials involve the testing
of approved and experimental drugs on human beings. This testing carries with it
a significant risk of liability for personal injury or death to participants
resulting from an adverse reaction to, or improper administration of, the
potential product. The Company participates with Sponsors in the selection
process. The Company also contracts on behalf of its clients with physicians who
render, and itself renders, professional services including administering the
drugs being tested to participants in these trials. Consequently, the Company
may be subject to claims in the event of personal injury or death of persons
participating in clinical trials and arising from professional malpractice of
physicians with whom it has contracted and its own employees. Although the
Company is generally indemnified by its clients for liability relating to
adverse drug reactions, in order for such indemnification to be valid, the
Company and its employees and agents must act within the bounds of specific
procedural requirements governing the conduct of the clinical trial. Since the
value of the Company's indemnification depends on the financial viability of the
indemnifying party, there can be no assurance that the Company will be able to
rely on such indemnification in each instance of potential liability. If the
Company was forced to undertake the defense of, or found financially responsible
for, claims based upon the foregoing or related risks, there could be a material
adverse effect on the Company's business, results of operations and financial
condition. With respect to the businesses held for sale, there can be no
assurance that claims, suits or complaints relating to services delivered by an
affiliated physician or medical service provider will not be asserted against
the Company. Although the Company maintains insurance it believes is adequate
both as to risks and amounts, there can be no assurance that any claim asserted
against the Company for professional or other liability will be covered by, or
will not exceed the coverage limits of, such insurance.

YEAR 2000 MAY ADVERSELY IMPACT OPERATIONS. As described under "Risks
Associated with Year 2000," the Company is attempting to address its Year 2000
issues. If the Company fails to identify or correct all such problems in its
operations, or if the Company is affected by the inability of a supplier or
major customer to continue operations due to such a problem, the Company's
business and financial results could be materially adversely affected.

RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS. As an increasing percentage
of patients come under the control of managed care entities, the Company
believes that its success will be, in part, dependent upon the Company's ability
to negotiate contracts with health maintenance organizations ("HMOs"), employer
groups and other private third party payors pursuant to which services will be
provided on a risk-sharing or capitated basis. Under some of these agreements, a
healthcare provider accepts a predetermined amount per member per month ("PMPM")
in exchange for providing all covered services to patients. Such contracts pass
much of the economic risk of providing care from the payor to the provider. To
date, the Company has not taken the risk of any shortfall between PMPM revenue
and expenses for patient care.

<PAGE>

There is no certainty that the Company will be able to establish and maintain
satisfactory relationships with third party payors, many of which already
have existing provider structures in place and may not be able or willing to
rearrange their provider networks. Increasingly, some jurisdictions are
taking the position that capitated agreements in which the provider bears the
risk should be regulated by insurance laws. As a consequence, the Company may
be limited in some of the states in which it operates in its attempt to enter
into or arrange capitated agreements for its provider network management
business when those capitated arrangements involve the assumption of risk.

DEPENDENCE ON THIRD PARTY REIMBURSEMENT; TRENDS AND COST CONTAINMENT.
Substantially all of the Company's patient service revenues are derived from
third party payors. The Company's revenues and profitability may be materially
adversely affected by the current trend within the healthcare industry toward
cost containment as government and private third party payors seek to impose
lower reimbursement and utilization rates and negotiate reduced payment
schedules with service providers. The Company believes that this trend will
continue to result in a reduction from historical levels of per-patient revenue.
Continuing budgetary constraints at both the federal and state level and the
rapidly escalating costs of healthcare and reimbursement programs have led, and
may continue to lead, to significant reductions in government and other third
party reimbursements for certain medical charges and to the negotiation of
reduced contract rates or capital or other financial risk-shifting payment
systems by third party payors with service providers. Both the federal
government and various states are considering imposing limitations on the amount
of funding available for various healthcare services. The federal government and
government agencies have taken various actions over the years to reduce
reimbursement rates for diagnostic imaging services and proposals to reduce
rates further are anticipated. There have been many proposals discussed within
the last few years to further modify reimbursement. The Company cannot predict
whether or when any such proposals will be adopted or, if adopted and
implemented, what effect, if any, such proposals would have on the Company.
Further reductions in payments to physicians or other changes in reimbursement
for healthcare services could have a material adverse effect on the Company,
unless the Company is otherwise able to offset such payment reductions.

Rates paid by private third party payors, including those that provide
Medicare supplemental insurance, are based on established physician, clinic and
hospital charges and are generally higher than Medicare payment rates. Changes
in the mix of the Company's patients among the non-government payors and
government sponsored healthcare programs, and among different types of
non-government payor sources, could have a material adverse effect on the
Company.

The Company is a provider of certain medical treatment and diagnostic
services including, but not limited to radiation therapy, infusion therapy,
lithotripsy and home healthcare. Because many of these services receive
governmental reimbursement, they may be subject from time to time to changes
in both the degree of regulation and level of reimbursement. Additionally,
factors such as price competition and managed care also could reduce the
Company's revenues.

There can be no assurance that payments under governmental and private
third party payor programs will not be reduced or will, in the future, be
sufficient to cover costs allocable to patients eligible for reimbursement
pursuant to such programs, or that any reductions in the Company's revenues
resulting from reduced payments will be offset by the Company through cost
reductions, increased volume, introduction of new procedures or otherwise.

GOVERNMENT REGULATION. Providers of healthcare services, including
physicians and other clinicians, are subject to extensive federal and state
regulation. The fraud and abuse provisions of the Social Security Act prohibit
the solicitation, payment, receipt or offering of any direct or indirect
remuneration in return for, or the inducement of, the referral of patients,
items or services that are paid for, in whole or in part, by Medicare or
Medicaid. These laws also impose significant penalties for false or improper
billings for physician services and impose restrictions on physicians' referrals
for designated health services to entities with which they have financial
relationships. Violations of these laws may result in substantial civil or
criminal penalties for individuals or entities, including large civil monetary
penalties and exclusion from participation in the Medicare and Medicaid
programs. Similar

<PAGE>

state laws also apply to the Company. Such exclusion and penalties, if applied
to the Company's affiliated physician groups or ancillary service providers,
could have a material adverse effect on the Company.

The laws of many states prohibit business corporations such as the Company
from exercising control over the medical judgments or decisions of physicians
and from engaging in certain financial arrangements, such as splitting fees with
physicians. These laws and their interpretations vary from state to state and
are enforced by both the courts and regulatory authorities, each with broad
discretion. Expansion of the operations of the Company to certain jurisdictions
may require structural and organizational modifications of the Company's form of
relationship with physician groups, which could have an adverse effect on the
Company. There can be no assurance that the Company's physician management
agreements will not be challenged as constituting the unlicensed practice of
medicine or that the enforceability of the provisions of such agreements,
including non-competition covenants, will not be limited.

Under certain provisions of the Omnibus Budget Reconciliation Act of 1993
known as "Stark II," physicians who refer Medicare and Medicaid patients to the
Company for certain designated services may not own stock in the Company, and
the Company may not accept such referrals from physicians who own stock in the
Company. Stark II contains an exemption which applies to the Company during any
year if at the end of the previous fiscal year the Company had stockholders'
equity in the amount of at least $75 million. The Company was not eligible for
this exemption as of its fiscal year ending December 31, 1995. In 1996, the
Company changed its fiscal year end to January 31, at which time it satisfied
the Stark II stockholders' equity exemption. Violation of Stark II by the
Company could have a material adverse effect on the Company.

The Company believes that its operations are conducted in material
compliance with applicable laws, however, the Company has not received a legal
opinion to this effect and many aspects of the Company's business operations
have not been the subject of state or federal regulatory interpretation.
Moreover, as a result of the Company providing both physician practice
management services and ancillary services, the Company may be the subject of
more stringent review by regulatory authorities, and there can be no assurance
that a review of the Company's operations by such authorities will not result in
a determination that could have a material adverse effect on the Company or its
affiliated physicians. Additionally, there can be no assurance that the
healthcare regulatory environment will not change so as to restrict the
Company's or the affiliated physicians' existing operations or their expansion.
The regulatory framework of certain jurisdictions may limit the Company's
expansion into, or ability to continue operations within, such jurisdictions if
the Company is unable to modify its operational structure to conform to such
regulatory framework or to obtain necessary approvals, licenses and permits. Any
limitation on the Company's ability to expand could have a material adverse
effect on the Company.

CONTROL BY EXISTING STOCKHOLDERS. All of the Company's executive officers
and directors as a group beneficially own approximately 29.0% of the outstanding
shares of Common Stock. As a result, such executive officers and directors,
should they choose to act together, will be able to determine the outcome of
corporate actions requiring stockholder approval and to control the election of
the Company's Board of Directors. This ownership may have the effect of
discouraging unsolicited offers to acquire the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to market risk from exposure to changes in interest
rates based on its financing, investing and cash management activities. The
Company does not expect changes in interest rates to have a material effect on
income or cash flows for the year ended January 31, 2000, although there can be
no assurances that interest rates will not significantly change.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information with respect to Item 8 of Part II is included herein as to the
Company's financial statements and

<PAGE>

financial statement schedules filed with this report; See Item 14 of Part IV.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

RECENT ACCOUNTING PRONOUNCEMENTS AND OTHER MATTERS

The FASB recently issued statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which is effective for the Company's
financial statements as of and for the year ended January 31, 1999. This
Statement requires reporting of summarized financial results for operating
segments as well as established standards for related disclosures about products
and services, geographic areas and major customers. Primary disclosure
requirements include total segment revenues, total segment profit or loss and
total segment assets. The adoption of SFAS 131 did not affect results of
operations or financial position but did affect the disclosure of segment
information.

In 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued EITF 97-2 concerning the consolidation of physician
practice revenues. PPMs will be required to consolidate financial information
of a physician where the PPM acquires a "controlling financial interest" in
the practice through the execution of a contractual management agreement even
though the PPM does not own a controlling equity interest in the physician
practice. EITF 97-2 outlines six requirements for establishing a controlling
financial interest. The Company adopted EITF 97-2 in the fourth quarter ended
January 31, 1999. Adoption of this statement reduced reported revenues and
expenses for the years ended January 31, 1998 and 1997 by $65.4 million and
$42.2 million, respectively.

28
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information pertaining to the
Company's directors and executive officers.

NAME CURRENT POSITION
- ---- ---------------

<S> <C>
Abraham D. Gosman Chairman of the Board of Directors and
Co-Chief Executive Officer

Michael T. Heffernan Co-Chief Executive Officer, President and Director

Gregory Gardner Executive Vice President Finance

James M. Hogan, M.D. Chief Medical Officer

Frederick R. Leathers Chief Financial Officer and Treasurer

Eric Moskow, M.D. Executive Vice President
of Strategic Planning and Director

John Wardle Chief Operating Officer for Provider
Network Services

H. Loy Anderson, Jr. Director

Hugh L. Carey Director

Joseph N. Cassese Director

David M. Livingston, M.D. Director

Kevin E. Moley Director

Stephen E. Ronai Director

</TABLE>

Set forth below is a description of the backgrounds of each of the
directors and executive officers of the Company.

ABRAHAM D. GOSMAN, age 70, has served since June 1994 as an executive
officer of the Company and is presently the Chairman of the Board of Directors
and Co-Chief Executive Officer of the Company. Mr. Gosman has served as Chairman
of the Board of CareMatrix Corporation, an assisted living development and
management company, since October 1996 and as its Chief Executive Officer since
April 1999. Previously, Mr. Gosman was the Chief Executive Officer of The
Mediplex Group, Inc. ("Mediplex"), a diversified health care company, from its
inception in 1982 to September 1988 and from August 1990 to June 1994. In
addition, Mr. Gosman served as Chairman of the Board of Meditrust Corporation
and Chairman of the Board, Chief Executive Officer and Treasurer of Meditrust
Operating Company from November 1997 to August 1998 and Chairman of the Board
and Chief Executive Officer of their predecessor, Meditrust, from its inception
in 1985 until November 1997.

MICHAEL T. HEFFERNAN, age 34, has served as President of the Company since
December 1998, as Co-Chief Executive Officer since April 1999 and as a director
of the Company since February 1998. He also serves as the Chief Executive
Officer of the Company's subsidiary Clinical Studies, Ltd. ("CSL"), a
multitherapeutic site management organization acquired by the Company in October
1997. Prior to the Company's acquisition of CSL, Mr. Heffernan served as the
President and Chief Executive Officer of CSL, a position he held since 1994.
From 1993 to 1994, Mr. Heffernan served as a Regional Manager with Eli Lilly &
Company.

<PAGE>

GREGORY GARDNER, age 43, has served since November 1996 as Executive Vice
President of Finance of the Company. Previously, he served as Senior Vice
President, Financial Operations of Good Samaritan & St. Mary's Medical Centers
from August 1995 to November 1996. From November 1990 to December 1993, Mr.
Gardner served as American Medical International, Inc.'s Corporate Director of
Finance and from January 1994 to July 1995 as its Corporate Director of
Development.

JAMES M. HOGAN, M.D., age 54, has been an employee of the Company since
January 1997 and has served as Chief Medical Officer of the Company since
December 1998. Dr. Hogan was Corporate Medical Director of Health Insurance
Plan of Greater New York from July 1996 to April 1997 and its Senior Vice
President for Professional Affairs and Medical Director from October 1994 to
April 1997. Dr. Hogan served as Vice President of the Medical Division and
Medical Director of Health Insurance Plan of Florida from January 1994 to
October 1994 and as its Medical Director from May 1993 to January 1994.

FREDERICK R. LEATHERS, age 41, has served since June 1994 as the Chief
Financial Officer and Treasurer of the Company. Previously, he served as
Treasurer, Chief Financial Officer and Principal Accounting Officer of Mediplex
from October 1991 to June 1994. He was Treasurer of A.M.A. Advisory Corp. and
Controller of Meditrust from July 1988 to January 1991.

ERIC MOSKOW, M.D., age 40, has served as a director of the Company since
September 1996 and has been Executive Vice President of Strategic Planning of
the Company since September 1996. He founded Physician's Choice Management, LLC
in October 1995 and served as its Executive Vice President from October 1995 to
October 1996. Prior to establishing Physician's Choice, he served as Medical
Director for Mediplex of Ridgefield from November 1994 to August 1996 and as
Associate Medical Director for US Healthcare in Connecticut from 1988 to 1992.
Dr. Moskow is board-certified in internal medicine and served as President of
the Family Medical Associates of Ridgefield for nine years.

JOHN WARDLE, age 44, has served since April 1999 as the Chief Operating
Officer of the Company. Previously, he served as Senior Vice President of United
HealthCare of New England from July 1997 to April 1999. Mr. Wardle served as the
General Manager for External Affairs at Southern Health Care from November 1995
to July 1997. He also served United HealthCare Corporation as a Vice President
from May 1994 to November 1995 and as a Director of Subsidiary Network
Development from June 1993 to May 1994.

H. LOY ANDERSON, JR., age 55, has served as a director of the Company
since December 1998. He has served as President, Chief Executive Officer and a
director of Palm Beach National Bank & Trust Company since June 1990. Mr.
Anderson is a director of CareMatrix Corporation.

HUGH L. CAREY, age 79, has served as a director of the Company since
February 1996. Currently, he is of counsel to the New York law firm of Whitman
Breed Abbott & Morgan. He served as an Executive Vice President of W.R. Grace &
Company from 1987 to December 1995. He was Governor of the State of New York
from 1975 to 1983 and a member of Congress from 1960 until 1975. He is currently
a director of Triarc Companies, Inc. and China Trust Bank.

JOSEPH N. CASSESE, age 69, has served as a director of the Company since
January 1996. He also serves as a director of Liberty Healthcare Management
Company. Mr. Cassese was Vice President of Mediplex from January 1976 to March
1986 and the President of Mediplex from March 1986 to March 1988 and again from
August 1990 to December 1991. Mr. Cassese was also a Vice President of A.M.A.
Advisory Corp., an advisor to Meditrust, from April 1988 to August 1990. Mr.
Cassese has been retired since December 1991.

DAVID M. LIVINGSTON, M.D., age 57, has served as a director of the Company
since January 1996. Dr. Livingston has previously served as Director of
Dana-Farber Cancer Institute in Boston, Massachusetts and has been employed as a
physician at the Institute since 1973. He currently serves as Chairman of the
Institute's Executive Committee for Research and as a Trustee of the Institute.
He is also the Emil Frei Professor of Medicine and Genetics at Harvard Medical
School where he has taught since 1973.

<PAGE>

KEVIN E. MOLEY, age 52, has served as a director of the Company since
February 1999. From March to October of 1998, Mr. Moley was an executive
consultant to Kinetra LLC. He served as President and Chief Executive Officer of
Integrated Medical Systems, Inc. from January 1996 to March 1998. From February
1993 to January 1996, he served as Senior Vice President to PCS Health Systems,
Inc. During the Administration of President George Bush, Mr. Moley served in the
United States Department of Health and Human Services in various capacities
including as a member of the Transition Team from February to May of 1989, as an
Assistant Secretary for Management and Budget from May 1989 to November 1991,
and as a Deputy Secretary from November 1991 to January 1993. Mr. Moley has
served as the Chairman of the Board of Patient Care Dynamics since November
1998. Mr. Moley has served as a director of each of Cephalon, Inc., Merge
Technology Inc. and Medaphis Corporation since March 1994, February 1998, and
April 1998, respectively.

STEPHEN E. RONAI, age 62, has served as a director of the Company since
January 1996. Mr. Ronai has been a partner in the Connecticut law firm of
Murtha, Cullina, Richter and Pinney since 1984 where he serves as Chairman of
the firm's Health Care Department. He is a member of the American Health Lawyers
Association. From 1989 to 1995, he served as a member of the Board of Directors
of the National Health Lawyers Association, which merged in 1998 with the
American Academy of Health Care Attorneys of the American Hospital Association
and was subsequently denominated as the American Health Lawyers Association. He
also has served as Chairman of the Board of Trustees of the Connecticut Hospital
Association. He is currently a director of CareMatrix Corporation and also
serves as a director of various non-profit tax-exempt health care provider
organizations.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Dr. Hogan filed a Form 3 with the Securities Exchange Commission on
January 19, 1999 in connection with his appointment as an executive officer of
the Company on December 7, 1998. Dr. Moskow filed a Form 5 with the Securities
and Exchange Commission on February 5, 1999 for stock options granted on January
21, 1998. Messrs. Cassese and Carey intend to file Form 5s, with respect to
the grant of stock options on November 14, 1996, September 8, 1997 and
January 26, 1999.

ITEM 11. EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

Officers who are members of the Board of Directors do not receive
compensation for serving on the Board. Each other member of the Board receives
annual compensation of $15,000 for serving on the Board, plus a fee of $1,000
for each Board of Directors' meeting attended. In addition, such directors
receive an additional fee of $500 for each committee meeting attended, except
that only one fee will be paid in the event that more than one such meeting is
held on a single day. All directors receive reimbursement of reasonable expenses
incurred in attending Board and committee meetings and otherwise carrying out
their duties. Each director who is a member of the Equity Incentive and
Compensation Committee on the first business day following each annual meeting
of the stockholders will receive an option to purchase 2,500 shares of Common
Stock. Any of such options granted to a member of the Equity Incentive and
Compensation Committee under the Equity Plan will be exercisable one year
following the date of grant.

<PAGE>

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table contains a summary of the compensation paid or
accrued during the fiscal years ended January 31, 1997, 1998 and 1999 to the
Chief Executive Officer of the Company and the four other named executive
officers (the "Named Executive Officers").

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------- ---------------------
BONUS SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY ($) COMPENSATION($) UNDERLYING OPTIONS (#) COMPENSATION($)
--------------------------- ------- ------------ --------------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C>
Abraham D. Gosman 1999 225,000 -- -- --
Chairman and Co-Chief Executive 1998 225,000 -- -- --
Officer 1997 225,000 -- -- --

Michael T. Heffernan 1999 214,842 100,000 -- --
President, Co-Chief Executive Officer 1998 200,000 75,295 300,000 720(5)
and Director

James M. Hogan, M.D. (2) 1999 507,200 -- -- --
Chief Medical Officer

Frederick R. Leathers 1999 229,525 -- -- --
Chief Financial Officer and Treasurer 1998 229,197 -- -- --
1997 229,197 -- -- --

Gregory Gardner (3) 1999 185,875 -- -- --
Executive Vice President of Finance 1998 185,875 -- -- --

Bruce A. Rendina (4) 1999 344,366 -- -- 81,764(5)
Former Vice Chairman and 1998 460,435 -- 300,000 81,207(5)
Former Chairman 1997 435,782 -- -- 53,948(5)
and Chief Executive Officer of DASCO

Robert A. Miller (6) 1999 283,944 -- -- 617,528(7)
Former President 1998 304,135 -- -- --
1997 304,171 -- -- --
</TABLE>

- -----------------------

(1) The Company's fiscal year end is January 31.
(2) Dr. Hogan became an executive officer of the Company in December 1998.
(3) Mr. Gardner became an executive officer of the Company in November 1996.
(4) Mr. Rendina resigned as an executive officer of the Company during August
1998.
(5) Represents life insurance premiums paid by the Company.
(6) Mr. Miller resigned as an executive officer of the Company during December
1998.
(7) Includes severance pay pursuant to the Miller Severance Agreement (defined
herein). See "-- Separation Agreements" below.

<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

There were no options granted during the year ended January 31, 1999 by
the Company to any of the Named Executive Officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The Named Executive Officers did not exercise any options during the
fiscal year ended January 31, 1999. As of such date, Mr. Heffernan, Dr. Hogan
and Mr. Gardner held options to purchase 300,000, 100,000 and 100,000 shares
of Common Stock, respectively, 100,000 of which were exercisable by Mr.
Heffernan, 33,333 of which were exercisable by Dr. Hogan and 43,333 of which
were exercisable by Mr. Gardner. None of the options held by Mr. Heffernan,
Dr. Hogan and Mr. Gardner were in-the-money as of January 31, 1999, and
none of the other Named Executive Officers held any options as of such date.

EMPLOYMENT AGREEMENTS

In connection with the Company's acquisition of Clinical Studies, Ltd.
("CSL"), on October 14, 1997, the Company entered into an employment agreement
with Mr. Heffernan to be the Chief Executive Officer of CSL. The agreement
provides for an initial three-year term (expiring on October 14, 2000), which
may be renewed upon agreement of the parties. The base salary for Mr. Heffernan
under the agreement is $200,000 per year, plus a guaranteed bonus of $100,000
per year, payable in quarterly installments. The agreement also provides for the
grant of an option to purchase 300,000 shares of the Common Stock of the Company
at $16.25 per share (the price per share of the Common Stock as of the date of
the agreement), which option is exercisable in three annual installments of
100,000 shares commencing on October 14, 1998. In addition, Mr. Heffernan is
entitled to receive other bonuses and benefits that may be offered by the
Company to its executive officers. The agreement may be terminated by the
Company without cause effective immediately upon delivery of written notice by
the Company to Mr. Heffernan. Mr. Heffernan may terminate the agreement upon
delivery of written notice to the Company if the Company (i) fails to pay any
sums due under the agreement, (ii) reassigns Mr. Heffernan from Providence,
Rhode Island without his consent, or (iii) materially changes his employment
duties without his consent. If the agreement is terminated by the Company
without cause or by Mr. Heffernan for one of the reasons noted in the preceding
sentence, Mr. Heffernan shall continue to receive his salary and guaranteed
bonus for a period of 18 months after such a termination or for the remainder of
the term of the agreement, whichever is longer. In the event of a "change in
control" (as defined in the agreement) of the Company or CSL during the term of
the agreement, Mr. Heffernan is entitled to receive a bonus payment from the
Company equal to 2.99 times the sum of his salary and guaranteed annual bonus.
The agreement contains restrictive covenants prohibiting Mr. Heffernan from
competing with the Company, or soliciting employees of the Company to leave,
during his employment and for a period equal to the longer of (i) one year after
termination of the agreement or (ii) the period during which Mr. Heffernan is
paid as a result of a termination of the agreement by the Company without cause
or by Mr. Heffernan for cause.

On January 27, 1997, the Company entered into an employment agreement
with James M. Hogan, M.D.. The agreement provides for an initial three-year
term ending March 17, 2000, which is automatically renewed for successive one
year periods unless either the Company or Dr. Hogan provides a written notice
of an election not to renew at least 60 days but not more than 180 days
before the termination of the agreement. The base salary for Dr. Hogan under
the agreement is $500,000 per year, plus such benefits and bonuses as the
Company in its sole discretion may grant to him. The agreement also provides
for the grant of an option to purchase 100,000 shares of Common Stock at
$12.50 per share (the fair market value of the Common Stock on the date of
the agreement), which option is exercisable in three annual installments
commencing on March 17, 1998. In addition, Dr. Hogan is entitled to receive
other bonuses and benefits that may be offered by the Company to its
executive officers. The agreement may be terminated by the Company on 30 days
written notice to Dr. Hogan. In addition, the Company may terminate the
agreement with cause if Dr. Hogan engages in certain proscribed behavior. Dr.
Hogan may terminate the agreement on 30 days written notice to the Company if
the Company fails to honor the terms of the agreement, upon a change of
control of the Company or if a material change in his title,
responsibilities, salary or benefits occurs. If the agreement is terminated
by the Company without cause or by Dr. Hogan for one of the reasons noted in
the immediately preceding sentence, Dr. Hogan shall continue to receive his
salary for a period of 12 months after such termination or for the remainder
of the term of the agreement, whichever is longer. The agreement contains
restrictive covenants prohibiting Dr. Hogan from competing with the Company,
or soliciting employees of the Company to leave during his employment or for
a period equal to the longer of (i) one year after the termination of the
agreement or (ii) the period during which Dr. Hogan is paid as a result of a
termination of the agreement by the Company without cause or by Dr. Hogan for
cause.

The Company, through its subsidiary DASCO Development Corporation
("DASCO"), entered into an employment agreement with Mr. Rendina that
provided for an initial one-year term automatically renewable for successive
one-year periods until either party elects not to renew. The initial base
salary for Mr. Rendina under the agreement was $330,000 per year with
automatic annual increases. In addition, he was entitled to receive bonuses
and benefits, including life, accident, health and dental insurance. The
agreement with Mr. Rendina was terminated in September 1998.

BUSINESS AGREEMENT

In September 1998, Bruce A. Rendina entered into a Business Agreement
(the "Business Agreement") with the Company, DASCO and Mr. Gosman. The
Business Agreement was entered into to address the parties' future
cooperation with respect to the development of certain real estate projects.
The Business Agreement provides that the Company has the exclusive
development rights to 27 separate projects located in 12 states, and Mr.
Rendina has the exclusive development rights to six projects in five states.
In addition, the Company and Mr. Rendina have agreed under certain conditions
to share fees with respect to five asset conversion projects and six medical
facility development projects. Pursuant to the terms of the Business
Agreement, Mr. Rendina is entitled to the first 25% of the fees received on
any shared fee project. Thereafter, the Company and Mr. Rendina evenly split
the remaining portion of the fees for such projects.

SEPARATION AGREEMENT

In December 1998, the Company and Robert A. Miller, former President of
the Company entered into a Separation and Severance Agreement (the "Miller
Severance Agreement") and a Consulting Agreement for Physician Practice
Management Assets (the "Miller Consulting Agreement"). Pursuant to the Miller
Severance Agreement, the Company will pay to Mr. Miller a severance payment
equal to $617,528 less applicable taxes and deductions. Mr. Miller agreed not
to solicit any employees of the Company and not to compete against the
Company's site management and clinical trial related business for a period of
two years from the termination of the Miller Consulting Agreement. The Miller
Consulting Agreement provides for Mr. Miller to assist the Company in its
divestiture of its non-network physician practice management assets for the
six months following his resignation. In consideration for such services, the
Company will pay to Mr. Miller $390,000 over the term of contract.

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of April 22, 1999 (unless otherwise
indicated), certain information regarding the beneficial ownership of shares
of Common Stock by each person known by the Company to be the beneficial
owner of more than 5% of outstanding Common Stock, by each director and each
of the Named Executive Officers of the Company and by all current directors
and executive officers as a group. Except as indicated in the footnotes, all
of such shares of Common Stock set forth in the following table are owned
directly, and the indicated person has sole voting and investment power with
respect to all Common Stock shown as beneficially owned by such person:

AMOUNT OF BENEFICIAL OWNERSHIP
------------------------------
SHARES BENEFICIALLY PERCENTAGE OF
OWNED OUTSTANDING(1)
----- --------------
<S> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS

Abraham D. Gosman (2)............................................ 8,537,126 25.6%
Michael T. Heffernan (3)......................................... 419,493 1.3
Gregory Gardner (4).............................................. 43,333 *
James M. Hogan, M.D. (5)......................................... 66,666 *
Frederick R. Leathers............................................ 491,505 1.5
Eric Moskow, M.D. (6)............................................ 187,252 *
H. Loy Anderson, Jr.............................................. 315 *
Hugh L. Carey (7)................................................ 5,000 *
Joseph N. Cassese (8)............................................ 35,000 *
David M. Livingston, M.D......................................... -- *
Kevin E. Moley................................................... -- *
Stephen E. Ronai (9)............................................. 12,000 *
Robert A. Miller (10)............................................ 459,655 1.4
Bruce A. Rendina (11)............................................ 604,766 1.8

All current directors and executive officers as a group
(12 persons) (12).............................................. 9,797,690 29.0

OTHER 5% STOCKHOLDERS

Crabbe Huson Group, Inc.(13)..................................... 3,320,600 9.9
The WAB Family Limited Partnership (14).......................... 1,900,576 5.7

</TABLE>

- --------------------------
* Less than one percent.

(1) Based upon a total of 33,386,145 shares of Common Stock outstanding on
April 22, 1999.
(2) Includes (i) 4,018,707 shares held by Chancellor Partners Limited
Partnership I ("CPLP I") and (ii) 2,000,000 shares held in a revocable
trust. The sole general partner of CPLP I is CLP, Inc., which has
sole voting and dispositive powers as to the securities held by CPLP
I. Mr. Gosman is the sole stockholder and director of CLP, Inc.
Mr. Gosman's business address is PhyMatrix Corp., 777 South Flagler
Drive, Suite 1000E, West Palm Beach, Florida 33401.
(3) Includes 100,000 shares that Mr. Heffernan has the right to acquire
upon exercise of an option.
(4) Consists of 43,333 shares that Mr. Gardner has a right to acquire upon
exercise of an option.
(5) Includes 66,666 shares that Dr. Hogan has a right to acquire upon
exercise of an option.
(6) Includes (i) 120,000 shares that Dr. Moskow has the right to acquire
upon exercise of an option and (ii) 12,101 shares held of record by
Physician's Choice Management, LLC.
(7) Consists of 5,000 shares that Mr. Carey has the right to acquire upon
exercise of an option.
(8) Includes 15,000 shares that Mr. Cassese has the right to acquire upon
exercise of an option.
(9) Includes 10,000 shares that Mr. Ronai has the right to acquire upon
exercise of an option.
(10) Based upon information contained in Mr. Miller's most recent Form 4
filed with the SEC for September 1996. Includes 150 shares held for the
benefit of three of Mr. Miller's children.
(11) Based upon information provided by Mr. Rendina in April 1999.
(12) Includes 359,999 shares that the current directors and executive
officers have the right to acquire upon exercise of options.

<PAGE>

(13) Crabbe Huson Group, Inc. ("CHG") disclaims beneficial ownership of
all shares owned by each of its clients and also disclaims that a
"group" within the meaning of Rule 13d-5(b) under the Securities
Exchange Act of 1934 has been or will be formed. CHG asserts that it
does not directly own any shares of the Company, but shares voting
power with respect to 3,058,200 shares and dispositive power with
respect to 3,320,600 shares owned by its clients. The address of CHG
is 121 SW Morrison, Suite 1400, Portland, Oregon 97204. Based upon
information contained in CHG's Schedule 13G filed with the SEC on
February 12, 1999.
(14) The partnership's address is 106 Driftwood Drive, Tiverton, Rhode
Island 02878. Walter A. Brown is the sole limited partner and
general partner of the partnership. Based upon information provided
by Mr. Brown to the Company in April 1999.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company occupies office space for offices in West Palm Beach,
Florida under the terms of a lease which the Company assumed from a company
the stockholders and executive officers of which include Messrs. Gosman and
Leathers. The terms of the assumed lease are the same as those to which such
affiliated company was obligated. As of January 31, 1999, the total amount of
lease payments to be made under the assumed lease through the end of the
current lease term was estimated to be approximately $0.4 million. During the
year ended January 31, 1999, the Company leased office space on behalf of
certain of its affiliated physicians from a limited partnership of which Mr.
Gosman owns a controlling interest in the limited partner and general
partner. The aggregate base rent paid during the year under such leases was
approximately $0.1 million. In January 1997, a privately-held entity
principally owned by Mr. Gosman assumed the Company's obligations as lessee
under a capital lease, which obligations then exceeded the fair market value
of the lease by $0.6 million.

<PAGE>

of Mr. Gosman (individually and as trustee) in such facilities ranged from
6.0% to 40.1%. The interest of Mr. Leathers ranged from 0. 1 % to 0.95%.
During the year ended January 31, 1999, DASCO recorded revenues in the
amount of approximately $3.0 million, related to facilities developed by
DASCO in which equity interests have been obtained by related parties.

The Company provides construction management, development marketing and
consulting services to entities principally owned by Mr. Gosman in connection
with the development and operation by such entities of several healthcare
related facilities (including a medical office building and a retirement
community). During the years ended January 31, 1999 and 1998, the Company
recorded revenues in the amount of $1.4 million and $10.5 million,
respectively, related to such services and as of January 31, 1999, the
Company advanced $10.9 million, pursuant to a note due in July 2000, to a
company principally owned by Mr. Gosman relating to the development of a
healthcare facility. The Company provides these services to such affiliated
parties on terms no more or less favorable to the Company than those provided
to unaffiliated parties. Interest on the note accrues at the prime rate.

In May 1998, the Company made a loan in the original principal amount of
$1.0 million to Dr. Moskow. The loan bears interest at a rate of 5.56% per
annum and becomes due in May 2005. Pursuant to the terms of the note
governing the loan, the balance due under the note will be forgiven upon a
change of control of the Company. In addition, during the year ended
January 31, 1999, the Company loaned $0.9 million to a limited
partnership of which Mr. Gosman is a partner. The loan bears interest at 10%
and has a final maturity of July 1999.

Mr. Ronai is a partner in the Connecticut law firm of Murtha, Cullina,
Richter and Pinney which has been retained to perform certain legal services for
the Company.

During July 1995, the Company purchased the assets of and entered into a
15-year management agreement with a medical oncology practice with three medical
oncologists. An affiliate of the Company, Continuum Care of Massachusetts, Inc.,
guarantees the performance of the Company's obligations under the management
agreement.

36
<PAGE>

PART IV

ITEM 14. FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
(a)1. Financial Statements PAGE
----
<S> <C>
Financial Statements
Report of Independent Accountants F-2
Consolidated Balance Sheets as of January 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the years ended
January 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended January 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the years ended
January 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7

2 Financial Statement Schedules

Report of Independent Accountants S-1

Schedule II Valuation and Qualifying Accounts for the years
ended January 31, 1999, 1998 and 1997 S-2
</TABLE>

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.

3. Exhibits

Exhibit No. Exhibit
- ----------- -------

<S> <C>

3.1(1) Restated Certificate of Incorporation of the Company.
3.2(1) By-laws of the Company.
4(2) Indenture with respect to the Company's 6-3/4% Convertible
Subordinated Debentures.
10.1(1) Registration Agreement dated January 29, 1996 between PhyMatrix
Corp. and various stockholders of PhyMatrix Corp.
10.2(2) Registration Agreement dated June 21, 1996 between PhyMatrix Corp.
and the Initial Purchasers.
10.3(1) Employment Agreement dated as of January 1, 1995 between DASCO and
Bruce A. Rendina.
10.4(2) Employment Agreement dated January 29, 1996 between PhyMatrix Corp.
and Robert A. Miller.
10.5(1) 1995 Equity Incentive Plan.
10.6 Amended and Restated Agreement and Plan of Merger dated as of July
15, 1997 by and among the Company, PhyMatrix Acquisition I, Inc.,
Clinical Studies Ltd., Dr. Michael Rothman, Dr. Walter Brown,
Michael T. Heffernan and Ronald Phillips as Trustee of The Alexander
Rothman 1993 Qualified Sub-Chapter S Trust and as Trustee of The
Julie Rothman Qualified Sub-Chapter S Trust (incorporated by
reference from the Company's Current Report on Form 8-K filed on
October 6, 1997).
10.7(3) Employment Agreement dated October 14, 1997 between PhyMatrix Corp.
and Michael T. Heffernan.
10.8(3) Separation and Settlement Agreement dated April 30, 1998 between
Frank Tidikis and PhyMatrix Corp.
*10.9 Loan and Security Agreement dated March 12, 1999 by and among the
Company, certain of its subsidiaries and HCFP Funding, Inc.
*10.10 Loan and Security Agreement dated March 12, 1999 by and among the
Company, PhyMatrix Diagnostic Imaging, Inc., PhyMatrix Management
Company, Inc. and HCFP Funding, Inc.
*10.11 Loan and Security Agreement dated March 12, 1999 by and between
the Company, Clinical Studies, Ltd., Clinical Marketing, Ltd. and
HCFP Funding, Inc.
*10.12 Separation and Settlement Agreement dated December 8, 1998 between
the Company and Robert A. Miller
*10.13 Consulting Agreement for Physician Practice Management Assets
dated December 8, 1999 between the Company and RAM Advisors, Inc.
*10.14 Business Agreement dated September 4, 1998 among the Company,
certain of its subsidiaries, Abraham D. Gosman, The Rendina
Companies, Inc., The Rendina Companies West, Inc. and Bruce A.
Rendina.
10.15(3) Section 3.4(a) of the Operating Agreement of Tri-State Network
Management, L.L.C. dated February 17, 1998 among PhyMatrix
Management Company, Inc. ("Management"), Beth Israel Medical Center
and Landmark Physicians Organization, L.L.C., which imposes certain
restrictions on Management and PhyMatrix Corp.
*10.16 Employment Agreement between the Company and James M. Hogan, M.D.
*21 Subsidiaries of the Registrant.
*23.1 Consent of PricewaterhouseCoopers LLP
*27 Financial Data Schedule.

</TABLE>

<PAGE>

- ---------------

* Filed herewith.

(1) All exhibits not filed herewith or otherwise incorporated by reference are
hereby incorporated by reference to the Company's Registration Statement
on Form S-1 (Registration No. 33-97854).

(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Reg. No. 333-08269).

(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended January 31, 1998.

(b) Reports on Form 8-K

None

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.

PHYMATRIX CORP.

By: /S/ ABRAHAM D. GOSMAN
----------------------------------
Abraham D. Gosman
Chairman of the Board of Directors
and Co-Chief Executive Officer

Date: April 30, 1999

Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.

SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

Chairman of the Board of Directors
and Co-Chief Executive Officer
/s/ Abraham D. Gosman (Principal Executive Officer) April 30, 1999
- ------------------------------

Chief Financial Officer
(Principal Financial and Accounting
/s/ Frederick R. Leathers Officer) April 30, 1999
- ------------------------------

/s/ H. Loy Anderson Director April 30, 1999
- ------------------------------

Governor Hugh L. Carey Director April 30, 1999
- ------------------------------

/s/ Joseph N. Cassese Director April 30, 1999
- ------------------------------

Director, President and Co-Chief
/s/ Michael T. Heffernan Executive Officer April 30, 1999
- ------------------------------

David M. Livingston, M.D. Director April 30, 1999
- ------------------------------

/s/ Kevin Moley Director April 30, 1999
- ------------------------------

Director and Executive Vice
Eric Moskow President of Strategic Planning April 30, 1999
- ------------------------------

/s/ Stephen E. Ronai, Esq. Director April 30, 1999
- ------------------------------

</TABLE>

<PAGE>

PHYMATRIX CORP.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----
<S> <C>

Report of Independent Accountants F-2

Consolidated Balance Sheets as of January 31, 1999 and 1998 F-3

Consolidated Statements of Operations for the years ended January 31, 1999, 1998, and 1997 F-4

Consolidated Statements of Changes in Shareholders' Equity for the years ended January 31, F-5
1999, 1998, and 1997

Consolidated Statements of Cash Flows for the years ended January 31, 1999, 1998 and 1997 F-6

Notes to Consolidated Financial Statements F-7

</TABLE>

F-1

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Shareholders of PhyMatrix Corp.:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of PhyMatrix Corp. and its subsidiaries at January 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended January 31, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP
Boston, Massachusetts
March 19, 1999, except for Note 23,
for which the date is April 22, 1999

F-2

<PAGE>

PHYMATRIX CORP.

CONSOLIDATED BALANCE SHEETS
(In thousands)

January 31,
-----------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 10,137 $ 49,536
Receivables:
Accounts receivable, net of allowances of $1,350 and $48,428 at
January 31, 1999 and 1998, respectively 15,276 57,252
Income tax refund receivable 10,789 --
Other receivables 6,760 14,240
Notes receivable (Note 5) 5,060 1,851
Prepaid expenses and other current assets 1,260 6,167
Assets held for sale (Note 2) 100,795 --
-------- --------
Total current assets 150,077 129,046

Property, plant and equipment, net (Note 6) 11,024 44,295
Notes receivable (Note 5) 7,274 7,831
Goodwill, net (Note 2) 41,007 93,880
Management service agreements, net (Note 2) 28,167 89,470
Investment in affiliates (Note 7) 98 4,944
Other assets (including advances to shareholder) 15,204 8,694
-------- --------
Total assets $252,851 $378,160
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of debt and capital leases (Note 9) $ 12,192 $ 13,742
Accounts payable 13,602 13,101
Accrued compensation 1,475 2,282
Accrued and other current liabilities (Note 8) 11,623 13,531
-------- --------
Total current liabilities 38,892 42,656

Long-term debt and capital leases (Note 9) 5,465 20,617
Convertible subordinated debentures (Note 9) 100,000 100,000
Other long-term liabilities (Notes 3 and 12) 1,191 1,651
Minority interest 1,403 1,201
-------- --------
Total liabilities 146,951 166,125

Commitments and contingencies (Notes 3 and 12)

Shareholders' equity:
Common stock, par value $.01, 40,000 shares authorized,
33,344 and 31,248 shares issued at January 31, 1999 and 1998, respectively,
32,916 and 31,244 shares outstanding at January 31, 1999 and 1998,
respectively 329 312
Treasury stock (1,202) (75)
Additional paid in capital 224,715 198,893
Retained earnings (accumulated deficit) (117,942) 12,905
-------- --------
Total shareholders' equity 105,900 212,035
-------- --------
Total liabilities and shareholders' equity $252,851 $378,160
-------- --------
-------- --------

The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

F-3
<PAGE>

PHYMATRIX CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)

Year Ended January 31,
----------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net revenues (Note 2):
Net revenues from services $ 179,472 $ 155,946 $ 98,765
Net revenues from management service agreements 103,112 94,134 47,942
Net revenues from real estate services 8,694 31,099 19,049
--------- --------- ---------
Total revenue 291,278 281,179 165,756
--------- --------- ---------
Operating costs and administrative expenses:
Salaries, wages and benefits 94,710 88,221 58,351
Professional fees 16,287 9,597 7,322
Supplies 60,055 44,909 27,203
Utilities 5,501 4,574 2,868
Depreciation and amortization 14,786 10,800 7,382
Rent 20,671 16,649 8,519
Provision for bad debts 8,428 5,915 4,608
Gain on sale of assets (Note 6) (5,414) (1,891) (262)
Provision for write-down of notes receivable (Note 5) 2,674 -- --
Merger and other noncontinuing expenses related to CSL (Note 3) -- 11,057 1,929
Goodwill impairment write-down (Note 2) 9,093 -- --
Nonrecurring expenses (Note 4) 10,465 -- --
Capitation expense 53,875 44,341 12,442
Other 37,667 22,841 12,251
--------- --------- ---------
328,798 257,013 142,613
--------- --------- ---------
Interest expense, net 8,005 4,775 1,357
Interest expense shareholder -- -- 369
(Income) from investment in affiliates -- (731) (709)
--------- --------- ---------
8,005 4,044 1,017
--------- --------- ---------
Income (loss) before provision for income taxes and extraordinary item (45,525) 20,122 22,126
Income tax expense (benefit) (11,549) 9,823 6,836
--------- --------- ---------
Net income (loss) before extraordinary item (Note 2) (33,976) 10,299 15,290
Extraordinary item, net of tax of $0 (Note 4) 96,784 -- --
--------- --------- ---------
Net income (loss) $(130,760) $ 10,299 $ 15,290
--------- --------- ---------
--------- --------- ---------
Net income per weighted average share - basic (Note 19)
Income (loss) before extraordinary item $ (1.02) $ 0.35 $ 0.56
Extraordinary item $ (2.89) $ -- $ --
Net income (loss) $ (3.91) $ 0.35 $ 0.56
Net income per weighted average share - diluted (Note 19)
Income (loss) before extraordinary item $ (1.02) $ 0.35 $ 0.55
Extraordinary item $ (2.89) $ -- $ --
Net income (loss) $ (3.91) $ 0.35 $ 0.55

Proforma Information (Note 2):
Adjustment to income tax expense $ -- $ 624 $ 1,293
Net income $ -- $ 9,675 $ 13,997
Net income per weighted average share - basic $ -- $ 0.33 $ 0.51
Net income per weighted average share - diluted $ -- $ 0.33 $ 0.51

Weighted average shares outstanding - basic (Note 19) 33,401 29,690 27,295
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding - diluted (Note 19) 33,401 30,229 27,682
--------- --------- ---------
--------- --------- ---------

The accompanying notes are an integral part of the consolidated financial statements.

</TABLE>

F-4

<PAGE>

PHYMATRIX CORP.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the years ended January 31, 1999, 1998 and 1997
(In thousands)

Retained
Common Stock Additional Earnings
Outstanding Treasury Paid-in (Accumulated
Shares Amount Stock Capital Deficit) Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances - December 31, 1995 4,885 $ 49 $ -- $ 25,071 $ (9,683) $ 15,437

Initial public offering, net of costs 21,263 213 -- 111,494 -- 111,707
Issuance of common stock for acquisitions 267 3 -- 3,997 -- 4,000
Issuance of common stock pursuant to pooling of
interests with Clinical Studies, Ltd. ("CSL") 319 3 -- 625 -- 628
Adjustment for immaterial pooling of interests 433 4 -- -- 779 783
Issuance costs -- -- -- (743) -- (743)
Issuance of stock pursuant to acquisitions 406 4 -- 9,223 -- 9,227
Issuance of stock pursuant to stock plans 52 -- -- 359 -- 359
Net loss for month ended January 31,1996 -- -- -- -- (1,176) (1,176)
Net income for the year ended January 31, 1997 -- -- -- -- 15,290 15,290
Dividends -- -- -- -- (1,732) (1,732)
--------- --------- --------- --------- --------- ---------
Balances - January 31, 1997 27,625 276 -- 150,026 3,478 153,780

Adjustment for immaterial pooling of interests -- -- -- -- 644 644
CSL's January 1997 earnings excluded from
net income (as described in Note 2) -- -- -- -- 344 344
Purchase of treasury stock at cost -- -- (75) -- -- (75)
Issuance of stock pursuant to acquisitions 3,430 34 -- 48,059 -- 48,093
Issuance of stock pursuant to stock plans 193 2 -- 920 -- 922
Issuance costs -- -- -- (112) -- (112)
Net income for the year ended January 31, 1998 -- -- -- -- 10,299 10,299
Dividends -- -- -- -- (1,860) (1,860)
--------- --------- --------- --------- --------- ---------
Balances - January 31, 1998 31,248 312 (75) 198,893 12,905 212,035

Purchase of treasury stock at cost (427) (4) (1,127) -- -- (1,131)
Issuance of stock pursuant to acquisitions 2,059 21 -- 25,785 -- 25,806
Issuance of stock pursuant to stock plans 36 -- -- 130 -- 130
Issuance costs and other -- -- -- (93) (87) (180)
Net loss for the year ended January 31, 1999 -- -- -- -- (130,760) (130,760)
--------- --------- --------- --------- --------- ---------
Balances - January 31, 1999 32,916 $ 329 $ (1,202) $ 224,715 $(117,942) $ 105,900
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------

The accompanying notes are an integral part of the consolidated financial statements.

</TABLE>

F-5

<PAGE>

PHYMATRIX CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>

Year Ended January 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(130,760) $ 10,299 $ 15,290
Noncash items included in net income (loss):
Depreciation and amortization 14,786 10,800 7,382
Extraordinary item 96,784 -- --
Gain on sale of assets (5,414) (1,891) (292)
Nonrecurring charges 10,465 -- --
Write-down of notes receivable 2,674 -- --
Goodwill impairment write-down 9,093 -- --
Amortization of debt issuance costs 1,708 727 277
Issuance of common stock as compensation -- -- 628
Other 656 (688) (359)
Changes in receivables (1,699) (8,571) (14,154)
Changes in accounts payable and accrued liabilities (1,020) 215 (3,637)
Changes in amounts due from physicians 3,216 (6,243) (1,006)
Changes in other assets (5,393) (6,932) 1,518
--------- --------- ---------
Net cash provided (used) by operating activities (4,904) (2,284) 5,647

Cash flows from investing activities:
Capital expenditures (6,601) (10,248) (5,687)
Sale of assets 7,888 4,019 1,244
Notes receivable, net (2,550) 6,957 (15,214)
Purchase of investments in affiliates -- (1,354) --
Other assets (110) 439 (1,440)
Acquisitions, net of cash acquired (Note 17) (11,164) (34,444) (27,734)
--------- --------- ---------
Net cash used by investing activities (12,537) (34,631) (48,831)

Cash flows from financing activities:
Borrowings under revolving lines of credit, net -- 26,571 3,132
Advances to shareholders (10,904) -- (15,523)
Proceeds from issuance of common stock 130 914 360
Dividends to shareholders -- (1,861) (1,732)
Proceeds from issuance of convertible subordinated debentures -- -- 96,566
Release of cash collateral -- 4,504 1,997
Offering costs and other (234) (88) (2,823)
Repurchase of treasury stock (769) -- --
Repayment of debt (10,181) (25,239) (7,179)
--------- --------- ---------
Net cash provided (used) by financing activities (21,958) 4,801 74,798

Increase (decrease) in cash and cash equivalents (39,399) (32,114) 31,614
Cash and cash equivalents, beginning of year 49,536 81,650 49,709
--------- --------- ---------
Cash and cash equivalents, end of year $ 10,137 $ 49,536 $ 81,323
--------- --------- ---------
--------- --------- ---------

The accompanying notes are an integral part of the consolidated financial statements.

</TABLE>

F-6

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND RECENT EVENTS

DESCRIPTION OF BUSINESS

PhyMatrix Corp. (together with its subsidiaries, the "Company" or
"PhyMatrix") is repositioning itself as a company that provides diverse
services supporting the needs of the pharmaceutical and managed care
industries. The Company is focusing its operations on two integrated business
lines: pharmaceutical services, including investigative site management,
clinical and outcomes research and disease management, as well as multi and
single-specialty provider network management. Historically, the Company has
been an integrated medical management company that provides medical
management services to the medical community, certain ancillary medical
services to patients and medical real estate development and consulting
services to related and unrelated third parties. In August 1998, the Company
announced that it planned to change this business model. The Company is in
the process of terminating its management of individual and group physician
practices and divesting itself of related assets, and selling and divesting
itself of its ancillary medical service businesses, such as diagnostic
imaging, radiation therapy, lithotripsy services, home healthcare and
infusion therapy. The Company also has significantly downsized its medical
facility development and consulting services. The Company currently estimates
that by the end of its current fiscal year it will have exited its physician
practice management ("PPM") and ancillary medical service businesses.

PhyMatrix Corp., formerly known as Continuum Care Corporation, was
formed to create a healthcare company which consummated an initial public
offering (the "offering") during January 1996 and simultaneously exchanged
13,040,784 shares of its Common Stock for all of the outstanding Common Stock
of several business entities (the "IPO entities") which were operated under
common control prior to the offering by Abraham D. Gosman and with respect to
DASCO Development Corporation and affiliate ("DASCO") by Mr. Gosman and
Bruce A. Rendina, since their respective dates of acquisition. Subsequent to
the offering, the Company changed its fiscal year end from December 31 to
January 31.

During October 1997, the Company combined with Clinical Studies, Ltd.
("CSL"). This business combination was accounted for as a pooling of
interests. CSL is a site management organization conducting clinical research
for pharmaceutical and biotechnology companies and clinical research
organizations at 38 centers located in 16 states. Accordingly, the financial
statements for all periods prior to the effective date of the merger have
been restated to include CSL and Clinical Marketing Ltd. ("CML") which was
merged into CSL on January 1, 1997.

RECENT EVENTS

F-7

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

these divestitures. In accordance with APB 16, the Company is required to
record these charges as an extraordinary item since impairment losses are
being recognized for divestitures and disposals expected to be completed
within two years subsequent to a pooling of interests (the pooling of
interests with CSL was effective October 15, 1997). Based on fair market
value estimates, which have primarily been derived from letters of intent,
letters of interest and discussions with prospective buyers, the Company
currently expects to realize net proceeds of approximately $100.8 million
from the sale of the businesses identified to be divested or disposed and has
recorded this amount as an asset held for sale on the balance sheet at
January 31, 1999.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its 50% or greater owned subsidiaries over which it exercises control.
Significant intercompany accounts and transactions have been eliminated in
consolidation.

ESTIMATES USED IN PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
are used when accounting for the estimated proceeds to be realized from the
assets held for sale, collectibility of receivables and third party settlements,
depreciation and amortization, taxes and contingencies.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of highly liquid instruments with
original maturities at the time of purchase of three months or less.

REVENUE RECOGNITION

Net revenues from services is reported at the estimated realizable
amounts from patients, third-party payors and others for services rendered.
Revenue under certain third-party payor agreements is subject to audit and
retroactive adjustments. Provisions for estimated third-party payor
settlements and adjustments are estimated in the period the related services
are rendered and adjusted in future periods as final settlements are
determined. The provision and related allowance are adjusted periodically,
based upon an evaluation of historical collection experience with specific
payors for particular services, anticipated reimbursement levels with
specific payors for new services, industry reimbursement trends and other
relevant factors. Included in net revenues from services are revenues from
the diagnostic imaging centers in New York which the Company operates
pursuant to Administrative Service Agreements. These revenues are reported
net of payments to physicians.

Net revenues from clinical studies (which are included in net revenues
from services) equals the fees to be received, primarily from pharmaceutical
companies, as services are provided to patients enrolled in the studies.
Revenues are recognized as patient visits are conducted and such services are
provided. Payments received prior to providing services are recorded as
unearned revenue. Included in accounts receivable at January 31, 1999 and
1998 are unbilled contract receivables of $4.6 million and $3.9 million,
respectively.

Net revenues from management service agreements include fees paid to the
Company by the management service agreements for providing management services.
These fees generally are either a fixed amount per enrollee or a specified
percentage of capitated revenues. In addition, the Company may be entitled to
participate in risk pools.

F-8

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In accordance with EITF 97-2, which the Company implemented during the
fourth quarter of fiscal 1999, net revenues from management service agreements
generally includes the net revenue generated by the physician practices net of
payments to physicians. Under the agreements, the Company, in most cases, is
responsible and at risk for the operating costs which include the reimbursement
of all medical practice operating costs. For the years ended January 31, 1999,
1998 and 1997, the payments to physicians which have been netted against
revenues were $67.7 million, $65.4 million and $42.2 million, respectively.

Net revenues from real estate services are recognized at the time services
are performed. In some cases fees are earned upon the achievement of certain
milestones in the development process, including the receipt of a building
permit and a certificate of occupancy of the building. Unearned revenue relates
to all fees received in advance of services being completed on development
projects.

THIRD PARTY REIMBURSEMENT

For the years ended January 31, 1999, 1998 and 1997, approximately 16%, 19%
and 28%, respectively, of the Company's net revenue was primarily from the
participation of the Company's home healthcare entities and physician practices
in Medicare programs. Medicare compensates the Company on a "cost reimbursement"
basis for home healthcare, meaning Medicare covers all reasonable costs incurred
in providing home healthcare. Medicare compensates the Company for physician
services based on predetermined fee schedules. In addition to extensive existing
governmental healthcare regulation, there are numerous initiatives at the
federal and state levels for comprehensive reforms affecting the payment for and
availability of healthcare services. Legislative changes to federal or state
reimbursement systems could adversely and retroactively affect recorded
revenues.

ASSETS HELD FOR SALE

During August 1998, the Board approved, consistent with achieving its
stated restructuring goal, its plan to divest and exit the Company's PPM
business and certain of its ancillary services businesses, including
diagnostic imaging, lithotripsy and radiation therapy. Subsequent to August
1998, the Company has also decided to divest its home health business and
exit its infusion therapy business. Net loss for the year ended January 31,
1999 includes an extraordinary item of $96.8 million which is primarily a
non-cash charge related to these divestitures. In accordance with APB 16, the
Company is required to record these charges as an extraordinary item since
impairment losses are being recognized for divestitures and disposals
expected to be completed within two years subsequent to a pooling of
interests (the pooling of interests with CSL was effective October 15, 1997).
Based on fair market value estimates, which estimates were primarily derived
from letters of intent, letters of interest and discussions with prospective
buyers, the Company currently expects to realize net proceeds of
approximately $100.8 million from the sale of the businesses identified to be
divested or disposed and has recorded this amount as an asset held for sale
on the balance sheet at January 31, 1999. Assets and liabilities of the
businesses held for sale have been removed from their respective accounts and
therefore are excluded from the foregoing footnote disclosures related to
these individual balance sheet items at January 31, 1999, since these amount
have been reclassed to assets held for sale.

PROPERTY AND EQUIPMENT

Additions are recorded at cost, or in the case of capital lease property,
at the net present value of the minimum lease payments required, and
depreciation is recorded principally by use of the straight-line method of
depreciation for buildings, improvements and equipment over their useful lives.
Upon disposition, the cost and related accumulated depreciation are removed from
the accounts and any gain or loss is included in income. Maintenance and repairs
are charged to expense as incurred. Major renewals or improvements are
capitalized. Assets recorded under capital leases are amortized over the shorter
of their estimated useful lives or the lease terms.

INCOME TAXES

The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Deferred taxes arise
primarily from the recognition of revenues and expenses in

F-9

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

different periods for income tax and financial reporting purposes.

Prior to the merger with CSL, CSL had elected to be treated as S
Corporations as provided under the Internal Revenue Code (the "Code"),
whereby income taxes are the responsibility of the shareholders. Accordingly,
the Company's statements of operations do not include provisions for income
taxes for income related to CSL prior to the merger. Prior to the merger,
dividends were primarily intended to reimburse shareholders for income tax
liabilities incurred.

PRO FORMA INFORMATION

The pro forma net income and net income per share information in the
consolidated statement of operations reflect the effect on historical results
(prior to the merger with CSL) as if CSL had been a C corporation rather than an
S corporation for income tax purposes.

GOODWILL

Goodwill relates to the excess of cost over the value of net assets of the
businesses acquired. Amortization is calculated on a straight line basis over
periods ranging from ten to 40 years. Accumulated amortization of goodwill was
$3.2 million and $6.0 million at January 31, 1999 and 1998, respectively. The
decrease in accumulated amortization of goodwill is primarily attributable to
the entities divested/disposed during the year ended January 31, 1999 or the
reclassification of accumulated amortization to assets held for sale at January
31, 1999.

MANAGEMENT SERVICE AGREEMENTS

Management service agreements consist of the costs of purchasing the
rights to manage medical oncology, physician groups and certain diagnostic
imaging centers. These costs are amortized over the initial noncancelable
terms of the related management service agreements ranging from ten to 25
years. Under the long-term agreements, the medical groups have agreed to
provide medical services on an exclusive basis only through facilities
managed by the Company. Accumulated amortization of management service
agreements was $1.4 million and $4.1 million at January 31, 1999 and 1998,
respectively. The decrease in accumulated amortization of management service
agreements is primarily attributable to the entities divested/disposed during
the year ended January 31, 1999 or the reclassification of accumulated
amortization to assets held for sale at January 31, 1999. Effective February
1, 1998, management changed its policies regarding amortization of its
management services agreement intangible assets. The Company adopted a
maximum of 25 years (from the inception of the respective intangible asset)
as the useful life for amortization of its management services agreement
intangible assets. Using the unamortized portion of the intangible at January
31, 1998, the Company began amortizing the intangible over the remainder of
the 25 year useful life. These costs had historically been charged to expense
through amortization using the straight line method over the periods during
which the agreements are effective, generally 30 to 40 years. This change
represented a change in accounting estimate and, accordingly, does not
require the Company to restate reported results for prior years. This change
increased amortization expense relating to existing intangible assets at
January 31, 1998, by approximately $0.7 million annually.

DEBT ISSUANCE COSTS

Offering costs of approximately $5.6 million related to the convertible
subordinated debentures and the revolving line of credit agreement (see Note 9)
have been deferred and are being amortized over the life of the convertible
subordinated debentures and the term of the revolving line of credit agreement,
respectively. The revolving line of credit agreement was amended during December
1998 and the maturity was changed to March 1999. Therefore, the amortization of
the debt issuance costs related to this line of credit were accelerated,
resulting in additional amortization expense of $0.6 million for the year ended
January 31, 1999. Amortization expense of

F-10

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

$1.7 million, $0.7 million and $0.3 million has been included as interest
expense in the accompanying financial statements for the years ended January 31,
1999, 1998 and 1997, respectively.

LONG-LIVED ASSETS

The Company periodically assesses the recoverability of long-lived assets,
including property and equipment and intangibles, when there are indications of
potential impairment, based on estimates of undiscounted future cash flows. The
amount of impairment is calculated by comparing anticipated discounted future
cash flows with the carrying value of the related asset. In performing this
analysis, management considers such factors as current results, trends and
future prospects, in addition to other economic factors.

In connection with the Board of Directors' plan to reposition the
Company, and due in part to the resignation of Bruce A. Rendina as Chief
Executive Officer of the Company's real estate services segment, the Company
has made the decision to significantly downsize its real estate services
segment. During the fourth quarter ended January 31, 1999, the Company
recorded a goodwill impairment write-down of approximately $9.1 million which
eliminates the remaining goodwill of the real estate services segment. The
asset of goodwill was determined to have been impaired because of the
Company's decision to significantly downsize the real estate segment and the
inability to generate future operating income without substantial revenue
growth, which is uncertain. Moreover, anticipated future cash flows of the
real estate segment indicate that the recoverability of the asset is not
likely.

INVESTMENTS

The equity method of accounting is used for investments when there exists a
noncontrolling ownership interest in another company that is greater than 20%.
Under the equity method of accounting, original investments are recorded at cost
and adjusted by the Company's share of earnings or losses of such companies, net
of distributions.

NET INCOME (LOSS) PER COMMON SHARE

Effective December 15, 1997, the Company adopted SFAS No. 128, "Earnings
Per Share." Under SFAS No. 128, the basic earnings per share is calculated by
dividing net income by the weighted average number of shares of common stock
outstanding during the period. Stock to be issued at a future date pursuant to
acquisition agreements is treated as outstanding in determining basic earnings
per share. In addition, diluted earnings per share is calculated using the
weighted average number of shares of common stock and common stock equivalents,
if dilutive.

STOCK OPTION PLANS

On February 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation", which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made during the
years ended January 31, 1999, 1998 and 1997, and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.

FISCAL YEAR

Upon the completion of the merger during October 1997, CSL changed its
fiscal year end from December 31 to January 31. Amounts consolidated for CSL for
the year ended January 31, 1997 were based on a December 31 fiscal year end. As
a result, CSL's historical results of operations for the month ending January
31, 1997 are not included in the Company's consolidated statements of operations
or cash flows.

F-11

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

RECLASSIFICATIONS

Certain prior year balances have been reclassified to conform with the
current year presentation. Such reclassifications had no material effect on the
previously reported consolidated financial position, results of operations or
cash flows of the Company.

COMPREHENSIVE INCOME

For the periods included in the Form 10-K, the Company does not have
items of comprehensive income requiring reporting or disclosure.

ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

In 1997, the Emerging Issues Task Force of the Financial Accounting
Standards Board issued EITF 97-2 concerning the consolidation of physician
practice revenues. PPMs are required to consolidate financial information of a
physician where the PPM acquires a "controlling financial interest" in the
practice through the execution of a contractual management agreement even though
the PPM does not own a controlling equity interest in the physician practice.
EITF 97-2 outlines six requirements for establishing a controlling financial
interest. EITF 97-2 is effective for the Company's financial statements for the
year ended January 31, 1999. Adoption of this statement reduced previously
reported revenues and expenses for the years ended January 31, 1998 and 1997 by
$65.4 million and $42.2 million, respectively. During August 1998, the Company
announced its plan to divest and exit the PPM business. The majority of these
assets which have not yet been divested are recorded as assets held for sale at
January 31, 1999.

During the year ended January 31, 1999, the Company adopted SFAS 131,
"Disclosures About Segments of an Enterprise and Related Information." This
Statement requires reporting of summarized financial results for operating
segments as well as established standards for related disclosures about products
and services, geographic areas and major customers. Primary disclosure
requirements include total segment revenues, total segment profit or loss and
total segment assets. The adoption of SFAS 131 did not affect results of
operations or financial position but did affect the disclosure of segment
information (see Note 21).

3. ACQUISITIONS

YEAR ENDED JANUARY 31, 1999 TRANSACTIONS (ALL INFORMATION RELATED TO THE NUMBER
OF PHYSICIANS IS AS OF THE TRANSACTION DATE)

During February 1998, the Company purchased New England Research Center, a
clinical research center located in Massachusetts. At the time of its
acquisition, New England Research Center had over 50 ongoing studies, primarily
in allergy and asthma. In conjunction with the acquisition, the Company entered
into a 40-year agreement with the physicians and employees to manage the
clinical trials at New England Research Center. The purchase price was
approximately $5.7 million. Of such purchase price, approximately $1.5 million
was paid in cash and 333,006 shares of Common Stock were issued having a value
of $4.3 million. The purchase price was allocated primarily to management
services agreements and is currently being amortized over 25 years.

F-12

<PAGE>
PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

During April 1998, the Company completed the formation of an MSO, which is
51% owned by the Company, with LIPH, LLC. The Company manages for the MSO the
medical risk contracting for more than 2,600 physicians which are members in
IPAs in New York. The base purchase price was $3.0 million. Of such price, $1.5
million was paid in cash and 143,026 shares of Common Stock were issued having a
value of $1.5 million. There are also contingent payments up to a maximum of
$5.0 million payable in cash and Common Stock, with $4.0 million of such amount
based upon earnings during the three years after the closing date and the
remaining $1.0 million based upon the achievement of certain conditions during
any twelve-month period during the three years after the closing date. The
Company and LIPH, LLC are in dispute as to amounts owed to the Company primarily
for management services provided.

During January 1999, the Company acquired the stock of, and entered into
a management agreement with, a clinical research company specializing in
allergy and asthma research located in Illinois. The purchase price for the
stock was approximately $4.2 million. Of such purchase price, $1.6 million
was paid in cash during March 1999 and $2.6 million is payable primarily
under non-interest bearing promissory notes between the second and fifth
anniversaries of the closing date. The purchase price was allocated to the
assets at fair market value including management service agreements of $3.5
million. The resulting intangible is being amortized over 25 years.

F-13

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED JANUARY 31, 1998 ACQUISITIONS

PHYSICIAN PRACTICE ACQUISITIONS (ALL INFORMATION RELATED TO THE NUMBER OF
PHYSICIANS IS AS OF THE ACQUISITION DATE)

During February 1997, the Company purchased the stock of a six physician
practice pursuant to a merger and entered into a 40-year management agreement
with the practice in exchange for 159,312 shares of Common Stock of the Company
having a value of approximately $2.4 million. The transaction has been accounted
for using the pooling-of-interests method of accounting. During the year ended
January 31, 1999, the Company divested this practice.

During February 1997, the Company purchased the assets of and entered into
a 40-year management agreement with five physicians in Utah. The purchase price
was $2.5 million. Of such purchase price, $1.4 million was paid in cash and
75,293 shares of Common Stock of the Company were issued having a value of $1.1
million. The purchase price was allocated to the assets at their fair market
value, including management service agreements of $1.4 million. The resulting
intangible is being amortized over 25 years. At January 31, 1999, the Company
has recorded the estimated net realizable value of this business as assets held
for sale.

During May 1997, the Company entered into a 40-year management agreement
with a radiation therapy center in Westchester, New York. The consideration paid
in this transaction was $2.6 million. The amount paid has been allocated to
management service agreements and is being amortized over 25 years. At January
31, 1999, the Company has recorded the estimated net realizable value of this
business as assets held for sale.

During July 1997, the Company entered into a 40-year management services
agreement with Beth Israel Hospital to manage its DOCS Division which
consists of more than 100 physicians located throughout the greater
Metropolitan New York area. Pursuant to this management services agreement,
the Company is reimbursed for all operating expenses incurred by the Company
for the provision of services to the practices plus its applicable management
fee. The Company may expend up to $40 million, in certain circumstances (none
of which has been expended as of January 31, 1999), in conjunction with the
transaction to be utilized for the expansion of the Beth Israel delivery
system throughout the New York region. In connection with the agreement, the
Company paid $13.7 million in cash, which was allocated to management service
agreements and is being amortized over 25 years.

ANCILLARY SERVICE COMPANIES ACQUISITIONS AND CSL MERGER

During April 1997, the Company acquired the business and certain assets of
a clinical research company in the Washington, DC area for $0.7 million in the
form of a promissory note plus contingent consideration based on revenue and
profitability measures over the next five years. The contingent payments will
equal 10% of the excess gross revenue, as defined, provided the gross operating
margins of the acquired business exceed 30%. The purchase price was allocated to
intangibles, including goodwill, and is being amortized over 20 years. The note
and contingent payments are, in certain circumstances, convertible into shares
of Common Stock.

During June 1997, the Company purchased the assets of two diagnostic
imaging centers in Dade County, Florida. The purchase price was approximately
$12.6 million plus the assumption of debt and capital leases totaling $1.6
million. Of such purchase price, $0.6 million was paid in cash and the remaining
$12.0 million was paid by the issuance of 773,026 shares of Common Stock of the
Company, 562,500 of which were issued in June 1997 and 210,526 of which were
issued in September 1997. There is also a contingent payment up to a maximum of
$2.7 million based on the centers' earnings before taxes over the two years
subsequent to the closing, which is payable in cash. During September 1998, the
Company paid $1.3 million of such contingent payment in cash and has accrued for
the remaining $1.3 million at January 31, 1999. The purchase price was allocated
to the assets at their fair market value, including goodwill of $13.0 million.
The resulting intangible is being amortized over 30 years. At January 31, 1999,
the Company has recorded the estimated net realizable value of this business as
assets held for sale.

During June 1997, the Company acquired the remaining 20% interest in a
lithotripsy company that it purchased during 1994. The interest was acquired in
exchange for cash and 54,500 shares of Common Stock of the Company

F-14

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

having a total value of $2.0 million. The purchase price was allocated to
goodwill and is being amortized over 20 years. At January 31, 1999, the Company
has recorded the estimated net realizable value of this business as assets held
for sale.

During August 1997, the Company purchased certain assets and assumed
certain liabilities of, and entered into an administrative services agreement
with BAB Nuclear Radiology, P.C., to provide administrative services to five
diagnostic imaging centers on Long Island, New York. The consideration paid in
this transaction was approximately $10.5 million in cash, $15.0 million in
convertible notes and the assumption of $1.6 million in debt. The convertible
notes bear interest at 5% and were paid in three equal installments in November
1997 and February and May 1998. At the option of the Company, the notes were
payable in either cash or shares of Common Stock of the Company. The first two
installments were paid in shares of Common Stock of the Company and the final
installment was paid in cash during May 1998. The amount paid was allocated to
the assets at their fair market value, including management service agreements
of $23.0 million and is being amortized over 25 years. At January 31, 1999, the
Company has recorded the estimated net realizable value of this business as
assets held for sale.

During November 1997, the Company purchased certain assets of, and entered
into an administrative services agreement with Highway Imaging Associates, LLP,
to provide administrative services to a diagnostic imaging center in Brooklyn,
New York. The consideration paid in this transaction was approximately $1.7
million. Of such amount, approximately $0.2 million was paid in cash and $1.5
million was paid by the issuance of 108,108 shares of Common Stock of the
Company. The amount paid was allocated to the assets at their fair market value,
including management service agreements of $1.6 million, and is being amortized
over 25 years. At January 31, 1999, the Company has recorded the estimated net
realizable value of this business as assets held for sale.

During December 1997, the Company purchased certain assets, assumed certain
liabilities of, and entered into an administrative services agreement with Ray-X
Management Services, Inc., to provide administrative services to a diagnostic
imaging center in Queens, New York. The consideration paid in this transaction
was approximately $9.5 million. Of such amount, approximately $0.2 million was
paid in cash, $0.8 million was assumed debt and $8.5 million was paid by the
issuance of 616,215 shares of Common Stock of the Company. The amount paid was
allocated to the assets at their fair market value, including management service
agreements of $8.1 million, and is being amortized over 25 years. At January 31,
1999, the Company has recorded the estimated net realizable value of this
business as assets held for sale.

CSL MERGER

Effective October 15, 1997, a subsidiary of the Company merged with CSL in
a transaction that was accounted for as a pooling of interests. The Company
exchanged 5,204,305 shares of its common stock for all of the outstanding common
stock of CSL. The Company's historical financial statements for all periods have
been restated to include the results of CSL.

The following table, which is unaudited, reflects the combined revenues,
net income, net income per share and weighted average number of shares
outstanding for the respective periods. The Pro Forma Combined column adjusts
the historical net income for CSL to reflect the results of operations as if CSL
had been a C corporation rather than an S corporation for income tax purposes.
The Adjusted Pro Forma Combined column adjusts the Pro Forma Combined column by
eliminating certain noncontinuing charges incurred by CSL.

F-15

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
ADJUSTED
PRO FORMA PRO FORMA
PHYMATRIX CSL COMBINED COMBINED
--------- --- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)

FOR THE YEAR ENDED JANUARY 31, 1998
----------------------------------------------
<S> <C> <C> <C> <C>
Revenues $251,211 $29,968 $281,179 $281,179
Net income $7,253 $2,422 $9,675 $20,368
Net income per share--basic $0.30 $0.46 $0.33 $0.69
Net income per share--diluted $0.30 $0.46 $0.33 $0.68
Weighted average number of shares outstanding--basic 24,482 5,208 29,690 29,690
Weighted average number of shares outstanding--diluted 24,940 5,289 30,229 30,229

</TABLE>

FOR THE YEAR ENDED JANUARY 31, 1997
----------------------------------------------
<S> <C> <C> <C> <C>
Revenues $147,716 $18,040 $165,756 $165,756
Net income $ 12,057 $ 1,940 $ 13,997 $ 15,154
Net income per share--basic $ 0.54 $ 0.38 $ 0.51 $ 0.56
Net income per share--diluted $ 0.54 $ 0.37 $ 0.51 $ 0.55
Weighted average number of shares outstanding--basic 22,196 5,099 27,295 27,295
Weighted average number of shares outstanding--diluted 22,491 5,192 27,682 27,682

</TABLE>

The following items reflect the noncontinuing charges, referred to above,
incurred by CSL during the respective periods (unaudited):

YEAR ENDED
-------------------------------
DECEMBER 31, JANUARY 31,
1996 1998
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Salaries expense related to the equity interest granted to an officer
of CSL. During January 1997, the officer entered into an employment
agreement with no provisions for sharing of profits or proceeds. $ 628 $ --
Consulting fees based on a profit sharing arrangement. The profit
sharing arrangement was terminated during 1997. 314 --
Management fees paid to the principal shareholders of CSL. 987 907
------- -----
Total nonrecurring items 1,929 907
After tax impact of nonrecurring items $ 1,157 $ 544

</TABLE>

Prior to its merger with the Company, CSL reported on a fiscal year ending
December 31. The restated financial statements for the year ended January 31,
1997 are based on a combination of the Company's results for its January 31
fiscal year and a December 31 fiscal year for CSL. CSL's historical results of
operations for the month ending January 31, 1997 are not included in the
Company's consolidated statements of operations or cash flows. An adjustment has
been made to shareholder's equity as of February 1, 1997 to adjust for the
effect of excluding CSL's results of operations for the month ending January 31,
1997.

As a result of using the pooling of interests method of accounting,
transaction expenses of $10.2 million were recorded as a one-time charge to
the Company's statement of operations during the quarter ended October 31,
1997 which represents the period in which the transaction closed. A summary
of these expenses is as shown below:

F-16
<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CSL PHYMATRIX TOTAL
--- --------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Legal $200 $300 $500
Accounting 200 175 375
Investment Banking 3,600 325 3,925
Other 250 100 350
------ ---- -------
Subtotal transaction expenses 4,250 900 5,150
------ ---- -------
CNS Consulting (1) 5,000 -- 5,000
------ ---- -------
Total $9,250 $900 $10,150
------ ---- -------
------ ---- -------

</TABLE>

(1) Represents buyout of consulting contract.

CONTRACT MANAGEMENT ACQUISITIONS

During April 1997, the Company acquired a pulmonary physician network
company for a base purchase price of $3.2 million. Of such purchase price, $0.9
million was paid in cash and 180,717 shares of Common Stock of the Company were
issued during May 1997 having a value of $2.3 million. There is also a
contingent payment up to a maximum of $2.0 million based on the acquired
entities' earnings before taxes during the three years subsequent to the
closing, which will be paid in cash and/or Common Stock of the Company. During
May 1998, the Company issued 88,149 shares of Common Stock of the Company having
a value of $1.1 million, representing a portion of the aforementioned contingent
payment. As of January 31, 1999, no additional amount has been earned. The
purchase price was allocated to goodwill and is being amortized over 30 years.

During December 1997, the Company purchased the stock of Urology
Consultants of South Florida. The base purchase price was approximately $3.6
million, paid in 244,510 shares of Common Stock of the Company. There is also a
contingent payment up to a maximum of $2.0 million based on the acquired
entities' earnings before taxes during the three years subsequent to the
closing, which will be paid in cash and/or Common Stock of the Company. As of
January 31, 1999, this contingent amount has not been earned. The purchase price
has been allocated to the assets at their fair market value including goodwill
of $3.6 million. The resulting goodwill is being amortized over 30 years.

The accompanying financial statements include the results of operations
derived from the businesses purchased by the Company since their respective date
of acquisition. The following unaudited pro forma information presents the
results of operations of the Company for the years ended January 31, 1999 and
1998 as if the acquisition of the entities purchased during such fiscal years
had been consummated on February 1, 1997. Such unaudited pro forma information
is based on the historical financial information of the entities that have been
purchased and does not include operational or other changes which might have
been effected pursuant to the Company's management. The unaudited pro forma
information presented below is for illustrative informational purposes only and
is not necessarily indicative of results which would have been achieved or
results which may be achieved in the future:

F-17
<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PRO FORMA
JANUARY 31,
------------------------------------
1999 1998
--------------- ----------------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
------------------------------------

<S> <C> <C>
Revenues $295,369 $310,729
Net income (loss) (129,070) 15,647
Net income (loss) per share--basic $ (3.92) $ 0.48
Net income (loss) per share--diluted $ (3.92) $ 0.48

</TABLE>

4. EXTRAORDINARY ITEMS AND NONRECURRING CHARGES

During August 1998, the Company initiated its plan to divest and exit
the PPM business and certain of its ancillary service businesses. Through the
nine months ended October 31, 1998, the Company had recorded an extraordinary
charge (net of tax of $8.4 million) of $51.6 million related to the planned
divestitures. During the fourth quarter ended January 31, 1999, the Company
recorded an additional extraordinary charge of $45.2 million. In accordance
with APB 16, the Company is required to record these charges as an
extraordinary item since impairment losses are being recognized for
divestitures and disposals expected to be completed within two years
subsequent to a pooling of interests (the pooling of interests with CSL was
effective October 15, 1997). The $45.2 million extraordinary charge during
the fourth quarter, which was primarily a non-cash charge, consisted of (i)
approximately $19.0 million resulting from the entities divested during the
fourth quarter as well as a revision of the estimated proceeds, based on
current fair market value estimates, for the sale of the remaining businesses
originally identified to be divested or disposed; (ii) approximately $17.8
million primarily related to the Company's decision, during the fourth
quarter, to divest its home health business and exit its infusion therapy
business; and (iii) approximately $8.4 million represented a tax benefit that
was applied to the extraordinary item during the nine months ended October
31, 1998 and subsequently applied to ordinary income in the fourth quarter as
required by SFAS 109. Extraordinary items generated a tax loss of $54.0
million. This loss cannot reasonably be expected to be utilized in the
future. Accordingly, a full valuation allowance has been established at
January 31, 1999.

During the year ended January 31, 1999, the Company recorded a
nonrecurring pretax charge of $10.5 million. Of this amount, $8.7 million
related primarily to the termination of several physician management and
employment agreements prior to the Company's decision in August 1998 to
restructure (see Note 1) and $1.8 million related to the write-off of the
remaining investment in an ambulatory surgery center.

5. NOTES RECEIVABLE

As of January 31, 1999 and 1998, the Company loaned an aggregate of $2.7
million to the shareholders of Physicians Choice, LLC pursuant to the agreement
under which the Company purchased the remaining ownership interests in
Physicians Choice Management, LLC. The notes have a variable rate of interest, a
final maturity in April 2004 and are collateralized by shares of Common Stock of
the Company.

In connection with the sale of real estate during the years ended January
31, 1999 and 1998, the Company recorded notes receivable of $5.2 million and
$1.7 million, respectively. The notes bear interest at 9.5% and 8.5%,
respectively, and have final maturities through August 2008.

F-18
<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of January 31, 1999 and 1998, the Company had loaned an aggregate net
amount of $1.9 million and $2.5 million, respectively, to various other entities
and individuals (including $1.0 million to an officer of the Company during May
1998, $0.9 million to a limited partnership in which Mr. Gosman is a partner and
$1.0 million to an employee during March 1997). The $1.0 million loaned to an
employee during March 1997 was collateralized by shares of Common Stock of the
Company. The notes bear interest at rates ranging from 5.56% to the prime rate
plus 1% and have final maturities ranging from October 1998 to June 2012.

During the year ended January 31, 1999, the Company wrote down certain
notes receivable that were collateralized by shares of Common Stock of the
Company to their estimated net realizable value. In the case of one such note
receivable the shares of Common Stock were tendered to the Company in
satisfaction of the note and accordingly the Company recorded the shares as
treasury stock. Based on the estimated net realizable value of these notes
receivable which were collateralized by shares of Common Stock of the Company,
the Company recorded a pretax charge of approximately $2.7 million.

In connection with the divestiture of two physician practices and an
investment in a lithotripsy entity, the Company had recorded notes receivable of
approximately $2.6 million during the year ended January 31, 1999 which remained
outstanding at January 31, 1999.

6. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

ESTIMATED JANUARY 31,
USEFUL LIFE ---------------------------
(YEARS) 1999 1998
----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land -- $ 3,926 $ 5,502
Building 15 795 835
Furniture and fixtures 5-7 5,152 12,969
Equipment 5-10 2,160 29,079
Automobiles 3-5 -- 66
Computer software 5 1,173 1,482
Leasehold improvements 4-20 640 7,642
------- -------
Property and equipment, gross 13,846 57,575
------- -------
Less accumulated depreciation (2,822) (13,280)
------- -------
Property and equipment, net $11,024 $44,295
------- -------
------- -------

</TABLE>

Depreciation expense was $6.1 million, $5.0 million and $4.2 million,
respectively, for the years ended January 31, 1999, 1998 and 1997, respectively.

Included in property and equipment at January 31, 1998 are assets under
capital leases of $4.8 million, with accumulated depreciation of $1.1 million.

During the year ended January 31, 1999, the Company sold real estate and a
radiation therapy center for $7.8 million and $2.5 million, respectively. These
sales resulted in gains of $4.5 million and $0.9 million, respectively. In
connection with the sale of real estate, $2.6 million was paid in cash and the
Company recorded a note receivable for the balance of $5.2 million. During the
year ended January 31, 1998 the gain on sale of assets resulted primarily from
the sale of a radiation therapy center and real estate. Proceeds from these
sales were $1.5 million and $3.1

F-19
<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

million (including a $1.7 million note receivable), respectively. These sales
resulted in gains of $0.7 million and $1.2 million, respectively.

7. INVESTMENT IN AFFILIATES

On December 31, 1994, the Company purchased a 36.8% interest in Mobile
Lithotripter of Indiana Partners, for $2.7 million. During December 1998, the
Company, in connection with its plan to divest and exit the lithotripsy
business, sold this investment for $1.9 million. During August 1995, the
Company purchased a 46% interest in I Systems, Inc., for $0.2 million. I
Systems, Inc. is engaged in the business of claims processing and related
services. The Company has the option to purchase up to an additional 30%
interest in I Systems for $33,333 in cash for each additional one percent of
ownership interest purchased. As of January 31, 1999, the Company's ownership
interest in I Systems, Inc. was approximately 49% and such investment is
included in assets held for sale. This investment is being accounted for
using the equity method at January 31, 1999. During 1997, the Company entered
into a partnership agreement whereby it became a 50% partner in an ambulatory
surgery center. The Company contributed approximately $1.5 million to the
partnership for its partnership interest. During the year ended January 31,
1999, the Company recorded a nonrecurring pretax charge of $1.8 million to
write-off its remaining investment in the ambulatory surgery center as well
as accrue for its portion of the future lease obligations.

8. ACCRUED AND OTHER CURRENT LIABILITIES

Accrued and other current liabilities consist of the following:
<TABLE>
<CAPTION>

JANUARY 31,
----------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Accrued rent $ 1,442 $ 321
Accrued income taxes (1) 515 2,325
Accrued professional fees 2,116 2,368
Accrued additional purchase price 1,000 --
Accrued interest 907 1,332
Unearned revenue 2,015 3,433
Other 3,628 3,752
------- -------
Total accrued and other current liabilities $11,623 $13,531
------- -------
------- -------

</TABLE>

(1) Included in accrued income taxes is a deferred tax liability of $0.4 million
at January 31, 1998.

F-20

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. LONG-TERM DEBT, NOTES PAYABLE AND CAPITAL LEASES

Long-term debt, notes payable and capital leases consist of the following:

JANUARY 31,
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS)

<S> <C> <C>
Convertible subordinated debentures, with an interest rate of 6.75%, a
maturity date of June 15, 2003, and a conversion price of $28.20 per share. $100,000 $100,000
Note payable due to four individuals payable in eight equal semi-annual
installments of $28,125, including interest at 8% through November 1998. -- 28
Note payable to a bank, collateralized by the assets of a multispecialty group
practice, payable in monthly installments of $14,027, including interest at 7.50%. -- 174
Note payable to a bank, collateralized by the assets of a multispecialty group
practice, payable in monthly installments of $20,608, at 8.75%. -- 580
Mortgage note payable to a bank, collateralized by the assets of an outpatient
surgery center, payable in monthly installments of $6,628 including interest
at 8.86% and a final maturity of November 2001. 686 697
Note payable to a bank, payable in monthly installments, interest at the prime
rate plus .375% and a final maturity of June 1998. -- 356
Note payable to the former shareholders of a medical oncology practice in
South Florida, payable in ten equal semi-annual installments of $682,867,
which includes interest at 9%. The note payable is collateralized by an
irrevocable letter of credit. -- 3,522
Note payable to former shareholders of a clinical research company. The note is
non-interest bearing and has a final maturity of January 2004. 3,760 --
Convertible acquisition notes payable with various maturity dates through
August 31, 2001 and interest rates ranging from 5% to 7%. 3,925 14,425
Acquisition earnouts payable with various maturity dates through 2001. 138 181
Revolving line of credit with a financial institution with a maturity date of
March 1999 and an interest rate of 9% at January 31, 1999. 9,117 10,000
Note payable to a financing institution with a maturity date of January 2000 and
an interest rate of 16.50%. -- 316
Capital lease obligations with maturity dates through September 2015 and
interest rates ranging from 8.75% to 12%. 31 4,080
-------- --------
117,657 134,359
Less current portion of capital leases (6) (1,193)
Less current portion of debt (12,186) (12,549)
-------- --------
Long-term debt and capital leases $105,465 $120,617
-------- --------
-------- --------

</TABLE>

The convertible acquisition notes payable are convertible into Common Stock
of the Company. At the option of the note holders, $4.4 million of the amount
outstanding at January 31, 1998 is convertible at a conversion price of $16.425
per share. Of this amount, $0.5 million was repaid in cash during the year ended
January 31, 1999. At the option of the Company, $10.0 million of the amount
outstanding at January 31, 1998 was payable in either cash or Common Stock of
the Company. Of such amount $5.0 million was paid in shares of Common Stock of
the Company during February 1998 and $5.0 million was paid in cash during May
1998.

F-21
<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for letters of credit). The credit agreement existing at January 31, 1999
(i) prohibited the payment of dividends by the Company; (ii) limited the
Company's ability to incur indebtedness and make acquisitions except as
permitted under the credit agreement and (iii) required the Company to comply
with certain financial covenants which include minimum net cash flow
requirements. The maximum amount outstanding under the line of credit during the
year ended January 31, 1999 was $10.0 million (not including letters of credit).

The following is a schedule of future minimum principal payments of the
Company's long-term and convertible debt and the present value of the minimum
lease commitments at January 31, 1999:

CAPITAL
DEBT LEASES
---- -------
(IN THOUSANDS)

<S> <C> <C>
Through January 31, 2000 $ 12,186 $ 10
Through January 31, 2001 892 10
Through January 31, 2002 2,794 10
Through January 31, 2003 1,054 8
Through January 31, 2004 100,000 --
Thereafter 701 --
--------- ----
Total 117,627 38
Less amounts representing interest and executory costs -- (8)
--------- ----
Total long-term debt and present value of minimum lease payments 117,627 30
Less current portion (12,186) (6)
--------- ----
Long-term portion $ 105,441 $ 24
--------- ----
--------- ----

</TABLE>

10. LEASE COMMITMENTS

The Company leases various office space and certain equipment pursuant to
operating lease agreements.

Future minimum lease commitments (including entities held for sale)
consisted of the following at January 31 (in thousands):

<TABLE>
<S> <C>
2000 $11,019
2001 8,026
2002 6,732
2003 5,811
2004 4,489
Thereafter 7,743
-------
$43,820
-------
-------

</TABLE>

11. TREASURY STOCK

During 1998, the Board of Directors authorized a share repurchase plan
pursuant to which the Company may repurchase up to $15.0 million of its Common
Stock from time to time on the open market at prevailing market prices. Through
January 31, 1999, the Company had repurchased 304,000 shares at a net purchase
price of $0.8 million. During December 1998, the Board of Directors temporarily
discontinued the share repurchase plan until the completion of certain asset
sales at which time it will be reinstated.

F-22
<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. COMMITMENTS AND CONTINGENCIES

The Company is subject to legal proceedings in the ordinary course of its
business. While the Company cannot estimate the ultimate settlements, or awards
with respect to these legal proceedings, if any, it does not believe that they
will have a material adverse effect on the Company, its liquidity, financial
position or results of operations, although there can be no assurance to this
effect.

On October 18, 1997, the Florida Board of Medicine, which governs
physicians in Florida, declared that the payment of percentage-based fees by a
physician to a physician practice management company in connection with
practice-enhancement activities subjects a physician to disciplinary action for
a violation of a statute which prohibits fee-splitting. Some of the Company's
contracts with Florida physicians include provisions providing for such
payments. The Company is currently in the process of appealing the ruling to a
Florida District Court of Appeals and the Board has stayed the enforceability of
its ruling pending the appeal. In the event the Board of Medicine's ruling is
eventually upheld, the Company may be forced to renegotiate those provisions of
the contracts which are affected by the ruling. While these contracts call for
renegotiation in the event that a provision is not found to comply with state
law, there can be no assurance that the Company would be able to renegotiate
such provisions on acceptable terms. The majority of the contracts affected by
this ruling are with the physician practices the Company has identified to be
divested or disposed and for which the assets are included in assets held for
sale at January 31, 1999.

A subsidiary of the Company, Oncology Therapies, Inc. ("OTI") (formerly
Radiation Care, Inc., ("RCI")) is subject to the litigation which relates to
events prior to the Company's operation of RCI, and the Company has agreed to
indemnify and defend certain defendants in the litigation who were former
directors and officers of RCI, subject to certain conditions. The Company has
entered into definitive agreements to settle this litigation. The terms of the
settlements will not have a material adverse effect on the Company's business,
financial position or results of operations.

The Company has entered into employment agreements with certain of its
employees, which include, among other terms, noncompetition provisions and
salary and benefits continuation. During December 1998, Robert A. Miller
resigned as President and a member of the Board of Directors of the Company.
In addition, during December 1998, the Company and Robert A. Miller entered
into a Separation and Severance Agreement (the "Miller Severance Agreement")
and a Consulting Agreement for Physician Practice Management Assets (the
"Miller Consulting Agreement"). Pursuant to the Miller Severance Agreement,
the Company is required to pay Mr. Miller a severance payment equal to $0.6
million, which was recorded as severance expense during the fourth quarter
ended January 31, 1999. Mr. Miller agreed not to solicit any employees of the
Company and not to compete against the Company for a period of two years from
the termination of the Miller Consulting Agreement. The Miller Consulting
Agreement provides for Mr. Miller to assist the Company in its divestiture of
certain assets held for sale. In consideration for such services, the Company
is required to pay to Mr. Miller $0.4 million.

In conjunction with the acquisition of a clinical research center during
the year ended January 31, 1998, the Company may be required to make
contingent payments based on revenue and profitability measures over the next
five years. The contingent payment will equal 10% of the excess gross
revenue, as defined, provided the gross operating margins exceed 30%.

In conjunction with various acquisitions that were completed during the
years ended January 31, 1999, 1998 and 1997, the Company may be required to make
various contingent payments in the event that the acquired companies attain
predetermined financial targets during established periods of time following the
acquisitions. If all of the applicable financial targets were satisfied, for the
periods covered, the Company would be required to pay an aggregate of
approximately $24.9 million over the next four years, of which $2.3 million has
been accrued at January 31, 1999. The payments, if required, shall be payable in
cash and/or Common Stock of the Company. The Company also guarantees a loan in
the amount of $3.5 million which matures in March 2000.

In conjunction with certain of its acquisitions, the Company has agreed to
make payments in shares of Common Stock of the Company which are generally
issued one year from the closing date of such acquisitions with the

F-23

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

number of shares generally determined based upon the average price of the stock
during the five business days prior to the date of issuance. As of January 31,
1999, the Company had committed to issue $1.1 million of Common Stock of the
Company using the methodology discussed above.

13. RELATED PARTY TRANSACTIONS

Included in operating expenses are discretionary management fees that were
paid or accrued, prior to the CSL merger, to the principal shareholders of CSL
for management-related services. Approximately $0.9 million and $1.0 million of
such management fees were incurred for the years ended January 31, 1998 and
1997, respectively, and are included in operating expenses.

An officer of CSL entered into an employment agreement with CSL, dated
January 1995, which entitled him to additional compensation of 5.5% of annual
net profits and, in the event of an IPO or sale of CSL, 5% of the proceeds from
any such transaction. In June 1996, the principal shareholders in CSL decided to
formalize their arrangement with this officer as to his equity participation in
the business. To effect this decision, the employee was granted a 15% equity
interest in CML, which was merged into CSL effective January 1, 1997. Based on
an independent appraisal, the Company valued the transaction at $0.7 million and
recorded the amount as a 1996 operating expense. On January 1, 1997, the officer
entered into a new employment agreement with CSL, with no provisions as to the
sharing of profits, or proceeds, in the event of an IPO or sale of CSL.

DASCO provides development and other services in connection with the
establishment of health parks, medical malls and medical office buildings.
DASCO provides these services to or for the benefit of the owners of the new
facilities, which owners are either corporations or limited partnerships. As
of January 31, 1999, Mr. Gosman, individually and as trustee for his two
sons, and Frederick R. Leathers had obtained equity interests in an aggregate
of 17 facilities developed or being developed by DASCO and had interests in
five of such facilities. The interest of Mr. Gosman (individually and as
trustee) in such facilities ranged from 6.0% to 40.1%. The interest of Mr.
Leathers ranged from 0.1% to 0.95%. During the years ended January 31, 1999
and 1998, DASCO recorded revenues in the amount of approximately $3.0 million
and $19.2 million, respectively, related to facilities developed by DASCO in
which equity interests have been obtained by related parties. Meditrust
Corporation and Meditrust Operating Company, a publicly traded real estate
investment trust (the "Meditrust Companies") of which Mr. Gosman served as
Chairman of the Board and Chief Executive Officer, respectively, until August
1998, had provided financing to customers of DASCO in the aggregate amount of
approximately $229.0 million as of January 31, 1998 for 25 facilities
developed by DASCO. In January 1998, the Meditrust Companies acquired, at
fair market value, 21 medical office buildings developed by DASCO from the
corporate or limited partnership owners of such facilities for an aggregate
purchase price of approximately $200.0 million. The Company received $9.1
million during 1998 in these transactions from the corporation or limited
partnership owners of such facilities. As a result of their ownership
interests in the corporations or limited partnerships owning the facilities
sold to the Meditrust Companies during 1998, Messrs. Gosman (individually and
as trustee for his two sons) and Leathers received $4.7 million and $0.1
million, respectively, from the sale of the facilities.

F-24

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

healthcare related facilities (including a medical office building and a
retirement community). During the years ended January 31, 1999 and 1998, the
Company recorded revenues in the amount of $1.4 million and $10.5 million,
respectively, related to such services and as of January 31, 1999, the
Company advanced $10.9 million, pursuant to a note due in July 2000, to a
company principally owned by Mr. Gosman relating to the development of a
healthcare facility. The Company provides these services to such affiliated
parties on terms no more or less favorable to the Company than those provided
to unaffiliated parties. Interest on the note accrues at the prime rate. In
January 1998, the Company transferred to CareMatrix Corporation, of which Mr.
Gosman is the Chairman of the Board and a principal stockholder, its rights
under a management agreement with respect to a Florida skilled nursing
facility in exchange for $0.8 million.

During September 1995, the Company provided a letter of credit in the
amount of $5.4 million to a seller in connection with entering into a management
agreement and purchasing the assets of a medical oncology practice. Cash
collateralizing the letter of credit, which had a balance of $4.5 million at
January 31, 1997, was released during the year ended January 31, 1998. Prior to
the completion of the offering, the collateral for the letter of credit was
provided by Mr. Gosman.

14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The methods and assumptions used to estimate the fair value of each class
of financial instruments, for which it is practicable to estimate that value,
and the estimated fair values of the financial instruments are as follows:

CASH AND CASH EQUIVALENTS

The carrying amount approximates fair value because of the short effective
maturity of these instruments.

LONG-TERM DEBT

The fair value of the Company's long-term debt and capital leases is
estimated based on the current rates offered to the Company for debt of the
same remaining maturities or quoted market prices. At January 31, 1999, the
book value of long-term debt (other than the convertible subordinated
debentures) and capital leases, including current maturities is $17.7 million
and which approximates fair value. At January 31, 1999, the estimated fair
value of the convertible subordinated debentures was $48.4 million. The

F-25

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

estimated fair value of these convertible subordinated debentures is based on
quoted market prices at January 31, 1999.

15. EMPLOYEE BENEFIT PLAN

The Company sponsors 401(k) plans, covering substantially all of its
employees. Contributions under the primary 401(k) plan equal 50% of the
participants' contributions up to a maximum of $400 per participant per year.

16. INCOME TAXES

The Company became subject to federal and state income taxes effective the
date of the Company's initial public offering. As a result of the Company's
restructuring, large net operating losses will be utilized to offset prior tax
liabilities.

Significant components of the Company's provision for income taxes for the
years ended January 31, 1999 and 1998 are as follows:

1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Federal
Current $(11,155) $9,032
Deferred (272) (813)
--------- ------
Total federal (11,427) 8,219
--------- ------

State:
Current (54) 1,828
Deferred (68) (202)
--------- ------
Total state (122) 1,626
--------- ------
Totals: $(11,549) $9,845
--------- ------
--------- ------

</TABLE>

F-26

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Significant components of the Company's deferred tax assets and liabilities
as of January 31, 1999 and 1998 are as follows:

1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset
Allowance for doubtful accounts, reserves
and other accrued expenses $ 2,898 $ 2,064
Net operating loss carryforward 13,550 12,005
Assets held for sale 21,704 --
-------- --------
Total deferred tax assets 38,152 14,069
-------- --------
Deferred tax liability
Property and depreciation (307) (1,897)
Amortization (1,767) (1,199)
Installment gain (1,210) --
Other (296) (356)
-------- --------
Total deferred tax liability (3,580) (3,452)
-------- --------

Deferred tax asset (liability) 34,572 10,617
-------- --------
Valuation allowance (34,572) (10,956)
-------- --------
Net deferred tax liability $ -- $ (339)
-------- --------
-------- --------

</TABLE>

The Company reasonably believes that because of the large net operating
loss for the year ended January 31, 1999 and the anticipated losses due to the
restructuring of the Company, the Company may not be able to fully utilize all
the net operating losses. Accordingly, the Company has established a full
valuation allowance on the Company's net deferred tax assets.

The net operating losses attributable to OTI of $33.1 million will begin
to expire in 2005.

The reconciliation of income tax computed at statutory rates to income tax
expense is as follows:

1999 1998
---- ----

<S> <C> <C>
Statutory rate (35%) 35%
Nondeductible merger expenses 0% 18%
Permanent differences 3% 1%
Basis difference, assets held for sale 10% 0%
State income tax (net of federal benefit) 0% 6%
Change in valuation allowance 14% (11%)
---- -----
(8%) 49%
---- -----
---- -----
</TABLE>

17. SUPPLEMENTAL CASH FLOW INFORMATION

During the years ended January 31, 1999, 1998 and 1997, the Company
acquired the assets and/or stock, entered into management and employment
agreements, assumed certain liabilities of various physician practices,
ancillary service companies, networks and organizations and sold certain assets.
In addition, during the years ended January 31, 1999 and 1998, the Company
issued shares of stock which had been committed to be issued in conjunction with
acquisitions completed during the year ended January 31, 1998. During the year
ended

F-27

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

January 31, 1999, the Company also recorded a goodwill impairment charge,
terminated several physician management and employment agreements, wrote down
certain notes receivable to their estimated net realizable value and wrote
down certain assets that are being held for sale at January 31, 1999 to their
net realizable value (less cost to sell). The transactions had the following
non-cash impact on the balance sheets of the Company as of January 31, 1999,
1998 and 1999:

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets $ 50,284 $ 8,981 $ 4,692
Property, plant and equipment (33,806) 16 4,413
Intangibles (105,661) 74,418 56,964
Other noncurrent assets (3,052) 1,391 26
Current liabilities (1,836) (535) (9,668)
Debt 6,520 (12,816) (8,004)
Noncurrent liabilities 339 9,740 (11,923)
Equity 90,489 (50,977) (10,010)

</TABLE>

During the year ended January 31, 1997, the Company purchased $0.6 million
of equipment under capital leases. In addition, cash paid for interest during
the years ended January 31, 1999, 1998 and 1997 was $9.3 million, $8.5 million
and $5.6 million, respectively. Cash paid for income taxes for the years ended
January 31, 1999, 1998 and 1997 was $1.1 million, $10.8 million and $3.3
million, respectively.

18. STOCK OPTION PLAN

The Company has adopted a stock option plan and authorized the issuance of
4.1 million shares of the Company's Common Stock to key employees and directors
of the Company. Under this plan, the exercise provision and price of the options
will be established on an individual basis generally with the exercise price of
the options being not less than the market price of the underlying stock at the
date of grant. The options generally will become exercisable beginning in the
first year after grant in 20% -- 33% increments per year and expire ten years
after the date of grant. Information related to the stock option plan is
summarized as follows:

---------------------------------------------------------------
YEAR ENDED JANUARY 31,
---------------------------------------------------------------
1999 1998 1997
------------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period 3,909 $16.12 2,201 $16.68 1,060 $15.03
Options granted:
At fair market value 894 4.94 2,020 14.66 1,107 19.16
Above fair market value (CSL options--see below) -- -- -- -- 109 3.13
Options exercised (36) 3.61 (145) 6.31 (52) 6.97
Options canceled (1,741) 16.95 (167) 14.23 (23) 18.14
----- ------ ----- ------ ----- ------
Outstanding, end of period 3,026 $12.11 3,909 $16.12 2,201 $16.68
----- ------ ----- ------ ----- ------

Weighted average fair value of options granted during the year $ 4.94 $ 7.55 $10.08
------ ------ ------
------ ------ ------

</TABLE>

F-28
<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

At January 31, 1999, 1998 and 1997, options for 1.3 million, 1.3 million
and 0.8 million, respectively, were exercisable.

Significant option groups outstanding at January 31, 1999 and related
weighted average price and life are as follows (in thousands):

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ---------------------------
SHARES SHARES
OUTSTANDING WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
RANGE OF JANUARY 31, CONTRACTUAL EXERCISE JANUARY 31, EXERCISE
EXERCISE PRICE 1999 LIFE PRICE 1999 PRICE
-------------- ------------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
$3.00 - $5.00 840 9.8 years $3.99 12 $3.13
$6.00 - $12.00 35 9.2 10.13 -- --
$12.50 - $18.75 1,921 8.2 14.93 1,043 14.99
$19.00 - $24.75 230 7.4 19.70 197 19.81

</TABLE>

The fair value of each option grant is estimated on the date of grant
using the Black-Sholes option-pricing model with the following weighted
average assumptions for grants in the years ended January 31, 1999, 1998 and
1997: expected volatility (post-offering) of 65%, 56% and 56%, respectively;
risk free interest rates of 4.7%, 6.0% and 6.4%, respectively; expected
option life of 4.5, 4.4 and 4.4 years, respectively; and expected dividends
of $0.

Options which were assumed in connection with CSL employees during 1996
were valued using the minimum value method, which is appropriate for nonpublic
companies, assuming a ten year option life, 5.5% risk free interest rate and no
volatility. These options were granted with an exercise price significantly
greater than the market value of the company and accordingly had a fair market
value and associated expense of zero. Former CSL options have been converted to
108,914 of the Company's options with an exercise price of $3.13 and are
included above.

The Company continues to account for stock based compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", as allowed by SFAS No. 123. Accordingly, no compensation cost has
been recognized for options granted. Had compensation for those plans been
determined based on the fair value at the grant date for awards during the
years ended January 31, 1999, 1998 and 1997, consistent with SFAS No. 123,
the Company's net income (loss) and earnings (loss) per share would have been
reduced to the following pro forma amounts:

YEAR ENDED JANUARY 31,
----------------------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss)
As reported $(130,760) $10,299 $15,290
Pro forma $(133,844) $ 5,601 $12,536
Basic earnings (loss) per share
As reported $(3.91) $0.35 $0.56
Pro forma $(4.01) $0.19 $0.46
Diluted earnings (loss)
per share
As reported $(3.91) $0.35 $0.55
Pro forma $(4.01) $0.19 $0.45

</TABLE>

Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.

F-29
<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. NET INCOME PER SHARE

The following is a reconciliation of the numerators and denominators of the
basic and fully diluted earnings per share computations for net income:

PER SHARE
INCOME (LOSS) SHARES AMOUNT
------------ ------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<S> <C> <C> <C>
YEAR ENDED JANUARY 31, 1999
- ---------------------------

Basic loss per share
Loss available to common stockholders $ (33,976) 33,401 $(1.02)
Extraordinary item (96,784) -- (2.89)
---------- ------ ------
Net loss available to common stockholders (130,760) 33,401 (3.91)

Effect of dilutive securities: -- -- --
---------- ------ ------

Diluted earnings per share $ (130,760) 33,401 $(3.91)
---------- ------ ------
---------- ------ ------
YEAR ENDED JANUARY 31, 1998
- ---------------------------

Basic earnings per share
Income available to common stockholders $ 10,299 29,690 $ 0.35

Effect of dilutive securities:
Stock options -- 145 --
Convertible debt 191 394 --
---------- ------ ------

Diluted earnings per share $ 10,490 30,229 $ 0.35
---------- ------ ------
---------- ------ ------
YEAR ENDED JANUARY 31, 1997
- ---------------------------

Basic earnings per share
Income available to common stockholders $ 15,291 27,295 $ 0.56
Effect of dilutive securities
Stock options -- 387 --
---------- ------ ------

Diluted earnings per share $ 15,291 27,682 $ 0.55
---------- ------ ------
---------- ------ ------

</TABLE>

For the years ended January 31, 1999, 1998 and 1997, approximately 3.0
million, 3.5 million and 0.6 million shares, respectively, related to stock
options were not included in the computation of diluted earnings per share
because the option exercise price was greater than the average market price of
the common shares.

For the years ended January 31, 1999, 1998 and 1997, no additional
securities or related adjustments to income were made for the common stock
equivalents related to the Debentures since the effect would be antidilutive.

F-30
<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. RATIO OF EARNINGS TO FIXED CHARGES

For the year ended January 31, 1999, the ratio of earnings to fixed charges
was less than 1.0. For the years ended January 31, 1998 and 1997, the ratio of
earnings to fixed charges was 2.29 and 3.46, respectively. For purposes of
computing the ratio of earnings to fixed charges, earnings represent income from
operations before minority interest and income taxes, plus fixed charges.
Earnings also includes the equity in less-than-fifty-percent-owned investees
only to the extent of distributions. Fixed charges include interest,
amortization of financing costs and the portion of operating rental expense
which management believes is representative of the interest component of the
rental expense. For the year ended January 31, 1999, for purposes of computing
the ratio of earnings to fixed charges, the Company's earnings were inadequate
to cover fixed charges by $45.1 million.

21. SEGMENT INFORMATION

For the fiscal year ending January 31, 1999, the Company adopted SFAS
131. The prior year's segment information has been restated to present the
Company's reportable segments. The Company has determined that its reportable
segments are those that are based on its current method of internal
reporting. The reportable segments are: provider network management, site
management organization, real estate services and assets held for sale. The
accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies." There are no intersegment
revenues and the Company does not allocate corporate overhead to its
segments. The tables below present revenue, pretax income (loss) prior to
extraordinary item and net assets of each reportable segment for the
indicated periods:

PROVIDER SITE ASSETS
NETWORK MANAGEMENT REAL HELD FOR RECONCILING CONSOLIDATED
MANAGEMENT ORGANIZATIONS ESTATE SALE ITEMS (1) TOTALS
---------- ------------- ------ -------- ----------- ------------

<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1999
- ---------------------------

Net revenues $ 93,479 $ 33,695 $ 8,694 $ 155,410 $ -- $ 291,278
Income (loss) before income
taxes and extraordinary
item (2,907) (6,723) (8,471) 517 (27,941) (45,525)
Net assets 44,398 20,509 9,301 100,795 (69,103) 105,900

YEAR ENDED JANUARY 31, 1998
- ---------------------------

Net revenues $67,761 $29,968 $31,099 $152,351 $ -- $281,179
Income (loss) before income
taxes and extraordinary
item 2,310 (7,970) 24,674 13,860 (12,752) 20,122
Net assets 45,966 12,195 15,582 189,785 (51,493) 212,035

YEAR ENDED JANUARY 31, 1997
- ---------------------------

Net revenues $16,479 $18,040 $19,049 $112,188 $ -- $165,756
Income (loss) before income
taxes and extraordinary
item 727 3,233 10,519 11,890 (4,243) 22,126
Net assets 18,559 3,460 11,684 119,038 1,039 153,780

</TABLE>

(1) Reconciling items consist of corporate expenses and corporate net assets
(primarily the Convertible subordinated debentures, net of cash) which are
not allocated.

F-31

<PAGE>

PHYMATRIX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations
for the periods shown (in thousands, except per share data):

YEAR ENDED JANUARY 31, 1999
-------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues $84,193 $77,362 $ 67,946 $ 61,777
Income (loss) before income taxes and extraordinary item 9,601 75 (13,790) (41,411)
Income (loss) before extraordinary item 6,453 51 (9,119) (31,361)
Extraordinary item -- -- (51,552) (45,232)
Net income (loss) 6,453 51 (60,671) (76,593)

Net income per share--basic:
Income (loss) before extraordinary item $ 0.20 $ -- $ (0.27) $ (0.94)
Extraordinary item $ -- $ -- $ (1.54) $ (1.35)
Net income (loss) $ 0.20 $ -- $ (1.81) $ (2.29)

Net income per share--diluted:
Income (loss) before extraordinary item $ 0.20 $ -- $ (0.27) $ (0.94)
Extraordinary item $ -- $ -- $ (1.54) $ (1.35)
Net income (loss) $ 0.20 $ -- $ (1.81) $ (2.29)

</TABLE>

YEAR ENDED JANUARY 31, 1998
-------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------

<S> <C> <C> <C> <C>
Net revenues $58,891 $66,350 $74,704 $81,234
Income (loss) before income taxes 6,485 6,887 (1,830) 8,580
Net income (loss) 4,240 4,586 (4,369) 5,842
Net income (loss) per share--basic $ 0.15 $ 0.16 $ (0.15) $ 0.19
Net income (loss) per share--diluted $ 0.15 $ 0.16 $ (0.14) $ 0.19

</TABLE>

23. SUBSEQUENT EVENTS

During March 1999, the Company obtained a new $30.0 million revolving line
of credit. The revolving line of credit has a three-year term and availability
based upon eligible accounts receivable. Approximately $9.2 million of proceeds
from the new line of credit were used to repay the previous line of credit
agreement which matured during March 1999.

During March 1999, the Company reinstated the share repurchase program
which had been temporarily discontinued during December 1998. Subsequent to
January 31, 1999, the Company has repurchased an additional 294,000 shares.

During April 1999, the Company announced the appointment of Michael
Heffernan to the role of Co-Chief Executive Officer. Mr. Heffernan assumed the
role of President of the Company in December 1998. The Company also announced
that effective upon the completion of the sale of a majority of its non-core
assets it intends to change its name to Innovative Clinical Solutions, Ltd.

F-32

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Shareholders of PhyMatrix Corp.:

Our audits of the consolidated financial statements referred to in our
report dated March 19, 1999 (except for Note 23, for which the date is April
22, 1999) appearing in this Annual Report on Form 10-K also included an audit
of the Financial Statement Schedule on page S-2 of this Form 10-K. In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.

PricewaterhouseCoopers LLP
Boston, Massachusetts
March 19, 1999

S-1

<PAGE>

PHYMATRIX CORP.

VALUATION AND QUALIFYING ACCOUNTS

For the years ended January 31, 1999,
1998 and 1997

(In thousands)

ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS RECLASSIFICATION BALANCE AT
BEGINNING OPERATING FROM OF RESERVES TO END OF
OF PERIOD EXPENSES RESERVES ASSETS HELD FOR SALE OTHER (A) PERIOD
---------- ---------- ---------- -------------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended January 31, 1999 $48,428 $167,443 $168,685 $46,640 $ 804 $ 1,350

Year ended January 31, 1998 29,525 156,145 146,591 - 9,349 48,428

Year ended January 31, 1997 16,802 100,504 91,246 - 3,465 29,525

</TABLE>

(A) Other represents the allowances of acquired entities.

S-2

<PAGE>

Exhibit 10.9

$15,000,000.00

LOAN AND SECURITY AGREEMENT

by and among

PHYMATRIX CORP.
BREATHCO INCORPORATED
CCC-LITHOTRIPSY, INC.
CCC INDIANA LITHOTRIPSY, INC.
CCC NATIONAL LITHOTRIPSY, INC.
CCC REHAB, INC.
DASCO DEVELOPMENT CORPORATION
DASCO DEVELOPMENT WEST, INC.
FIRST CHOICE HEALTH CARE SERVICES, INC.
FIRST CHOICE HEALTH CARE SERVICES OF FORT LAUDERDALE, INC.
FIRST CHOICE HOME CARES, INC.
FIRST PHYNET, INC.
FIRST PHYNET, LLC
INFUMATRIX, INC. (F/K/A CCC INFUSION, INC.)
LITHOTRIPSY AMERICA, INC.
NUTRICHEM, INC.
ONCOLOGY THERAPIES, INC.
ONCOLOGY THERAPIES OF AMERICA, INC.
PHYMATRIX OF BROOKLYN, INC.
PHYMATRIX OF CENTRAL GEORGIA, INC.
PHYMATRIX DIAGNOSTIC IMAGING, INC.
PHYMATRIX DIAGNOSTIC IMAGING NORTHEAST, INC.
PHYMATRIX MANAGEMENT COMPANY, INC.
PHYMATRIX OF MANATEE COUNTY, INC.
PHYMATRIX MID-ATLANTIC MANAGEMENT, INC.
PHYMATRIX NETWORK MANAGEMENT, INC.
PHYMATRIX OF NEW JERSEY, INC.
PHYMATRIX NORTHEAST, INC. (F/K/A PHYSICIANS CHOICE, INC.)
PHYMATRIX PHYSICIAN MANAGEMENT, INC.
PHYMATRIX PULMONARY NETWORK, INC.
PHYMATRIX UROLOGY NETWORK, INC.
PHYSICIANS CONSULTANT AND MANAGEMENT CORPORATION
OF NORTH CAROLINA
PHYSICIANS CONSULTANT AND MANAGEMENT CORPORATION
PHYSICIANS CONSULTANT AND MANAGEMENT CORPORATION
OF NEW YORK
(CONTINUED)

<PAGE>

PINNACLE ASSOCIATES, INC.
UROLOGY CONSULTANTS OF SOUTH FLORIDA, INC.
ATLANTA RADIATION CARE, INC.
BILTMORE ADVANCED IMAGING CENTER, INC.
CHARLOTTE RADIATION CARE, INC.
CHATTANOOGA RADIATION CARE, INC.
COLLEGE PARK RADIATION CARE, INC.
COMPUTERIZED TOMOGRAPHY CENTER, INC.
FALLS CHURCH RADIATION CARE, INC.
NORTH ATLANTA RADIATION CARE, INC.
NORTH FULTON RADIATION CARE, INC.
ORLANDO RADIATION CARE, INC.
ROCKVILLE RADIATION CARE, INC.
VISTA RADIATION CARE, INC.
WALDORF RADIATION CARE, INC.

("Borrower")

and

HCFP FUNDING, INC.

("Lender")

March 12, 1999

<PAGE>

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of March
12, 1999 by and between PHYMATRIX CORP., a Delaware corporation, BREATHCO
INCORPORATED, a Florida corporation, CCC-LITHOTRIPSY, INC., a Florida
corporation, CCC INDIANA LITHOTRIPSY, INC., a Florida corporation, CCC NATIONAL
LITHOTRIPSY, INC., a Florida corporation, CCC REHAB, INC., a Florida
corporation, DASCO DEVELOPMENT CORPORATION, a Florida corporation, DASCO
DEVELOPMENT WEST, INC., a California corporation, FIRST CHOICE HEALTH CARE
SERVICES, INC. , a Delaware corporation, FIRST CHOICE HEALTH CARE SERVICES OF
FORT LAUDERDALE, INC., a Delaware corporation, FIRST CHOICE HOME CARES, INC., a
Delaware corporation, FIRST PHYNET, INC., a Delaware corporation, FIRST PHYNET,
LLC, a Delaware limited liability company, INFUMATRIX, INC. (F/K/A CCC INFUSION,
INC.), a Florida corporation, LITHOTRIPSY AMERICA, INC., a Florida corporation,
NUTRICHEM, INC., a Maryland corporation, ONCOLOGY THERAPIES, INC., a Delaware
corporation, ONCOLOGY THERAPIES OF AMERICA, INC., a Florida corporation,
PHYMATRIX OF BROOKLYN, INC., a Delaware corporation, PHYMATRIX OF CENTRAL
GEORGIA, INC., a Delaware corporation, PHYMATRIX DIAGNOSTIC IMAGING, INC., a
Delaware corporation, PHYMATRIX DIAGNOSTIC IMAGING NORTHEAST, INC., a Delaware
corporation, PHYMATRIX MANAGEMENT COMPANY, INC., a Florida corporation,
PHYMATRIX OF MANATEE COUNTY, INC., a Delaware corporation, PHYMATRIX
MID-ATLANTIC MANAGEMENT, INC., a Delaware corporation, PHYMATRIX NETWORK
MANAGEMENT, INC., a Delaware corporation, PHYMATRIX OF NEW JERSEY, INC., a
Delaware corporation, PHYMATRIX NORTHEAST, INC. (F/K/A PHYSICIANS CHOICE, INC.),
a Delaware corporation, PHYMATRIX PHYSICIAN MANAGEMENT, INC., a Delaware
corporation, PHYMATRIX PULMONARY NETWORK, INC., a Florida corporation, PHYMATRIX
UROLOGY NETWORK, INC., a Delaware corporation, PHYSICIANS CONSULTANT AND
MANAGEMENT CORPORATION OF NORTH CAROLINA, a Florida corporation, PHYSICIANS
CONSULTANT AND MANAGEMENT CORPORATION, a Florida corporation, PHYSICIANS
CONSULTANT AND MANAGEMENT CORPORATION OF NEW YORK, a New York corporation,
PINNACLE ASSOCIATES, INC., a Georgia corporation, UROLOGY CONSULTANTS OF SOUTH
FLORIDA, INC., a Florida corporation, ATLANTA RADIATION CARE, INC., a Delaware
corporation, BILTMORE ADVANCED IMAGING CENTER, INC., an Arizona corporation,
CHARLOTTE RADIATION CARE, INC., a Delaware corporation, CHATTANOOGA RADIATION
CARE, INC., a Delaware corporation, COLLEGE PARK RADIATION CARE, INC., a
Delaware corporation, COMPUTERIZED TOMOGRAPHY CENTER, INC., a Georgia
corporation, FALLS CHURCH RADIATION CARE, INC., a Delaware corporation, NORTH
ATLANTA RADIATION CARE, INC., a Delaware corporation, NORTH FULTON RADIATION
CARE, INC., a Delaware corporation, ORLANDO RADIATION CARE, INC., a Delaware
corporation, ROCKVILLE RADIATION CARE, INC., a Delaware corporation, VISTA
RADIATION CARE, INC., a Delaware corporation, and WALDORF RADIATION CARE, INC.,
a Delaware corporation (collectively

<PAGE>

with the preceding entities, "Borrower"), and HCFP FUNDING, INC., a Delaware
corporation ("Lender").

RECITALS

A. Borrower desires to establish certain financing arrangements with
and borrow funds from Lender, and Lender is willing to establish such
arrangements for and make loans and extensions of credit to Borrower, on the
terms and conditions set forth below.

B. The parties desire to define the terms and conditions of their
relationship and to reduce their agreements to writing.

NOW, THEREFORE, in consideration of the promises and covenants
contained in this Agreement, and for other consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS

As used in this Agreement, unless otherwise specified, all references
to "Sections" shall be deemed to refer to Sections of this Agreement, and the
following terms shall have the meanings set forth below:

SECTION 1.1. ACCOUNT. "Account" means any right to payment for Medical
Services, whether or not evidenced by an Instrument or Chattel Paper, and
whether or not earned by performance.

SECTION 1.2. ACCOUNT DEBTOR. "Account Debtor" means any Person
obligated on any Account of Borrower, including without limitation, any Insurer
and any Medicaid/Medicare Account Debtor.

SECTION 1.3. AFFILIATE. "Affiliate" means, with respect to a specified
Person, any Person directly or indirectly controlling, controlled by, or under
common control with the specified Person including without limitation their
stockholders and any Affiliates of such stockholders. A Person shall be deemed
to control a corporation or other entity if the Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
business of the corporation or other entity, whether through the ownership of
voting securities, by contract, or otherwise.

SECTION 1.4. AFFILIATED BORROWERS. "Affiliated Borrowers" means,
collectively, the Affiliated PPM Borrowers and the Affiliated SMO Borrowers.

<PAGE>

SECTION 1.5. AFFILIATED LOAN AGREEMENTS. "Affiliated Loan Agreements"
means, collectively, the Affiliated PPM Loan Agreement and the Affiliated SMO
Loan Agreement.

SECTION 1.6. AFFILIATED LOAN DOCUMENTS. "Affiliated Loan Documents"
means, collectively, the Affiliated PPM Loan Documents and the Affiliated SMO
Loan Documents.

SECTION 1.7 AFFILIATED PPM BORROWERS. "Affiliated PPM Borrowers"
means the entities listed on SCHEDULE 1.7.

SECTION 1.8. AFFILIATED PPM LOAN AGREEMENT. "Affiliated PPM Loan
Agreement" means that certain Loan and Security Agreement dated as of even date
with this Agreement and made by and among Lender and PhyMatrix and the
Affiliated PPM Borrowers, as it may be amended, modified or supplemented from
time to time.

SECTION 1.9. AFFILIATED PPM LOAN DOCUMENTS. "Affiliated PPM Loan
Documents" means the Affiliated PPM Loan Agreement, and each and every other
document now or hereafter delivered in connection with the Affiliated PPM Loan
Agreement, as any of them may be amended, modified, or supplemented from time to
time.

SECTION 1.10. AFFILIATED SMO BORROWERS. "Affiliated SMO Borrower" means
the entities listed on SCHEDULE 1.10.

SECTION 1.11. AFFILIATED SMO LOAN AGREEMENT. "Affiliated SMO Loan
Agreement" means that certain Loan and Security Agreement dated as of even date
with this Agreement and made by and among Lender and PhyMatrix and the
Affiliated SMO Borrowers, as it may be amended, modified or supplemented from
time to time.

SECTION 1.12. AFFILIATED SMO LOAN DOCUMENTS. "Affiliated SMO Loan
Documents" means the Affiliated SMO Loan Agreement, and each and every other
document now or hereafter delivered in connection with the Affiliated SMO Loan
Agreement, as any of them may be amended, modified, or supplemented from time to
time.

SECTION 1.13. AGREEMENT. "Agreement" means this Loan and Security
Agreement, as it may be amended or supplemented from time to time.

SECTION 1.14. BASE RATE. "Base Rate" means a rate of interest equal to
one percent (1%) above the "Prime Rate of Interest."

SECTION 1.15. BORROWED MONEY. "Borrowed Money" means any obligation to
repay money, any indebtedness evidenced by notes, bonds, debentures or similar
obligations, any obligation under a conditional sale or other title retention
agreement and the net aggregate rentals under any lease which under GAAP would
be capitalized on the books of Borrower.

SECTION 1.16. BORROWER. "Borrower" has the meaning set forth in the
Preamble.

<PAGE>

SECTION 1.17. BORROWING BASE. "Borrowing Base" has the meaning set
forth in Section 2.1(d).

SECTION 1.18. BORROWING BASE CERTIFICATE. "Borrowing Base Certificate"
means a certificate substantially in the form of EXHIBIT D.

SECTION 1.19. BUSINESS DAY. "Business Day" means any day on which
financial institutions are open for business in the State of Maryland, excluding
Saturdays and Sundays.

SECTION 1.20. BUSINESS PLAN. "Business Plan" means the business plan of
PMC as delivered and reviewed by Lender prior to the date of this Agreement.

SECTION 1.21. CHANGE OF CONTROL. "Change of Control" means that, during
any period, individuals who at the beginning of the period constituted the board
of directors of PhyMatrix (together with any new directors whose election by
that board of directors or whose nomination for election by the stockholders of
PhyMatrix was approved by two-thirds of the directors of PhyMatrix then still in
office who were either directors at the beginning of the period or whose
election or nomination for election was previously approved) cease for any
reason to constitute a majority of the board of directors of PhyMatrix then in
office.

SECTION 1.22. CHATTEL PAPER. "Chattel Paper" has the meaning set forth
in the Uniform Commercial Code.

SECTION 1.23. CLOSING; CLOSING DATE. "Closing" and "Closing Date" have
the meanings set forth in Section 5.3.

SECTION 1.24. COLLATERAL. "Collateral" has the meaning set forth in
Section 3.1.

SECTION 1.25. COMMITMENT FEE. "Commitment Fee" has the meaning set
forth in Section 2.4(a).

SECTION 1.26. CONCENTRATION ACCOUNT. "Concentration Account" has the
meaning set forth in Section 2.3.

SECTION 1.27. CONTROLLED GROUP. "Controlled Group" means a "controlled
group" within the meaning of Section 4001(b) of ERISA.

SECTION 1.28. COST REPORT SETTLEMENT ACCOUNT. "Cost Report Settlement
Account" means an "Account" owed to Borrower by a Medicaid/Medicare Account
Debtor pursuant to any cost report, either interim, filed or audited, as the
context may require.

SECTION 1.29. DEFAULT RATE. "Default Rate" means a rate per annum equal
to four percent (4%) above the then applicable Base Rate.

SECTION 1.30. ERISA. "ERISA" has the meaning set forth in Section 4.12.

<PAGE>

SECTION 1.31. EVENT OF DEFAULT. "Event of Default" and "Events of
Default" have the meanings set forth in Section 8.1.

SECTION 1.32. GAAP. "GAAP" means generally accepted accounting
principles applied in a consistent manner.

SECTION 1.33. GENERAL INTANGIBLES. "General Intangibles" has the
meaning set forth in the Uniform Commercial Code.

SECTION 1.34. GOODS. "Goods" has the meaning set forth in the Uniform
Commercial Code.

SECTION 1.35. GOVERNMENTAL AUTHORITY. "Governmental Authority" means
and includes any federal, state, District of Columbia, county, municipal, or
other government and any department, commission, board, bureau, agency or
instrumentality thereof, whether domestic or foreign.

SECTION 1.36. GUARANTY. "Guaranty" means that certain Unconditional
Guaranty of Payment and Performance made by Borrower, the Affiliated PPM
Borrowers and the Affiliated SMO Borrowers with respect to this Agreement and
the Affiliated Loan Agreements in favor of Lender and dated as of even date with
this Agreement.

SECTION 1.37. HAZARDOUS MATERIAL. "Hazardous Material" means any
substances defined or designated as hazardous or toxic waste, hazardous or toxic
material, hazardous or toxic substance, or similar term, by any environmental
statute, rule or regulation or any Governmental Authority.

SECTION 1.38. HIGHEST LAWFUL RATE. "Highest Lawful Rate" has the
meaning set forth in Section 2.7.

SECTION 1.39. INSTRUMENTS. "Instruments" has the meaning set forth in
the Uniform Commercial Code.

SECTION 1.40. INSURER. "Insurer" means a Person that insures a Patient
against certain of the costs incurred in the receipt by such Patient of Medical
Services, or that has an agreement with Borrower to compensate Borrower for
providing Medical Services to a Patient.

SECTION 1.41. LENDER. "Lender" means HCFP Funding, Inc., a Delaware
corporation.

SECTION 1.42. LOCKBOX ACCOUNT. "Lockbox Account" means an account
maintained by Borrower at the Lockbox Bank into which all collections of
Accounts are paid directly.

SECTION 1.43. LOAN. "Loan" has the meaning set forth in Section 2.1(a).

SECTION 1.44. LOAN DOCUMENTS. "Loan Documents" means and includes this
Agreement, the Note, the Lockbox Agreement, the Guaranty and each and every
other document now or hereafter delivered in connection therewith, as any of
them may be amended, modified, or supplemented from time to time.

<PAGE>

SECTION 1.45. LOAN MANAGEMENT FEE. "Loan Management Fee" has the
meaning set forth in Section 2.4(c).

SECTION 1.46. LOCKBOX. "Lockbox" has the meaning set forth in Section
2.3.

SECTION 1.47. LOCKBOX AGREEMENT. "Lockbox Agreement" has the meaning
set forth in Section 2.3.

SECTION 1.48. LOCKBOX BANK. "Lockbox Bank" has the meaning set forth in
Section 2.3.

SECTION 1.49. MATERIAL ADVERSE EFFECT. "Material Adverse Effect" means
(i) a material adverse change in, or a material adverse effect upon, the
financial condition, operations, assets, business or properties of PMC, (ii) a
material impairment of the ability of Borrower and the Affiliated Borrowers as a
whole to perform any of their material obligations under the Loan Documents and
the Affiliated Loan Documents, taken as a whole, or (iii) a material adverse
effect upon any material portion of the Collateral under this Agreement or the
Affiliated Loan Agreements, or upon the legality, validity, binding effect or
enforceability of any Loan Document against any Borrower or any other Person
(other than Lender) obligated on any Loan Document.

SECTION 1.50. MAXIMUM LOAN AMOUNT. "Maximum Loan Amount" has the
meaning set forth in Section 2.1(a).

SECTION 1.51. MEDICAID/MEDICARE ACCOUNT DEBTOR. "Medicaid/ Medicare
Account Debtor" means any Account Debtor which is (i) the United States of
America acting under the Medicaid/Medicare program established pursuant to the
Social Security Act, (ii) any state or the District of Columbia acting pursuant
to a health plan adopted pursuant to Title XIX of the Social Security Act or
(iii) any agent, carrier, administrator or intermediary for any of the
foregoing.

SECTION 1.52. MEDICAL SERVICES. "Medical Services" means Medical and
health care services provided to a Patient, including, but not limited to,
medical and health care services provided to a Patient and performed by Borrower
which are covered by a policy of insurance issued by an Insurer, and includes
physician services, nurse and therapist services, dental services, hospital
services, skilled nursing facility services, comprehensive outpatient
rehabilitation services, home health care services, residential and out-patient
behavioral healthcare services, and medicine or health care equipment provided
by Borrower to a Patient for a necessary or specifically requested valid and
proper medical or health purpose.

SECTION 1.53. NOTE. "Note" has the meaning set forth in Section 2.1(c).

SECTION 1.54. OBLIGATIONS. "Obligations" has the meaning set forth in
Section 3.1.

SECTION 1.55. PATIENT. "Patient" means any Person receiving Medical
Services from Borrower and all Persons legally liable to pay Borrower for such
Medical Services other than Insurers.

<PAGE>

SECTION 1.56. PERMITTED LIENS. "Permitted Liens" means: (a) liens for
taxes not delinquent, or which are being contested in good faith and by
appropriate proceedings which suspend the collection of such liens, and in
respect of which adequate reserves have been made, if required by GAAP (provided
that such proceedings do not, in Lender's reasonable discretion, involve any
substantial danger of the sale, loss or forfeiture of such property or assets or
any interest therein); (b) deposits or pledges to secure obligations under
workmen's compensation, social security or similar laws, or under unemployment
insurance; (c) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
and appeal bonds and other obligations of like nature arising in the ordinary
course of business; (d) mechanic's, workmen's, materialmen's or other like liens
arising in the ordinary course of business with respect to obligations which are
not due, or which are being contested in good faith by appropriate proceedings
which suspend the collection of such liens and in respect of which adequate
reserves have been made, if required by GAAP (provided that such proceedings do
not, in Lender's reasonable discretion, involve any substantial danger of the
sale, loss or forfeiture of such property or assets or any interest therein);
(e) liens and encumbrances in favor of Lender; and (f) liens set forth on
SCHEDULE 1.51.

SECTION 1.57. PERSON. "Person" means an individual, partnership,
corporation, trust, joint venture, joint stock company, limited liability
company, association, unincorporated organization, Governmental Authority, or
any other entity.

SECTION 1.58. PLAN. "Plan" has the meaning set forth in Section 4.12.

SECTION 1.59. PMC. "PMC" means PhyMatrix Corp. and its direct and
indirect subsidiaries, on a consolidated basis.

SECTION 1.60. PREMISES. "Premises" has the meaning set forth in Section
4.14.

SECTION 1.61. PRIME RATE OF INTEREST. "Prime Rate of Interest" means
that rate of interest designated as such by Fleet National Bank of Connecticut,
N.A., or any successor thereto, as the same may from time to time fluctuate.

SECTION 1.62. PROHIBITED TRANSACTION. "Prohibited Transaction" means a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975(c)(1) of the Internal Revenue Code.

<PAGE>

rendered); (c) the Account is subject to any defense, set-off, counterclaim,
deduction, discount, credit, chargeback, freight claim, allowance, or adjustment
of any kind; (d) any part of any goods the sale of which has given rise to the
Account has been returned, rejected, lost, or damaged; (e) if the Account arises
from the sale of goods by Borrower, the sale was not an absolute sale, or the
sale was made on consignment or on approval or on a sale-or-return basis, or the
sale was made subject to any other repurchase or return agreement, or the goods
have not been shipped to the Account Debtor or its designee; (f) if the Account
arises from the performance of services, the services have not been actually
been performed or the services were undertaken in violation of any law; (g) the
Account is subject to a lien other than a Permitted Lien; (h) Borrower knows or
should have known of the bankruptcy, receivership, reorganization, or insolvency
of the Account Debtor; (i) the Account is evidenced by chattel paper or an
instrument of any kind, or has been reduced to judgment; (j) the Account is an
Account of an Account Debtor having its principal place of business or executive
office outside the United States; (k) the Account Debtor is an Affiliate or
Subsidiary of Borrower; (l) more than ten percent (10%) of the aggregate balance
of all Accounts owing from the Account Debtor obligated on the Account are
outstanding more than one hundred fifty (150) days past their invoice date; (m)
fifty percent (50%) or more of the aggregate unpaid Accounts from any single
Account Debtor are not deemed Qualified Accounts under this Agreement; (n) the
total unpaid Accounts of the Account Debtor, except for a Medicaid/Medicare
Account Debtor, exceed twenty percent (20%) of the net amount of all Qualified
Accounts (including Medicaid/Medicare Account Debtors); (o) any covenant,
representation or warranty contained in the Loan Documents with respect to such
Account has been breached; or (p) the Account fails to meet such other
specifications and requirements which may from time to time be established by
Lender in its reasonable credit judgment in accordance with its customary
lending practices and notice of which shall have been given to Borrower at lease
five (5) days prior to the effective date.

SECTION 1.64. RECEIVABLES-RELATED COLLATERAL. "Receivables-Related
Collateral" means those items of Collateral described in Section 3.1 (a) through
(d) and in Section 3.1(h) as related to or proceeding from such items of
Collateral.

SECTION 1.65. REPORTABLE EVENT. "Reportable Event" means a "reportable
event" as defined in Section 4043(b) of ERISA.

SECTION 1.66. REVOLVING CREDIT LOAN. "Revolving Credit Loan" has the
meaning set forth in Section 2.1(b).

SECTION 1.67. TANGIBLE COLLATERAL. "Tangible Collateral" means those
items of Collateral described in Section 3.1(e) and (f) and in Section 3.1(h) as
related to or proceeding from such items of Collateral.

SECTION 1.68. TERM. "Term" has the meaning set forth in Section 2.8.

SECTION 1.69. UNIFORM COMMERCIAL CODE. "Uniform Commercial Code" means
the Uniform Commercial Code, as amended and in effect in the State of Maryland.

SECTION 1.70. USAGE FEE. "Usage Fee" has the meaning set forth in
Section 2.4 (b).

<PAGE>

ARTICLE II

LOAN

SECTION 2.1. TERMS.

(a) The maximum aggregate principal amount of credit extended
by Lender to Borrower under this Agreement (the "Loan") that will be outstanding
at any time is Fifteen Million and No/100 Dollars ($15,000,000.00) (the "Maximum
Loan Amount"). Notwithstanding the foregoing, the maximum aggregate principal
amount of Revolving Credit Loans made by Lender to Borrower under this Agreement
and to the Affiliated Borrowers under the Affiliated Loan Agreements shall not
at any time exceed Thirty Million and No/100 Dollars ($30,000,000.00) (the
"Overall Maximum Loan Amount").

(b) The Loan shall be in the nature of a revolving line of
credit, and shall include sums advanced and other credit extended by Lender to
or for the benefit of Borrower from time to time under this Article II (each a
"Revolving Credit Loan") up to the lesser of (i) the Maximum Loan Amount and
(ii) the Borrowing Base submitted in connection with such request. The
outstanding principal balance of the Loan may fluctuate from time to time, will
be reduced by repayments made by Borrower (which may be made without penalty or
premium), and will be increased by future Revolving Credit Loans, advances and
other extensions of credit to or for the benefit of Borrower, and shall be due
and payable in full upon the expiration of the Term. For purposes of this
Agreement, any determination as to whether there is ability within the Borrowing
Base for advances or extensions of credit shall be made by Lender in the
exercise of its reasonable lender's discretion and shall be final and binding
upon Borrower.

(c) At Closing, Borrower shall execute and deliver to Lender a
promissory note evidencing Borrower's unconditional obligation to repay Lender
for Revolving Credit Loans, advances, and other extensions of credit made under
the Loan, in the form of EXHIBIT A to this Agreement (the "Note"), dated the
date of this Agreement, payable to the order of Lender in accordance with the
terms of such Note. The Note shall bear interest from the date of such Note
until repaid, with interest payable monthly in arrears on the first Business Day
of each month, at a rate per annum (on the basis of the actual number of days
elapsed over a year of 360 days) equal to the Base Rate, provided that after an
Event of Default has occurred and is continuing, such rate shall be equal to the
Default Rate. Each Revolving Credit Loan, advance and other extension of credit
shall be deemed evidenced by the Note, which is deemed incorporated into and
made a part of this Agreement by this reference.

(d) Subject to the terms and conditions of this Agreement,
advances under the Loan shall be made against a borrowing base equal to eighty
percent (80%) of Qualified Accounts due and owing to Borrower from any Account
Debtor (the "Borrowing Base").

<PAGE>

SECTION 2.2. LOAN ADMINISTRATION. Borrowings under the Loan shall be as
follows:

(a) A request for a Revolving Credit Loan shall be made, or
shall be deemed to be made, in the following manner: (i) Borrower may give
Lender notice of its intention to borrow, in which notice Borrower shall specify
the amount of the proposed borrowing and the proposed borrowing date, not later
than 2:00 p.m. Eastern time one (1) Business Day prior to the proposed borrowing
date; PROVIDED, HOWEVER, that no such request may be made at a time when there
exists an Event of Default; and (ii) the becoming due of any amount required to
be paid under this Agreement, whether as interest or for any other Obligation,
shall be deemed irrevocably to be a request for a Revolving Credit Loan on the
due date in the amount required to pay such interest or other Obligation.

(b) Borrower hereby irrevocably authorizes Lender to disburse
the proceeds of each Revolving Credit Loan requested, or deemed to be requested,
as follows: (i) the proceeds of each Revolving Credit Loan requested under
subsection 2.2(a)(i) shall be disbursed by Lender by wire transfer to such bank
account as may be agreed upon by Borrower and Lender from time to time or
elsewhere if pursuant to written direction from Borrower; and (ii) the proceeds
of each Revolving Credit Loan requested under subsection 2.2(a)(ii) shall be
disbursed by Lender by way of direct payment of the relevant interest or other
Obligation.

(c) All Revolving Credit Loans, advances and other extensions
of credit to or for the benefit of Borrower shall constitute one general
Obligation of Borrower, and shall be secured by Lender's lien upon all of the
Collateral.

(d) Lender shall enter all Revolving Credit Loans as debits to
a loan account in the name of Borrower and shall also record in said loan
account all payments made by Borrower on any Obligations and all proceeds of
Collateral which are indefeasibly paid to Lender, and may record therein, in
accordance with customary accounting practice, other debits and credits,
including interest and all charges and expenses properly chargeable to Borrower
under or in connection with this Agreement. All collections into the
Concentration Account pursuant to Section 2.3 shall be applied first to fees,
costs and expenses due and owing under the Loan Documents, then to interest due
and owing under the Loan Documents, and then to principal outstanding with
respect to Revolving Credit Loans.

(e) Lender will account to Borrower monthly with a statement
of Revolving Credit Loans, charges and payments made pursuant to this Agreement,
and such accounting rendered by Lender shall be deemed final, binding and
conclusive upon Borrower unless Lender is notified by Borrower in writing to the
contrary within thirty (30) days of the date each accounting is received by
Borrower. Such notice shall be deemed an objection to those items specifically
objected to in such accounting.

(f) So long as no Event of Default has occurred and is
continuing (including, without limitation, the bottom line availability under
the Borrowing Base being lower than the outstanding principal balance under this
Agreement), proceeds of collections received by Lender on Accounts shall be made
immediately available to Borrower as additional extensions of credit under this
Agreement without any need for Borrower to request such extension of credit.
Borrower's

<PAGE>

ability to receive such automatic extensions of credit is expressly conditioned
on Borrower's submitting to Lender a Borrowing Base Certificate at least weekly
during the Term.

SECTION 2.3. COLLECTIONS, DISBURSEMENTS, BORROWING AVAILABILITY, AND
LOCKBOX. Borrower shall maintain a lockbox account (the "Lockbox") with
NationsBank, N.A. (South) or another financial institution mutually acceptable
to Borrower and Lender (the "Lockbox Bank"), subject to the provisions of this
Agreement, and shall execute with the Lockbox Bank a Lockbox Agreement
substantially in the form attached as EXHIBIT B (the "Lockbox Agreement"), and
such other agreements related thereto as Lender may reasonably require. Borrower
shall ensure that all collections of Accounts from entities that become Account
Debtors after the date of this Agreement are paid directly from such Account
Debtors into the Lockbox, and that, so long as any Obligations are outstanding,
all funds paid into the Lockbox are immediately transferred into a depository
account maintained by Lender at Bank One Arizona, N.A. or U.S. Bank N.A., as
determined by Lender in its sole discretion and communicated to Borrower (the
"Concentration Account"). Lender shall apply, on a daily basis, all funds
transferred into the Concentration Account pursuant to this Section 2.3 to
reduce the outstanding indebtedness under the Loan (in accordance with Section
2.2(d)). Future Revolving Credit Loans, advances and other extensions of credit
shall be made by Lender under the conditions set forth in this Article II. To
the extent that any collections of Accounts or proceeds of other Collateral are
not sent directly to the Lockbox but are received by Borrower, such collections
shall be held in trust for the benefit of Lender and remitted within one (1)
Business Day, in the form received, to the Lockbox Bank for transfer to the
Concentration Account immediately upon receipt by Borrower. Collections from
entities that are Account Debtors on or before the date of this Agreement may
continue to be received directly by Borrower but shall be remitted to the
Concentration Account within one (1) Business Day after such receipt. Borrower
acknowledges and agrees that its compliance with the terms of this Section 2.3
is essential, and that if Lender reasonably determines that Borrower has failed
to comply with any such terms, Lender shall give Borrower five (5) days written
notice of such noncompliance. If the noncompliance is not cured within such
five-day period, Lender shall be entitled to assess a noncompliance fee, which
shall operate to increase the Base Rate by up to two percent (2%) per annum
during any period of noncompliance. Lender shall be entitled to assess such fee
whether or not an Event of Default is declared or otherwise occurs.
Notwithstanding the foregoing, the failure by Borrower to transmit or cause to
be transmitted to the Lockbox an aggregate of up to $100,000.00 in any calendar
quarter shall not be deemed to be noncompliance with this Section. All funds
transferred from the Concentration Account for application to Borrower's
indebtedness to Lender shall be applied to reduce the Loan balance, but for
purposes of calculating interest shall be subject to a five (5) Business Day
clearance period. If as the result of collections of Accounts pursuant to the
terms and conditions of this Section 2.3 a credit balance exists with respect to
the Concentration Account, such credit balance shall not accrue interest in
favor of Borrower, but shall be available to Borrower upon written request at
any time or times for so long as no Event of Default exists and is continuing.
Notwithstanding anything to the contrary elsewhere in this Agreement, with
respect to any businesses that are expected to be disposed of pursuant to the
Business Plan but that are still owned by PMC on June 11, 1999, Borrower agrees
to promptly notify Account Debtors to pay directly to the Lockbox all
collections on Accounts generated by such businesses and to execute such
documents and take such other actions as may be reasonably necessary to ensure
that all such collections are so paid to the Lockbox.

<PAGE>

SECTION 2.4. FEES.

(a) Upon execution of this Agreement, Borrower shall
unconditionally pay to Lender the balance owing on a commitment fee equal to one
percent (1%) of the Maximum Loan Amount (the "Commitment Fee"), provided that
the aggregate Commitment Fees paid under this Agreement and the Affiliated Loan
Agreements shall not exceed one percent (1%) of the Overall Maximum Loan Amount.

(b) For so long as the Loan is available to Borrower, Borrower
shall pay to Lender a minimum usage fee (the "Usage Fee") equal to one-fortieth
of one percent (0.025%) of the average amount by which the Maximum Loan Amount
exceeds the average amount of the outstanding principal balance of the Revolving
Credit Loans during the preceding month. The Usage Fee shall be payable monthly
in arrears on the first Business Day of each successive calendar month.

(c) For so long as the Loan is available to Borrower, Borrower
unconditionally shall pay to Lender a monthly loan management fee (the "Loan
Management Fee") equal to one-sixteenth of one percent (0.0625%) of the average
amount of the outstanding principal balance of the Revolving Credit Loans during
the preceding month. The Loan Management Fee shall be payable monthly in arrears
on the first day of each successive calendar month.

(d) Borrower shall pay to Lender all reasonable out-of-pocket
audit fees in connection with audits of Borrower's books and records and such
other matters as Lender shall deem appropriate, which shall be due and payable
on the first Business Day of the month following the date of issuance by Lender
of a request for payment thereof to Borrower. So long as no Event of Default has
occurred and is continuing, such audits shall occur no more than four (4) times
in a calendar year.

(e) Borrower shall pay to Lender, on demand, any and all fees,
costs or expenses which Lender pays to a bank or other similar institution
arising out of or in connection with (i) the forwarding to Borrower or any other
Person on behalf of Borrower, by Lender, of proceeds of Revolving Credit Loans
made by Lender to Borrower pursuant to this Agreement, and (ii) the depositing
for collection, by Lender, of any check or item of payment received or delivered
to Lender on account of Obligations.

SECTION 2.5. PAYMENTS. Principal payable on account of Revolving Credit
Loans shall be payable by Borrower to Lender immediately upon the earliest of
(i) subject to the provisions of Section 3.7, the receipt by Borrower of any
proceeds of any of the Collateral, to the extent of such proceeds, (ii) the
occurrence of an Event of Default in consequence of which the Loan and the
maturity of the payment of the Obligations are accelerated under Section 8.2, or
(iii) the termination of this Agreement pursuant to Section 2.8; PROVIDED,
HOWEVER, that if any advance made by Lender in excess of the Borrowing Base
shall exist at any time, Borrower shall, immediately upon demand, repay such
overadvance. Interest accrued on the Revolving Credit Loans shall be due on the
earliest of (i) the first Business Day of each month (for the immediately
preceding month), computed on the last calendar day of the preceding month, (ii)
the occurrence of an Event of Default in consequence of which the Loan and the
maturity of the payment of the Obligations are accelerated under Section

<PAGE>

8.2, or (iii) the termination of this Agreement pursuant to Section 2.8 under
this Agreement. Except to the extent otherwise set forth in this Agreement, all
payments of principal and of interest on the Loan, all other charges and any
other obligations of Borrower under this Agreement, shall be made to Lender to
the Concentration Account, in immediately available funds.

SECTION 2.6. USE OF PROCEEDS. The proceeds of Lender's advances under
the Loan shall be used to make funds available to certain physicians that
provide services to Borrower on an independent contractor basis, and for other
general business purposes.

SECTION 2.7. INTEREST RATE LIMITATION. The parties intend to conform
strictly to the applicable usury laws in effect from time to time during the
term of the Loan. Accordingly, if any transaction contemplated hereby would be
usurious under such laws, then notwithstanding any other provision under this
Agreement: (i) the aggregate of all interest that is contracted for, charged, or
received under this Agreement or under any other Loan Document shall not exceed
the maximum amount of interest allowed by applicable law (the "Highest Lawful
Rate"), and any excess shall be promptly credited to Borrower by Lender (or, to
the extent that such consideration shall have been paid, such excess shall be
promptly refunded to Borrower by Lender); (ii) neither Borrower nor any other
Person now or hereafter liable under this Agreement shall be obligated to pay
the amount of such interest to the extent that it is in excess of the Highest
Lawful Rate; and (iii) the effective rate of interest shall be reduced to the
Highest Lawful Rate. All sums paid, or agreed to be paid, to Lender for the use,
forbearance, and detention of the debt of Borrower to Lender shall, to the
extent permitted by applicable law, be allocated throughout the full term of the
Note until payment is made in full so that the actual rate of interest does not
exceed the Highest Lawful Rate in effect at any particular time during the full
term thereof. If at any time the rate of interest under the Note exceeds the
Highest Lawful Rate, the rate of interest to accrue pursuant to this Agreement
shall be limited, notwithstanding anything to the contrary in this Agreement, to
the Highest Lawful Rate, but any subsequent reductions in the Base Rate shall
not reduce the interest to accrue pursuant to this Agreement below the Highest
Lawful Rate until the total amount of interest accrued equals the amount of
interest that would have accrued if a varying rate per annum equal to the
interest rate under the Note had at all times been in effect. If the total
amount of interest paid or accrued pursuant to this Agreement under the
foregoing provisions is less than the total amount of interest that would have
accrued if a varying rate per annum equal to the interest rate under the Note
had been in effect, then Borrower agrees to pay to Lender an amount equal to the
difference between (x) the lesser of (A) the amount of interest that would have
accrued if the Highest Lawful Rate had at all times been in effect, or (B) the
amount of interest that would have accrued if a varying rate per annum equal to
the interest rate under the Note had at all times been in effect, and (y) the
amount of interest accrued in accordance with the other provisions of this
Agreement.

SECTION 2.8. TERM.

<PAGE>

"Term"), and this Agreement may be renewed for one-year periods thereafter upon
the mutual written agreement of the parties.

(b) Notwithstanding anything in this Agreement to the
contrary, Lender may terminate this Agreement upon and during the occurrence of
an Event of Default after giving five (5) Business Days' prior written notice to
Borrower.

(c) Upon at least sixty (60) days prior written notice to
Lender (the "Termination Notice Period"), Borrower may terminate this Agreement
during the Term, provided that, if the termination is due to an unaffiliated
third party paying off the Obligations, then, at the effective date of such
termination, Borrower shall pay to Lender (in addition to the then outstanding
principal, accrued interest and other Obligations owing under the terms of this
Agreement and any other Loan Documents) as liquidated damages for the loss of
bargain and not as a penalty, an amount equal to (i) three percent (3%) of the
Maximum Loan Amount if the effective date of such termination by Borrower is on
or before the first annual anniversary of the Closing Date, (ii) two percent
(2%) of the Maximum Loan Amount if the effective date of such termination by
Borrower is after the first annual anniversary of the Closing Date and on or
before the second annual anniversary of the Closing Date, and (iii) one percent
(1%) of the Maximum Loan Amount if the effective date of such termination is
after the second annual anniversary of the Closing Date and before the date that
is thirty (30) days before the end of the Term.

(d) All of the Obligations shall be immediately due and
payable at the end of the Term (the "Termination Date"); provided, however, that
notwithstanding anything in Section 2.8(c) to the contrary, the Termination Date
shall be effective no earlier than the first Business Day of the month following
the expiration of the Termination Notice Period. All undertakings, agreements,
covenants, warranties, and representations of Borrower contained in the Loan
Documents shall survive any such termination, and Lender shall retain its liens
in the Collateral and all of its rights and remedies under the Loan Documents
notwithstanding any such termination until Borrower has paid the Obligations to
Lender, in full, in immediately available funds. Notwithstanding the foregoing,
Lender acknowledges that certain items of Tangible Collateral may be released
from Lender's liens from time to time in accordance with the provisions of
Section 3.7.

(e) Notwithstanding any provision of this Agreement which
makes reference to the continuance of an Event of Default, nothing in this
Agreement shall be construed to permit Borrower to cure an Event of Default
following the lapse of the applicable cure period, and Borrower shall have no
such right in any instance unless specifically granted in writing by Lender.

SECTION 2.9. JOINT AND SEVERAL LIABILITY; BINDING OBLIGATIONS. Each
entity comprising Borrower and executing this Agreement on behalf of Borrower
shall be jointly and severally liable for all of the Obligations. In addition,
each entity comprising Borrower hereby acknowledges and agrees that all of the
representations, warranties, covenants, obligations, conditions, agreements and
other terms contained in this Agreement shall be applicable to and shall be
binding upon each individual entity comprising Borrower, and shall be binding
upon all such entities when taken together.

ARTICLE III

<PAGE>

COLLATERAL

SECTION 3.1. GENERALLY. As security for the payment of all liabilities
of Borrower to Lender pursuant to the Loan Documents, including without
limitation: (i) indebtedness evidenced under the Note, repayment of Revolving
Credit Loans, advances and other extensions of credit, all fees and charges
owing by Borrower, and all other liabilities and obligations of every kind or
nature whatsoever of Borrower to Lender pursuant to the Loan Documents, whether
now existing or hereafter incurred, joint or several, matured or unmatured,
direct or indirect, primary or secondary, related or unrelated, due or to become
due, including but not limited to any extensions, modifications, substitutions,
increases and renewals thereof, all as may be due under or related to this
Agreement and the other Loan Documents, (ii) the payment of all amounts advanced
by Lender to preserve, protect, defend, and enforce its rights under this
Agreement and in the following property in accordance with the terms of this
Agreement, and (iii) the payment of all expenses incurred by Lender in
connection therewith (collectively, the "Obligations"), and as further security
for the payment and performance of the obligations of Affiliated Borrowers under
the Affiliated Loan Agreements, Borrower hereby assigns and grants to Lender a
continuing first priority lien on and security interest in, upon, and to the
following property (the "Collateral"):

(a) All of Borrower's now-owned and hereafter acquired or
arising Accounts and all accounts receivable and rights to payment of every kind
and description relating to Medical Services, and all of Borrower's contract
rights, Chattel Paper, Documents and Instruments with respect thereto, and all
of Borrower's rights, remedies, security and liens, in, to and in respect of the
Accounts, including, without limitation, all rights and remedies of an unpaid
lienor or secured party, guaranties or other contracts of suretyship with
respect to the Accounts, deposits or other security for the obligation of any
Account Debtor, and credit and other insurance;

(b) All moneys, securities and other property and the proceeds
thereof, now or hereafter held or received by, in transit to, in possession of,
or under the control of Lender or a bailee or Affiliate of Lender, from or for
Borrower, whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all of Borrower's deposits (general or special), balances, sums
and credits with Lender at any time existing;

(c) All of Borrower's now or hereafter acquired deposit
accounts into which proceeds of Accounts are deposited, to the extent of such
proceeds, including the Lockbox;

(d) All of Borrower's now owned and hereafter acquired or arising
General Intangibles and other property of every kind and description with
respect to, evidencing or relating to its Accounts, including, but not limited
to, all existing and future customer lists, choses in action, claims, books,
records, ledger cards, contracts, licenses, formulae, tax and other types of
refunds, returned and unearned insurance premiums, rights and claims under
insurance policies, and computer programs, information, software, records, and
data, but solely as each of the same relate to the Accounts;

<PAGE>

licenses, choses-in-action, claims, information contained in computer media
(such as data bases, source and object codes, and information therein), things
in action, trademarks and trademarks applied for (together with the goodwill
associated therewith) and derivatives thereof, trade names, including the right
to make, use, and vend goods utilizing any of the foregoing, and permits,
licenses, certifications, authorizations and approvals, and the rights of
Borrower thereunder, issued by any governmental, regulatory, or private
authority, agency, or entity whether now owned or hereafter acquired, together
with all cash and non-cash proceeds and products thereof;

(f) All of Borrower's now owned or hereafter acquired
inventory of every description which is held by Borrower for sale or lease or is
furnished by Borrower under any contract of service or is held by Borrower as
raw materials, work in process or materials used or consumed in a business,
wherever located, and as the same may now and hereafter from time to time be
constituted, together with all cash and non-cash proceeds and products thereof;

(g) All of Borrower's now owned or hereafter acquired
machinery, equipment, computer equipment, tools, tooling, furniture, fixtures,
goods, supplies, materials, work in process, whether now owned or hereafter
acquired, together with all additions, parts, fittings, accessories, special
tools, attachments, and accessions now and hereafter affixed thereto and/or used
in connection therewith, all replacements thereof and substitutions therefor,
and all cash and non-cash proceeds and products thereof; and

(h) The proceeds (including, without limitation, insurance
proceeds) of all of the foregoing.

The Collateral as described above includes both the "Receivables-Related
Collateral" and the "Tangible Collateral."

The following assets are excluded from the security interest hereby
granted:

All assets of Oncology Therapies, Inc. relating to, and to be sold to,
Oncology and Radiation Associates. P.A.

SECTION 3.2. LIEN DOCUMENTS. At Closing and thereafter as Lender deems
necessary in its sole discretion, Borrower shall execute and deliver to Lender,
or have executed and delivered (all in form and substance satisfactory to Lender
in its reasonable discretion):

(a) UCC-1 Financing Statements pursuant to the Uniform
Commercial Code in effect in the jurisdiction(s) in which Borrower operates,
which Lender may file in any jurisdiction where any Collateral is or may be
located and in any other jurisdiction that Lender deems appropriate; PROVIDED
that a carbon, photographic, or other reproduction or other copy of this
Agreement is sufficient as and may be filed in lieu of a financing statement;
and

(b) Any other agreements, documents, instruments, and writings
deemed necessary by Lender or as Lender may otherwise reasonably request from
time to time to evidence, perfect, or protect Lender's lien and security
interest in the Collateral required under this Agreement.

<PAGE>

SECTION 3.3. COLLATERAL ADMINISTRATION.

(a) All Collateral (except deposit accounts) will at all times
be kept by Borrower at its principal office(s) or at such other locations as
identified to Lender, all as set forth on SCHEDULE 4.15 and shall not, without
at least thirty (30) days notice to Lender, be moved therefrom.

(b) Borrower shall keep accurate and complete records of its
Accounts and all payments and collections thereon and shall submit to Lender on
such periodic basis as Lender shall reasonably request a collections report for
the preceding period, in form reasonably satisfactory to Lender. In addition, if
Accounts in an aggregate face amount in excess of $50,000.00 become ineligible
because they fall within one of the specified categories of ineligibility set
forth in the definition of Qualified Accounts, Borrower shall notify Lender of
such occurrence on the first Business Day following the date on which Borrower
first becomes aware of such occurrence, and the Borrowing Base shall thereupon
be adjusted to reflect such occurrence. After the occurrence and during the
continuance of an Event of Default, if requested by Lender, Borrower shall
execute and deliver to Lender formal written assignments of all of its Accounts
weekly or daily, which shall include all Accounts that have been created since
the date of the last assignment, together with copies of claims, invoices or
other information related thereto.

(c) After an Event of Default has occurred, and while it is
continuing, any of Lender's officers, employees or agents shall have the right,
at any time or times thereafter, in the name of Lender, any designee of Lender
or Borrower, to verify the validity, amount or any other matter relating to any
Accounts by mail, telephone, telegraph or otherwise. Borrower shall cooperate
fully with Lender in an effort to facilitate and promptly conclude such
verification process.

(d) To expedite collection, Borrower shall endeavor in the
first instance to make collection of its Accounts for Lender. Lender retains the
right at all times after the occurrence of an Event of Default, subject to
applicable laws regarding Medicaid/Medicare Account Debtors, to notify Account
Debtors that Accounts have been assigned to Lender and to collect Accounts
directly in its own name and to charge reasonable collection costs and expenses,
including reasonable attorneys' fees (including both outside and in-house
counsel), to Borrower.

SECTION 3.4. OTHER ACTIONS. In addition to the foregoing, Borrower (i)
shall provide prompt written notice to each entity that becomes an Account
Debtor at any time following the date of this Agreement that payments on
Accounts shall thereafter be made directly to the Lockbox, (ii) after an Event
of Default has occurred and is continuing, hereby authorizes Lender to provide
written notice to each entity that is then an Account Debtor or thereafter
becomes an Account Debtor that Lender has been granted a first priority lien and
security interest in, upon and to all Accounts applicable to such Account
Debtor, and (iii) shall do anything further that may be lawfully required by
Lender to secure Lender and effectuate the intentions and objects of this
Agreement, including but not limited to the execution and delivery of lockbox
agreements, continuation statements, amendments to financing statements,
terminations of financing statements, and any other documents required under
this Agreement. At Lender's request, Borrower shall also immediately deliver to
Lender all items for which Lender must receive possession to obtain a perfected
security interest. Borrower shall, on Lender's demand, deliver to Lender all
notes, certificates, and documents of title, Chattel Paper, warehouse receipts,
Instruments, and any other similar instruments constituting Collateral.

<PAGE>

SECTION 3.5. SEARCHES. Before Closing, and thereafter (as and when
determined by Lender in its reasonable discretion), Lender shall perform the
searches set forth in clauses (a) and (b) below against Borrower (the results of
which are to be consistent with Borrower's representations and warranties under
this Agreement), all at Borrower's expense:

(a) Uniform Commercial Code searches with the Secretary of
State and local filing offices of each jurisdiction where Borrower maintains its
executive offices, a place of business, or assets; and

(b) Judgment, federal tax lien and corporate and partnership
tax lien searches, in each jurisdiction searched under clause (a) above.

So long as no Event of Default has occurred and is continuing, Lender
agrees to perform such searches no more frequently than quarterly. Borrower
shall obtain and deliver to Lender prior to Closing Good Standing certificates
showing Borrower to be in good standing in its state of formation and in each
other state in which it is doing and currently intends to do business for which
qualification is required.

SECTION 3.6. POWER OF ATTORNEY. After an Event of Default and while it
is continuing, Borrower hereby makes, constitutes and appoints each of the
officers of Lender as the true and lawful attorney for Borrower (without
requiring any of them to act as such) with full power of substitution to do the
following: (i) endorse the name of Borrower upon any and all checks, drafts,
money orders, and other instruments for the payment of money that are payable to
Borrower and constitute collections on Borrower's Accounts; (ii) execute in the
name of Borrower any financing statements, schedules, assignments, instruments,
documents, and statements that Borrower is obligated to give Lender under this
Agreement; and (iii) after the occurrence of an Event of Default, do such other
and further acts and deeds in the name of Borrower that Lender may deem
necessary or reasonable to enforce any Account or other Collateral or perfect
Lender's security interest or lien in any Collateral.

SECTION 3.7. RELEASE OF SECURITY INTEREST AND LIENS. Lender shall
release its security interest and other liens in, on and to the Collateral when
all the Obligations have been paid in full, and Lender will reassign and
redeliver (or cause to be reassigned and redelivered) to Borrower, or to such
Person as Borrower designates, against receipt, such of the Collateral (if any)
assigned by Borrower to Lender (or otherwise held by Lender) as has not been
sold or otherwise applied by Lender under the terms of this Agreement and the
other Loan Documents and is still held by it under this Agreement of the other
Loan Documents, together with appropriate instruments of reassignment and
release. Notwithstanding the foregoing, upon the disposition for value by
Borrower of Tangible Collateral, Lender agrees, so long as no Event of Default
has occurred and is continuing, that it will release its lien(s) on such
Collateral and execute any necessary or desirable instruments in connection
therewith.

ARTICLE IV

<PAGE>

REPRESENTATIONS AND WARRANTIES

Each entity comprising Borrower represents and warrants to Lender that:

SECTION 4.1. SUBSIDIARIES. Except as set forth in SCHEDULE 4.1, on the
Closing Date, Borrower has no subsidiaries.

SECTION 4.2. ORGANIZATION AND GOOD STANDING. Each entity comprising
Borrower is a corporation or limited liability company duly organized, validly
existing, and in good standing under the laws of its state of formation, is in
good standing as a foreign corporation or limited liability company in each
jurisdiction in which the character of the properties owned or leased by it in
such jurisdiction or the nature of its business makes such qualification
necessary (other than those jurisdictions where the failure to qualify could not
reasonably be likely to have a Material Adverse Effect), has the corporate or
limited liability company power and authority to own its assets and transact the
business in which it is engaged, and has obtained all certificates, licenses and
qualifications required under all laws, regulations, ordinances, or orders of
public authorities necessary for the ownership and operation of all of its
properties and transaction of all of its business, other than those where the
failure to so obtain could not reasonably be likely to have a Material Adverse
Effect.

SECTION 4.3. AUTHORITY. Borrower has full corporate or limited
liability company power and authority to enter into, execute, and deliver this
Agreement and to perform its obligations under this Agreement, to borrow the
Loan, to execute and deliver the Note, and to incur and perform the obligations
provided for in the Loan Documents, all of which have been duly authorized by
all necessary corporate or limited liability company action. No consent or
approval of shareholders or members of, or lenders to, Borrower and no consent,
approval, filing or registration with any Governmental Authority is required as
a condition to the validity of the Loan Documents or the performance by Borrower
of its obligations under the Loan Documents other than those previously
obtained.

SECTION 4.4. BINDING AGREEMENT. This Agreement and all other Loan
Documents constitute, and the Note, when issued and delivered pursuant hereto
for value received, will constitute, the valid and legally binding obligations
of Borrower, enforceable against Borrower in accordance with their respective
terms other than (i) applicable bankruptcy, insolvency, reorganization, voidable
preference, moratorium or similar laws, and related judicial doctrines,
affecting creditors' rights and remedies generally, as in effect from time to
time, and (ii) general principles of equity, whether such principles are
considered in a proceeding at law or in equity.

SECTION 4.5. LITIGATION. Except as disclosed in SCHEDULE 4.5, there are
no actions, suits, proceedings or investigations pending or, to Borrower's
knowledge, threatened against Borrower before any court or arbitrator or before
or by any Governmental Authority which, in any one case or in the aggregate, if
determined adversely to the interests of Borrower, could have a Material Adverse
Effect. Borrower is not in default with respect to any order of any court,
arbitrator, or Governmental Authority applicable to Borrower or its properties.

<PAGE>

SECTION 4.6. NO CONFLICTS. The execution and delivery by Borrower of
this Agreement and the other Loan Documents do not, and the performance of its
obligations under the Loan Documents will not, violate, conflict with,
constitute a default under, or result in the creation of a lien or encumbrance
upon the property of Borrower under: (i) any provision of Borrower's charter
documents; (ii) any provision of any law, rule, or regulation applicable to
Borrower other than those provisions the violation of which could not reasonably
be likely to have a Material Adverse Effect, or (iii) any of the following: (A)
any indenture or other material agreement or instrument to which Borrower is a
party or by which Borrower or its property is bound; or (B) any judgment, order
or decree of any court, arbitration tribunal, or Governmental Authority having
jurisdiction over Borrower which is applicable to Borrower.

SECTION 4.7. FINANCIAL CONDITION. The annual consolidated financial
statements of PMC as of January 31, 1998 audited by PricewaterhouseCoopers and
the unaudited financial statements of PMC as of October 31, 1998, certified by
the chief financial officer of PMC, which have been delivered to Lender, fairly
present the financial condition of PMC and the results of its operations and
changes in financial condition as of the dates and for the periods referred to,
and have been prepared in accordance with GAAP. There are no material unrealized
or anticipated liabilities, direct or indirect, fixed or contingent, of PMC as
of the dates of such financial statements which are not reflected in such
financial statements or in the notes to such financial statements. Except as
previously disclosed by Borrower to Lender, there has been no event that could
reasonably be likely to have a Material Adverse Effect since October 31, 1998.
The federal tax identification number of each entity comprising Borrower is as
described on SCHEDULE 4.7.

SECTION 4.8. NO DEFAULT. Borrower is not in default under or with
respect to any material obligation in any respect which could reasonably be
likely to have a Material Adverse Effect. No Event of Default has occurred and
is continuing under this Agreement.

SECTION 4.9. TITLE TO PROPERTIES. Borrower has good and marketable
title to the Collateral, subject to no lien, pledge, encumbrance or charge of
any kind, other than Permitted Liens. Borrower has not agreed or consented to
cause any of the Collateral, whether owned now or hereafter acquired or created,
to be subject in the future (upon the happening of a contingency or otherwise)
to any lien, pledge, encumbrance or charge of any kind other than Permitted
Liens.

SECTION 4.10. TAXES. Borrower has filed, or has obtained extensions for
the filing of, all federal, state and other tax returns which are required to be
filed, and has paid all taxes shown as due on those returns and all assessments,
fees and other amounts due as of the date of this Agreement. All material tax
liabilities of Borrower were, as of October 31, 1998 adequately provided for on
Borrower's books. No material tax liability has been asserted by the Internal
Revenue Service or other taxing authority against Borrower for taxes in excess
of those already paid. Notwithstanding the foregoing, Borrower shall not be, and
shall not have been required to pay any tax (other than payroll taxes) so long
as the validity or amount of the tax shall be contested in good faith and by
appropriate proceedings, demonstrated to the reasonable satisfaction of Lender,
by Borrower, and Borrower shall have set aside on its books adequate reserve
therefor to the extent required by GAAP; PROVIDED, HOWEVER, that such deferment
of payment is permissible only so long as Borrower's title

<PAGE>

to, and its right to use, the Collateral is not adversely affected thereby and
Lender's lien and priority on the Collateral are not adversely affected, altered
or impaired thereby.

SECTION 4.11. SECURITIES AND BANKING LAWS AND REGULATIONS.

(a) The use of the proceeds of the Loan and Borrower's
issuance of the Note will not directly or indirectly violate or result in a
violation of the Securities Act of 1933 or the Securities Exchange Act of 1934,
as amended, or any regulations issued pursuant thereto, including without
limitation Regulations U, T, or X of the Board of Governors of the Federal
Reserve System. Borrower is not engaged in the business of extending credit for
the purpose of the purchasing or carrying "margin stock" within the meaning of
those regulations. No part of the proceeds of the Loan under this Agreement will
be used to purchase or carry any margin stock or to extend credit to others for
such purpose.

(b) Borrower is not an investment company within the meaning
of the Investment Company Act of 1940, as amended, nor is it, directly or
indirectly, controlled by or acting on behalf of any Person which is an
investment company within the meaning of that Act.

SECTION 4.12. ERISA. No employee benefit plan (a "Plan") subject to the
Employee Retirement Income Security Act of 1974 ("ERISA") and regulations issued
pursuant thereto that is maintained by Borrower or under which Borrower could
have any material liability under ERISA (a) has failed to meet minimum funding
standards established in Section 302 of ERISA, (b) has failed to comply with all
applicable requirements of ERISA and of the Internal Revenue Code, including all
applicable rulings and regulations thereunder, (c) has engaged in or been
involved in a prohibited transaction (as defined in ERISA) under ERISA or under
the Internal Revenue Code, or (d) has been terminated. Borrower has not assumed,
or received notice of a claim asserted against Borrower for, withdrawal
liability (as defined in the Multi-Employer Pension Plan Amendments Act of 1980,
as amended) with respect to any multi-employer pension plan and is not a member
of any Controlled Group (as defined in ERISA). Borrower has timely made when due
all contributions with respect to any multi-employer pension plan in which it
participates and no event has occurred triggering a claim against Borrower for
withdrawal liability with respect to any multi-employer pension plan in which
Borrower participates.

SECTION 4.13. COMPLIANCE WITH LAW. Except as described in SCHEDULE
4.13, Borrower is not in material violation of any statute, rule or regulation
of any Governmental Authority (including, without limitation, any statute, rule
or regulation relating to employment practices or to environmental, occupational
and health standards and controls) where the failure to comply would have a
Material Adverse Effect. Borrower has obtained all licenses, permits,
franchises, and other governmental authorizations necessary for the ownership of
its properties and the conduct of its business where the failure to so obtain
such licenses, permits, franchises, and other governmental authorizations would
have a Material Adverse Effect. Borrower is current with all reports and
documents required to be filed with any state or federal securities commission
or similar Governmental Authority and is in full compliance with all applicable
rules and regulations of such commissions to the extent noncompliance therewith
could reasonably be likely to have a Material Adverse Effect.

<PAGE>

SECTION 4.14. ENVIRONMENTAL MATTERS. No use, exposure, release,
generation, manufacture, storage, treatment, transportation or disposal of
Hazardous Material has occurred or is occurring on or from any real property on
which the Collateral is located or which is owned, leased or otherwise occupied
by Borrower (the "Premises"), or off the Premises as a result of any action of
Borrower other than in material compliance with all laws and except as described
in SCHEDULE 4.14. All Hazardous Material used, treated, stored, transported to
or from, generated or handled on the Premises, or off the Premises by Borrower,
has been disposed of on or off the Premises by or on behalf of Borrower in
material compliance with all laws. There are no underground storage tanks
present on or under the Premises owned or leased by Borrower. To the best of
Borrower's knowledge, no other environmental, public health or safety hazards
exist with respect to the Premises.

SECTION 4.15. PLACES OF BUSINESS. The only places of business of
Borrower, and the places where it keeps and intends to keep the Collateral and
records concerning the Collateral, are at the addresses set forth in SCHEDULE
4.15.

SECTION 4.16. STOCK OWNERSHIP. The identity of each stockholder of
record of each entity comprising Borrower (other than PhyMatrix) at the Closing
Date, together with the respective ownership percentages held by each such
stockholder as of such date, are as set forth on SCHEDULE 4.16. The identity of
each current executive officer or director of PhyMatrix known to own five
percent (5%) or more of any outstanding class of stock of PhyMatrix, together
with the respective ownership percentages held by each such person as of such
date, are as set forth on SCHEDULE 4.16.

SECTION 4.17. BUSINESS INTERRUPTIONS. Within five years before the date
of this Agreement, neither the business, property or assets, or operations of
Borrower has been adversely affected in any way by any casualty, strike,
lockout, combination of workers, or order of the United States of America or
other Governmental Authority, directed against Borrower. There are no pending
or, to Borrower's knowledge, threatened labor disputes, strikes, lockouts, or
similar occurrences or grievances against Borrower or its business the effect of
which could reasonably be likely to have a Material Adverse Effect.

SECTION 4.18. NAMES. Within five years before the date of this
Agreement, Borrower has not conducted business under or used any other name
(whether corporate, partnership or assumed) other than as shown on SCHEDULE
4.18. Borrower is the sole owner of all names listed on that Schedule and any
and all business done and invoices issued in such names are Borrower's sales,
business, and invoices. Each trade name of Borrower represents a division or
trading style of Borrower and not a separate Person or independent Affiliate.

SECTION 4.19 ACCOUNTS. Lender may rely, in determining which Accounts
are Qualified Accounts, on all statements and representations made by Borrower
with respect to any Account or Accounts. Unless otherwise indicated in writing
to Lender, with respect to each Account:

(a) It is genuine and in all respects what it purports to be,
and is not evidenced by a judgment;

<PAGE>

(b) It arises out of a completed, BONA FIDE rendition of
Medical Services by Borrower in the ordinary course of its business and in
accordance with the terms and conditions of all purchase orders, contracts,
certification, participation, certificate of need, or other documents relating
thereto and forming a part of the contract between Borrower and the Account
Debtor;

(c) It is for a liquidated amount maturing as stated in a
duplicate claim or invoice covering such sale or rendition of Medical Services,
a copy of which has been furnished or is available to Lender;

(d) Such Account, and Lender's security interest in such
Account is not, and will not (by voluntary act or omission by Borrower), be in
the future, subject to any offset, lien, deduction, defense, dispute,
counterclaim or any other adverse condition, and each such Account is absolutely
owing to Borrower and is not contingent in any respect or for any reason;

(e) There are no facts, events or occurrences which in any way
impair the validity or enforceability of any Accounts or tend to reduce the
amount payable under the Accounts from the face amount of the claim or invoice
and statements delivered to Lender with respect thereto;

(f) To the Borrower's knowledge, (i) the Account Debtor under
the Account had the capacity to contract at the time any contract or other
document giving rise to the Account was executed and (ii) such Account Debtor is
solvent;

(g) To the Borrower's knowledge, there are no proceedings or
actions which are threatened or pending against any Account Debtor under an
Account which might result in any material adverse change in such Account
Debtor's financial condition or the collectibility of such Account;

(h) It has been billed and forwarded to the Account Debtor for
payment in accordance with applicable laws and compliance and conformance with
any and requisite procedures, requirements and regulations governing payment by
such Account Debtor with respect to such Account, and such Account if due from a
Medicaid/Medicare Account Debtor is properly payable directly to Borrower; and

(i) Borrower has obtained and currently has all certificates
of need, Medicaid and Medicare provider numbers, licenses, permits and
authorizations that are necessary in the generation of such Accounts.

SECTION 4.20. SOLVENCY. Both before and after giving effect to the
transactions contemplated by the terms and provisions of this Agreement, (i) PMC
owns property whose fair saleable value is greater than the amount required to
pay all of PMC's Indebtedness (including contingent debts), (ii) PMC was and is
able to pay all of its Indebtedness as such Indebtedness matures, and (iii) PMC
had and has capital sufficient to carry on its business and transactions and all
business and transactions in which it about to engage. For purposes of this
Section 4.20, the term "Indebtedness" means, without duplication (x) all items
which in accordance with GAAP would be included in determining total liabilities
as shown on the liability side of a balance sheet of such PMC as of the date on
which

<PAGE>

Indebtedness is to be determined, (y) all obligations of any other person or
entity which such PMC has guaranteed, and (z) the Obligations.

SECTION 4.21. COMMISSIONS. The transaction contemplated by this
Agreement was brought about by Lender and Borrower acting as principals and
without any brokers, agents, or finders being the effective procuring cause.
Borrower represents that it has not committed Lender to the payment of any
brokerage fee, commission, or charge in connection with this transaction.

SECTION 4.22. INTELLECTUAL PROPERTY. Borrower exclusively owns or
possesses all the patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, franchises, licenses, and
rights with respect to the foregoing necessary for the current and planned
future conduct of its business, without any conflict with the rights of others.
A list of all such intellectual property (indicating the nature of Borrower's
interest), as well as all outstanding franchises and licenses given by or held
by Borrower, is attached as SCHEDULE 4.22. Borrower is not in default of any
obligation or undertaking with respect to such intellectual property or rights.

SECTION 4.23. MATERIAL FACTS. Neither this Agreement nor any other Loan
Document nor any other agreement, document, certificate, or statement furnished
to Lender by or on behalf of Borrower in connection with the transactions
contemplated hereby contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements contained in this
Agreement or other Loan Document not misleading. There is no fact known to
Borrower that adversely affects or in the future may adversely affect the
business, operations, affairs or financial condition of Borrower, or any of its
properties or assets.

SECTION 4.24. INVESTMENTS, GUARANTEES, AND CERTAIN CONTRACTS. Borrower
does not own or hold any equity or long-term debt investments in, have any
outstanding advances to, have any outstanding guarantees for the obligations of,
or have any outstanding borrowings from, any Person, except as described on
SCHEDULE 4.24. Borrower is not a party to any contract or agreement, or subject
to any corporate restriction, which adversely affects its business.

SECTION 4.25 JOINT VENTURES. Borrower is not engaged in any joint
venture or partnership with any other Person, except as set forth on SCHEDULE
4.25.

SECTION 4.26. YEAR 2000 COMPLIANCE.

(a) All devices, systems, machinery, information technology, computer
software and hardware, and other date sensitive technology (jointly and
severally, the "Systems") necessary for Borrower to carry on its business as
currently conducted and as contemplated to be conducted in the future are Year
2000 Compliant or will be Year 2000 Compliant within a period of time calculated
to result in no material disruption of any of Borrower's business operations.
For purposes of these provisions, "Year 2000 Compliant" means that such Systems
are designed to be used before, during and after the Gregorian calendar year
2000 A.D. and will operate during each such time period without error related to
date data, specifically including any error relating to, or the product of, date
data that represents or refers to different centuries or more than one century.

<PAGE>

(b) Borrower has: (i) undertaken a detailed inventory, review, and
assessment of all areas within its business and operations that could be
adversely affected by the failure of Borrower to be Year 2000 Compliant on a
timely basis; (ii) developed a detailed plan and time line for becoming Year
2000 Compliant on a timely basis; and (iii) to date, implemented that plan in
accordance with the timetable in all material respects.

ARTICLE V

CLOSING AND CONDITIONS OF LENDING

SECTION 5.1. CONDITIONS PRECEDENT TO AGREEMENT. The obligation of
Lender to enter into and perform this Agreement and to make Revolving Credit
Loans is subject to the following conditions precedent:

(a) Lender shall have received two (2) originals of this
Agreement and all other Loan Documents required to be executed and delivered at
or before Closing (other than the Note, as to which Lender shall receive only
one original), executed by Borrower and any other required Persons, as
applicable.

(b) Lender shall have received all searches and good standing
certificates required by Section 3.5.

(d) There shall exist no Event of Default and no event which,
with the giving of notice or the lapse of time, or both, could constitute such
an Event of Default.

(e) The representations and warranties contained in Article IV
shall be true and correct in all material respects.

(f) Lender shall have received copies of all board of
directors resolutions of Borrower, and other corporate action taken by Borrower
to authorize the execution, delivery and performance of the Loan Documents and
the borrowing of the Loan under the Loan Documents, as well as the names and
signatures of the officers of Borrower authorized to execute documents on its
behalf in connection herewith, all as also certified as of the date of this
Agreement by Borrower's chief financial officer, and such other papers as Lender
may reasonably require.

(g) Lender shall have received a copy of the charter documents
of each Borrower, with any amendments to any of the foregoing, certified by the
Secretary of State of the state of each such entity's formation, and copies,
certified as true, correct and complete by a corporate officer of Borrower, of
Borrower's bylaws and all other documents necessary for performance of the
obligations of Borrower under this Agreement and the other Loan Documents.

<PAGE>

(h) Lender shall have received a written opinion of counsel
for Borrower, dated the date of this Agreement, substantially in the form of
EXHIBIT C.

(i) Lender shall have received such financial statements,
reports, certifications, and other operational information required to be
delivered under this Agreement, including without limitation an initial
Borrowing Base Certificate calculating the Borrowing Base.

(j) Lender shall have received the remainder of the Commitment
Fee.

(k) The Lockbox and the Concentration Account shall have been
established.

(l) Lender shall have received a certificate of Borrower's
chief financial officer, dated the Closing Date, certifying that all of the
conditions specified in this Section have been fulfilled.

SECTION 5.2. CONDITIONS PRECEDENT TO ADVANCES. Notwithstanding any
other provision of this Agreement, no Loan proceeds, Revolving Credit Loans,
advances or other extensions of credit under the Loan shall be disbursed under
this Agreement unless the following conditions have been satisfied or waived
immediately prior to such disbursement:

(a) The representations and warranties on the part of Borrower
contained in Article IV of this Agreement shall be true and correct in all
material respects at and as of the date of disbursement or advance, as though
made on and as of such date (except to the extent that such representations and
warranties expressly relate solely to an earlier date and except that the
references in Section 4.7 to financial statements shall be deemed to be a
reference to the then most recent annual and interim financial statements of PMC
furnished to Lender pursuant to Section 6.1).

(b) No Event of Default or event which, with the giving of
notice of the lapse of time, or both, could become an Event of Default shall
have occurred and be continuing or would result from the making of the
disbursement or advance.

(c) Except as set forth in the Business Plan, no event shall
have occurred and be continuing with respect to PMC since the date of this
Agreement that has had or is likely to have a Material Adverse Effect.

SECTION 5.3. CLOSING. Subject to the conditions of this Article V, the
Loan shall be made available on the date as is mutually agreed by the parties
(the "Closing Date") at such time as may be mutually agreeable to the parties
upon the execution of this Agreement (the "Closing") at such place as may be
requested by Lender.

SECTION 5.4. WAIVER OF RIGHTS. By completing the Closing under this
Agreement, or by making advances under the Loan, Lender does not waive a breach
of any representation or warranty of Borrower under this Agreement or under any
other Loan Document, and all of Lender's claims and rights resulting from any
breach or misrepresentation by Borrower are specifically reserved by Lender.
<PAGE>

SECTION 5.5. LENDER'S SATISFACTION. All instruments and legal documents
and proceedings in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory in form and substance to Lender and
its counsel, and Lender shall have received all documents, including records of
corporate proceedings and opinions of counsel, which Lender may have requested
in connection therewith.

ARTICLE VI

AFFIRMATIVE COVENANTS

Each entity comprising Borrower covenants and agrees that for so long
as Borrower may borrow under this Agreement and until payment in full of the
Note and performance of all other obligations of Borrower under the Loan
Documents:

SECTION 6.1. FINANCIAL STATEMENTS AND COLLATERAL REPORTS. PMC will
furnish to Lender (i) a collections report and accounts receivable aging
schedule on a form acceptable to Lender within fifteen (15) days after the end
of each calendar month, which shall include, but not be limited to, a report of
credits issued, and collections received; (ii) accounts payable aging schedules
within fifteen (15) days after the end of each calendar month; (iii) internally
prepared monthly financial statements for PMC, certified by the chief financial
officer of PMC, within forty-five (45) days of the end of each calendar month;
(iv) annual audited financial statements for PMC prepared by
PricewaterhouseCoopers, or another firm of independent public accountants
reasonably satisfactory to Lender, within one hundred thirty-five (135) days
after the end of each of PMC's fiscal years; (v) promptly upon receipt thereof,
copies of any reports submitted to PMC by the independent accountants in
connection with any interim audit of the books of PMC and copies of each
management control letter provided to PMC by independent accountants; (vi) as
soon as available, copies of all financial statements and notices provided by
PMC to all of its stockholders; and (vii) such additional information, reports
or statements as Lender may from time to time request. Annual financial
statements shall set forth in comparative form figures for the corresponding
periods in the prior fiscal year. All financial statements shall include a
balance sheet and statement of earnings and shall be prepared in accordance with
GAAP (except that unaudited financial statements need not include all necessary
notes to financials).

SECTION 6.2. PAYMENTS UNDER THIS AGREEMENT. Borrower will make all
payments of principal, interest, fees, and all other payments required under
this Agreement and under the Loan, as and when due.

SECTION 6.3. EXISTENCE, GOOD STANDING, AND COMPLIANCE WITH LAWS.
Borrower will do or cause to be done all things necessary (i) to obtain and keep
in full force and effect all corporate existence, rights, licenses, privileges,
and franchises of Borrower necessary to the ownership of its property or the
conduct of its business, and comply in all material respects with all applicable
current and future laws, ordinances, rules, regulations, orders and decrees of
any Governmental Authority having or claiming jurisdiction over Borrower; and
(ii) to maintain and protect the properties used

<PAGE>

in the conduct of the operations of Borrower, in a prudent manner, including
without limitation the maintenance at all times of such insurance upon its
insurable property and operations as required by law or by Section 6.6.

SECTION 6.4. LEGALITY. The making of the Loan and each disbursement or
advance under the Loan shall not be subject to any penalty or special tax, shall
not be prohibited by any governmental order or regulation applicable to
Borrower, and shall not violate any rule or regulation of any Governmental
Authority, and all necessary consents, approvals and authorizations of any
Governmental Authority to or of any such disbursement or advance that are
obtainable by Borrower shall have been obtained.

SECTION 6.5. TAXES AND CHARGES. Borrower will timely file all tax
reports and pay and discharge all taxes, assessments and governmental charges or
levies imposed upon Borrower, or its income or profits or upon its properties or
any part thereof, before the same shall be in default and prior to the date on
which penalties attach thereto, as well as all lawful claims for labor,
material, supplies or otherwise which, if unpaid, might become a lien or charge
upon the properties or any part thereof of Borrower and could reasonably be
likely to have a Material Adverse Effect; PROVIDED, HOWEVER, that Borrower shall
not be required to pay and discharge or cause to be paid and discharged any such
tax, assessment, charge, levy or claim so long as the validity or amount thereof
shall be contested in good faith and by appropriate proceedings by Borrower, and
Borrower shall have set aside on their books adequate reserve therefor to the
extent required by GAAP; and PROVIDED FURTHER, that such deferment of payment is
permissible only so long as Borrower's title to, and its right to use, the
Collateral is not adversely affected thereby and Lender's lien and priority on
the Collateral are not adversely affected, altered or impaired thereby.
Notwithstanding the foregoing, Borrower shall timely file all payroll tax
reports and timely pay all payroll taxes imposed on Borrower.

SECTION 6.6. INSURANCE. Borrower will carry adequate public liability
and professional liability insurance with responsible companies reasonably
satisfactory to Lender in such amounts and against such risks as is customarily
maintained by similar businesses and by owners of similar property in the same
general area.

SECTION 6.7. GENERAL INFORMATION. Borrower will furnish to Lender such
information as Lender may, from time to time, reasonably request with respect to
the business or financial affairs of Borrower, and, from time to time, permit
any officer, employee or agent of Lender to visit and inspect any of the
properties, and to inspect, audit and make extracts from the minute books, books
of account and other records, including management letters prepared by
Borrower's auditors, of Borrower, and make copies thereof or extracts therefrom,
and to discuss its and their assets, liabilities, business prospects, results of
operation, business affairs, finances, and accounts with, and be advised as to
the same by, the independent accountants and the employees and officers of
Borrower, all at such reasonable times and as often as Lender may reasonably
require.

SECTION 6.8 NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE DEVELOPMENTS.
Borrower promptly will notify Lender upon the occurrence of: (i) any Event of
Default; (ii) any event which, with the giving of notice or lapse of time, or
both, could constitute an Event of Default; (iii) any material adverse event,
not reflected or reserved against in the latest set of financial statements that

<PAGE>

were certified by Borrower's chief financial officer and furnished to Lender;
(iv) any judicial, administrative or arbitration proceeding pending against
Borrower, and any judicial or administrative proceeding known by Borrower to be
threatened against it which, if adversely decided, could reasonably be likely to
have a Material Adverse Effect; (v) any material default claimed by any other
creditor for Borrowed Money of Borrower other than Lender; in each case
describing the nature of such default and (in the case of notification under
clauses (i) and (ii)) the action Borrower proposes to take with respect thereto.

SECTION 6.9. FINANCIAL RECORDS. Borrower shall keep current and
accurate books of records and accounts in which full and correct entries will be
made of all of its business transactions, and will reflect in its financial
statements adequate accruals and appropriations to reserves, all in accordance
with GAAP.

SECTION 6.10. COLLECTION OF ACCOUNTS. Borrower shall continue to
collect its Accounts in the ordinary course of business, with such changes in
collection procedure as are contemplated by this Agreement (e.g., the Lockbox).

SECTION 6.11. PLACES OF BUSINESS. Borrower shall give thirty (30) days'
prior written notice to Lender of any change in the location of any of its
places of business, of the places where its records concerning its Accounts are
kept, of the places where the Collateral is kept, or of the establishment of any
new, or the discontinuance of any existing, places of business.

SECTION 6.12. BUSINESS CONDUCTED. Borrower shall continue in the
business presently conducted by it using its best efforts to maintain its
customers and goodwill. Without at least thirty (30) days' prior written notice
to Lender, Borrower shall not engage, directly or indirectly, in any line of
business substantially different from the business conducted by it immediately
prior to the Closing Date, or engage in business or lines of business which are
not reasonably related thereto. Notwithstanding the foregoing, if PhyMatrix
determines to dispose of physician practices or other operating entities
pursuant to the terms of the Business Plan (which shall not include the
disposition of any entity engaged in the business of providing site management
or clinical research services), then, so long as (i) Borrower notifies Lender of
such disposition at least five (5) Business Days before the expected closing
date of such disposition, and (ii) no Event of Default has occurred and is
continuing under this Agreement or the Affiliated Loan Agreements, and (iii) the
proceeds of such disposition will be used to pay down the Obligations
attributable to the business being disposed of (as reflected on the most recent
Borrowing Base), then Lender shall take all reasonable steps necessary to
consent to such disposition(s) and to release its liens on any assets being
disposed of in connection with such disposition(s), upon receipt of the
disposition proceeds. If an Event of Default has occurred and is continuing,
then the proceeds of any such disposition, even if related to Tangible
Collateral, shall be used to pay down the Obligation.

SECTION 6.13. LITIGATION AND OTHER PROCEEDINGS. Borrower shall give
prompt notice to Lender of any litigation, arbitration or other proceeding
before any Governmental Authority against or affecting Borrower if a judgment,
award or decision against Borrower in such proceeding could have a Material
Adverse Effect on Borrower's financial condition or operations.

<PAGE>

SECTION 6.14. SUBMISSION OF COLLATERAL DOCUMENTS. Borrower will, on
demand of Lender, make available to Lender copies of documents evidencing the
providing of Services giving rise to Accounts, a copy of the claim or invoice
for each Account and copies of any written contract or order from which the
Account arose.

SECTION 6.15. EMPLOYEE BENEFIT PLANS. Borrower will (i) comply in all
material respects with the funding requirements of ERISA with respect to the
Plans for its employees, or will promptly satisfy any accumulated funding
deficiency that arises under Section 302 of ERISA; (ii) furnish Lender, promptly
after filing the same, with copies of all reports or other statements filed with
the United States Department of Labor, the Pension Benefit Guaranty Corporation,
or the Internal Revenue Service with respect to all Plans, or which Borrower, or
any member of a Controlled Group, may receive from such Governmental Authority
with respect to any such Plans, and (iii) promptly advise Lender of the
occurrence of any Reportable Event or Prohibited Transaction with respect to any
such Plan and the action which Borrower proposes to take with respect thereto.
Borrower will make all contributions when due with respect to any multi-employer
pension plan in which it participates and will promptly advise Lender: (i) upon
its receipt of notice of the assertion against Borrower of a claim for
withdrawal liability; (ii) upon the occurrence of any event which could trigger
the assertion of a claim for withdrawal liability against Borrower; and (iii)
upon the occurrence of any event which would place Borrower in a Controlled
Group as a result of which any member of such Controlled Group (including
Borrower) may be subject to a claim for withdrawal liability, whether liquidated
or contingent.

SECTION 6.16. FINANCING STATEMENTS. Borrower shall provide to Lender
evidence satisfactory to Lender as to the due recording of termination
statements, releases of collateral, and Forms UCC-3, and shall cause to be
recorded financing statements on Form UCC-1, duly executed by Borrower and
Lender, in all places necessary to release all existing security interests and
other liens in the Collateral (other than as permitted hereby) and to perfect
and protect Lender's first priority lien and security interest in the
Collateral, as Lender may request.

SECTION 6.17. CASH COLLATERAL. At all times during the term of this
Agreement and the Affiliated Loan Agreements, PMC shall maintain aggregate
minimum cash collateral of Two Million and No/100 Dollars ($2,000,000.00),
unless a higher minimum amount is required pursuant to Section 7.7 (the "Minimum
Cash Collateral"). The Minimum Cash Collateral shall be held in one or more bank
accounts identified to and approved by Lender in the exercise of its reasonable
discretion. Borrower agrees to provide to Lender evidence of the maintenance of
the Minimum Cash Collateral at least monthly and more frequently upon Lender's
reasonable request. The Minimum Cash Collateral shall be the aggregate cash
collateral required by this Agreement and the Affiliated Loan Agreements taken
as a whole.

SECTION 6.18. LICENSURE; MEDICAID/MEDICARE COST REPORTS. Borrower will
maintain all certificates of need, provider numbers and licenses necessary to
conduct its business as currently conducted, and take any steps required to
comply with any such new or additional requirements that may be imposed on
providers of medical products and services. If required, all Medicaid/Medicare
cost reports will be properly filed.

<PAGE>

SECTION 6.19. OFFICER'S CERTIFICATES. Together with the monthly
financial statements delivered pursuant to clause (iii) of Section 6.1, and
together with the audited annual financial statements delivered pursuant to
clause (iv) of that Section, Borrower shall deliver to Lender a certificate of
its chief financial officer, in form and substance reasonably satisfactory to
Lender. The certificate shall state that the signer has reviewed the relevant
terms of this Agreement, and has made (or caused to be made under his
supervision) a review of the transactions and conditions of Borrower from the
beginning of the accounting period covered by the income statements being
delivered to the date of the certificate, and that such review has not disclosed
the existence during such period of any condition or event which constitutes an
Event of Default or which is then, or with the passage of time or giving of
notice or both, could become an Event of Default, and if any such condition or
event existed during such period or now exists, specifying the nature and period
of existence thereof and what action Borrower has taken or proposes to take with
respect thereto.

ARTICLE VII

NEGATIVE COVENANTS

Borrower covenants and agrees that so long as Borrower may borrow under
this Agreement and until payment in full of the Note and performance of all
other obligations of Borrower under the Loan Documents:

SECTION 7.1. BORROWING. Borrower will not:

(a) create, incur, assume or suffer to exist any liability for
accounts payable to trade creditors and current operating expenses (other than
for borrowed money) which are aged more than one hundred eighty (180) days from
the billing date or more than sixty (60) days from the due date, in each case
incurred in the ordinary course of business and paid within such time period,
unless the same are being contested in good faith and by appropriate and lawful
proceedings, and Borrower shall have set aside such reserves, if any, with
respect thereto as are required by GAAP and deemed adequate by Borrower and its
independent accountants;

(b) create, incur, assume or suffer to exist any liability for
Borrowed Money ("Indebtedness") except

(i) liabilities created by or pursuant to this
Agreement;

(ii) existing Indebtedness on the date of this
Agreement, as set forth on SCHEDULE 7.1, including any extensions or renewals of
the Indebtedness (provided that there is no increase in the amount of such
Indebtedness or other significant change in the terms of such Indebtedness);

<PAGE>

(iii) Indebtedness of (A) any direct or indirect
subsidiary of PMC to another subsidiary of PMC, and (B) of PMC to any such
subsidiary, in each case where such subsidiary is a Borrower under this
Agreement or under one of the Affiliated Loan Agreements;

(iv) Indebtedness (A) that is secured by purchase
money security interests not exceeding the lesser of $3,000,000.00 or two
percent (2%) of PMC's tangible assets on a consolidated basis, (B) that is
incurred in connection with interest rate protection agreements, (C) that is
incurred as a result of the assumption of liabilities in an acquisition, and (D)
that is expressly subordinated to the Obligations pursuant to written terms
reasonably acceptable to Lender, but the aggregate of all such Indebtedness
described in this subparagraph shall not at any time exceed $25,000,000.00;
PROVIDED, HOWEVER, that so long as PMC's cash balance is and continues to be in
excess of the Overall Maximum Loan Amount, the $25,000,000.00 limit may be
increased as follows: for each one dollar ($1.00) of such excess, the maximum
aggregate Indebtedness may increase by fifty cents ($0.50).

(c) except as set forth on SCHEDULE 7.1, make prepayments over
$1,000,000 on any existing or future indebtedness for Borrowed Money to any
Person (other than Lender, to the extent permitted by this Agreement or any
subsequent agreement between Borrower and Lender).

Any permitted Indebtedness, prepayment or other exception set forth above shall
be permitted to be created only so long as no Event of Default has occurred and
is continuing under this Agreement at the time of such creation and shall be
prohibited after the occurrence and during the continuance of any Event of
Default.

SECTION 7.2 JOINT VENTURES. Borrower will not invest directly or
indirectly in any joint venture in which a Person other than an Affiliate of PMC
is a joint venturer for any purpose without compliance with the following
conditions: (i) if the amount of a single investment is less than or equal to
$2,500,000, then Borrower need not notify or obtain the prior consent of Lender;
(ii) if the amount of a single investment is more than $2,500,000 and Lender
will receive a first priority lien on all of the assets of the joint venture,
then Borrower shall notify Lender of the proposed investment within three (3)
Business Days before the effective date of the investment; (iii) if the amount
of a single investment is more than $2,500,000 and Lender will not receive a
first priority lien on the assets of the joint venture, then Borrower shall
obtain the prior written consent of Lender, which consent shall not be
unreasonably withheld; and (iv) if Borrower invests more than $5,000,000 in the
aggregate in joint ventures during the Term, then in all cases Borrower shall
obtain Lender's prior written consent for further investments, which consent
shall not be unreasonably withheld.

SECTION 7.3. LIENS AND ENCUMBRANCES. Borrower will not create, incur,
assume or suffer to exist any pledge, lien or other encumbrance of any kind
(including the charge upon property purchased under a conditional sale or other
title retention agreement) upon, or any security interest in, any of the
Receivables-Related Collateral, whether now owned or hereafter acquired, except
for Permitted Liens.

<PAGE>

liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution); or (iii) convey, sell, lease, sublease, transfer or otherwise
dispose of, in one transaction or a series of transactions, any of the
Receivables-Related Collateral, whether now owned or hereafter acquired, or any
other substantial portion of the assets and a business operation, without prior
notice to, and the prior written consent of, Lender, which consent shall not be
unreasonably withheld. Moreover, Borrower will not acquire by purchase or
otherwise all or any substantial part of the business or assets of, or stock or
other evidence of beneficial ownership of, any Person unless (x) Lender is
granted a first priority lien on such assets, (y) no Event of Default has
occurred and is continuing under this Agreement, and (z) (A) for transactions
greater than $1,000,000.00, Lender is provided with prior written notice of such
transaction, and (B) for transactions aggregating more than $10,000,000 during
the Term, Lender is provided with prior notice of such transaction and gives its
prior written consent to such transaction, which consent shall not be
unreasonably withheld. Borrower further agrees that in addition to all other
remedies available to Lender, Lender shall be entitled to specific enforcement
of the covenants in this Section 7.4, including injunctive relief.

SECTION 7.5 SALE AND LEASEBACK. Borrower will not, directly or
indirectly, enter into any arrangement whereby Borrower sells or transfers all
or any part of its assets and within one year thereafter rents or leases the
assets so sold or transferred without prior written notice to, and the prior
written consent of, Lender, which consent shall not be unreasonably withheld.

SECTION 7.6. TRANSACTIONS WITH AFFILIATES. Other than as set forth in
SCHEDULE 7.6, Borrower will not enter into any material transaction, including
without limitation the purchase, sale, or exchange of property, or the loaning
or giving of a material amount of funds to any Affiliate or subsidiary, except
in the ordinary course of business and pursuant to the reasonable requirements
of Borrower's business and upon terms substantially the same and no less
favorable to Borrower as it would obtain in a comparable arm's length
transaction with any Person not an Affiliate or subsidiary, and so long as the
transaction does not impair the Collateral or Lender's interest in the
Collateral. For purposes of the foregoing, Lender consents to the transactions
described on SCHEDULE 7.6.

SECTION 7.7. LOANS. Borrower will not make loans or advances to any
Person, other than (i) trade credit extended in the ordinary course of its
business, and (ii) advances for business travel and similar temporary advances
in the ordinary course of business to officers, stockholders, directors, and
employees, (iii) loans or advances to direct or indirect subsidiaries of
PhyMatrix, or (iv) without the prior written consent of Lender, which consent
shall not be unreasonably withheld, loans or advances (A) which are not
otherwise specifically permitted under this Agreement, (B) which have been
presented to Lender by Borrower to determine if Lender will fund the loan or
advance under this Agreement or the Affiliated Loan Agreements, (C) which Lender
determines within ten (10) Business Days of such presentation that it will not
fund, and (D) which do not exceed an aggregate of $5,000,000 outstanding at any
time. If such a loan or advance is made by Borrower to any such Person, then
Borrower shall increase the amount of cash collateral required to be maintained
pursuant to the provisions of Section 6.17 by one dollar ($1.00) for each one
dollar ($1.00) being loaned or advanced by Borrower.

<PAGE>

SECTION 7.8. CONTINGENT LIABILITIES. Borrower will not assume,
guarantee, endorse, contingently agree to purchase or otherwise become liable
upon the obligation of any Person, except with respect to (i) the endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business, (ii) liabilities of direct or indirect subsidiaries
of PhyMatrix, (iii) those items set forth on SCHEDULE 7.8, or (iv) any liability
of a Person not otherwise permitted hereunder in the aggregate that when
combined, without duplication, with the new Indebtedness to be permitted under
Section 7.1 , does not exceed the maximum Indebtedness cap set forth in Section
7.1.

SECTION 7.9. COMPLIANCE WITH ERISA. Borrower will not permit with
respect to any Plan covered by Title IV of ERISA any Prohibited Transaction or
any Reportable Event.

SECTION 7.10. USE OF LENDER'S NAME. Borrower will not use Lender's name
(or the name of any of Lender's affiliates) in connection with any of its
business operations. Borrower may disclose to third parties that Borrower has a
borrowing relationship with Lender. Nothing contained in this Agreement is
intended to permit or authorize Borrower to make any contract on behalf of
Lender.

SECTION 7.11. CONTRACTS AND AGREEMENTS. Borrower will not become or be
a party to any contract or agreement which would breach this Agreement, or
breach in any material manner any other instrument, agreement, or document to
which Borrower is a party or by which it is or may be bound.

SECTION 7.12. DIVIDENDS AND DISTRIBUTION. PMC will not declare or pay
any dividends or other distributions with respect to, purchase, redeem or
otherwise acquire for value any of its outstanding stock now or hereafter
outstanding, or return any capital of its stockholders, where such payment,
purchase, redemption or acquisition would have a Material Adverse Effect,
without prior notice to and the prior written consent of Lender, which consent
will not be unreasonably withheld; provided, however, that so long as no Event
of Default has occurred and is continuing, no such consent shall be required for
(i) any stock dividend, or (ii) any repurchase of PMC's stock by PMC that does
not use the proceeds of a Loan to pay the purchase price therefor. After an
Event of Default has occurred and while it is continuing, Borrower shall make no
such declarations, payments, purchases, redemptions or acquisitions for value.

ARTICLE VIII

EVENTS OF DEFAULT

SECTION 8.1. EVENTS OF DEFAULT. Each of the following (individually, an
"Event of Default" and collectively, the "Events of Default") shall constitute
an event of default under this Agreement:

<PAGE>

2.3 of this Agreement, which default or breach, as applicable, shall have
continued unremedied for a period of five (5) days after written notice thereof
from Lender to Borrower;

(b) A default in the payment of any other charges, fees, or
other monetary obligations owing to Lender arising out of or incurred in
connection with this Agreement when such payment is due and payable, which
default shall have continued unremedied for a period of five (5) days after
written notice from Lender;

(c) A default in the due observance or performance by Borrower
of any other term, covenant or agreement contained in any of the Loan Documents,
which default shall have continued unremedied for a period of thirty (30) days
after written notice from Lender;

(d) Any representation or warranty made by Borrower in this
Agreement or in any of the other Loan Documents, any financial statement, or any
statement or representation made in any other certificate, report or opinion
delivered in connection herewith or therewith proves to have been incorrect or
misleading in any material respect when made, which default shall have continued
unremedied for a period of thirty (30) days after written notice from Lender;

(e) Any material obligation of Borrower (other than its
Obligations under this Agreement) for the payment of Borrowed Money is not paid
when due or within any applicable grace period, or such obligation becomes or is
declared to be due and payable prior to the expressed maturity thereof;

(f) Borrower makes an assignment for the benefit of creditors,
offers a composition or extension to creditors, or makes or sends notice of an
intended bulk sale of any business or assets now or hereafter conducted by
Borrower;

(g) Borrower files a petition in bankruptcy, is adjudicated
insolvent or bankrupt, petitions or applies to any tribunal for any receiver of
or any trustee for itself or any substantial part of its property, commences any
proceeding relating to itself under any reorganization, arrangement,
readjustment or debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or there is commenced against
Borrower any such proceeding which remains undismissed for a period of sixty
(60) days, or any Borrower by any act indicates its consent to, approval of, or
acquiescence in, any such proceeding or the appointment of any receiver of or
any trustee for a Borrower or any substantial part of its property, or suffers
any such receivership or trusteeship to continue undischarged for a period of
sixty (60) days;

(h) One or more final judgments against Borrower or
attachments against its property not fully and unconditionally covered by
insurance or indemnity shall be rendered by a court of record and shall remain
unpaid, unstayed on appeal, undischarged, unbonded and undismissed for a period
of thirty (30) days where such judgment may have a Material Adverse Effect;

<PAGE>

deficiency, has occurred and is continuing thirty (30) days after its
occurrence, or any such Plan is terminated, or a trustee is appointed by an
appropriate United States District Court to administer any such Plan, or the
Pension Benefit Guaranty Corporation institutes proceedings to terminate any
such Plan or to appoint a trustee to administer any such Plan, or a lien or
encumbrance is entered to secure any deficiency or claim;

(j) A Change of Control has occurred;

(k) The Collateral is attached, seized, levied upon or
subjected to a writ or distress warrant, or comes within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors and the
same is not cured within sixty (60) days thereafter or a notice of lien, levy or
assessment is filed of record with respect to the Collateral by the United
States, or any department, agency or instrumentality thereof, or by any state,
county, municipal or other governmental agency, or if any taxes or debts owing
at any time or times hereafter to any one of these becomes a lien or encumbrance
upon the Collateral and the same is not released within thirty (30) days after
the same becomes a lien or encumbrance; PROVIDED, that Borrower shall have the
right to contest in good faith and by appropriate proceedings any such lien,
levy or assessment if Borrower provides Lender with a bond or indemnity
satisfactory to Lender assuring the payment of such lien, levy or assessment;

(l) Lender receives substantial credible evidence that
Borrower may have been involved in an activity that has a reasonable likelihood
of causing the forfeiture of all or any part of the Collateral to any
Governmental Authority, where Lender has notified Borrower in writing of the
receipt of such evidence, and Borrower has not provided assurance, satisfactory
to Lender in its reasonable discretion, that such activity will not result in
such forfeiture;

(m) Borrower or any Affiliate of Borrower, shall challenge or
contest, in any action, suit or proceeding, the validity or enforceability of
this Agreement, or any of the other Loan Documents, the legality or the
enforceability of any of the Obligations or the perfection or priority of any
Lien granted to Lender;

(n) Borrower shall be criminally indicted or convicted under
any law where the conviction has a reasonable likelihood of causing a forfeiture
of any Collateral;

(o) There shall occur an event that Lender has determined in
its reasonable discretion has a Material Adverse Effect and such event continues
unremedied for a period of thirty (30) days after written notice from Lender; or

(p) Borrower ceases any material portion of its business
operations as currently conducted except as set forth in the Business Plan.

(q) An Event of Default shall have occurred under either of
the Affiliated Loan Agreements.

SECTION 8.2. ACCELERATION. Upon the occurrence of any of the foregoing
Events of Default, the Note shall become and be immediately due and payable upon
declaration to that effect delivered

<PAGE>

by Lender to Borrower; provided that, upon the happening of any event specified
in Section 8.1(g), the Note shall be immediately due and payable without
declaration or other notice to Borrower.

SECTION 8.3. REMEDIES.

(a) In addition to all other rights, options, and remedies
granted to Lender under this Agreement or at law or in equity, upon the
occurrence of an Event of Default, Lender may (i) terminate the Loan, whereupon
all outstanding Obligations shall be immediately due and payable, (ii) exercise
all other rights and remedies granted to it under this Agreement and all rights
under the Uniform Commercial Code in effect in the applicable jurisdiction(s)
and under any other applicable law, and (iii) exercise all rights and remedies
under all Loan Documents now or hereafter in effect, including but not limited
to the following rights and remedies:

(i) The right to take possession of, send notices
regarding, and collect directly the Collateral, with or without judicial
process; and

(ii) The right to reduce the Maximum Loan Amount or
to use the Collateral and/or funds in the Concentration Account in amounts up to
the Maximum Loan Amount for any reason related to the Loan;

(b) Borrower agrees that a notice received by it at least
thirty (30) days before the time of any intended public sale, or the time after
which any private sale or other disposition of the Collateral is to be made,
shall be deemed to be reasonable notice of such sale or other disposition. At
any sale or disposition of Collateral, Lender may (to the extent permitted by
applicable law) purchase all or any part of the Collateral, free from any right
of redemption by Borrower, which right is hereby waived and released to the
extent permitted by applicable law. Borrower covenants and agrees not to
interfere with or impose any obstacle to Lender's exercise of its rights and
remedies with respect to the Collateral except to the extent required by
applicable law.

SECTION 8.4. NATURE OF REMEDIES. Lender shall have the right to proceed
against all or any portion of the Collateral to satisfy in any order, (i) the
liabilities and Obligations of Borrower to Lender or (ii) upon the occurrence of
an Event of Default under either of the Affiliated Loan Agreements, the
liabilities and obligations of Affiliated Borrowers under the Affiliated Loan
Agreements. To the extent permitted by applicable law, all rights and remedies
granted Lender under this Agreement and under any agreement referred to in this
Agreement, or otherwise available at law or in equity, shall be deemed
concurrent and cumulative, and not alternative remedies, and Lender may proceed
with any number of remedies at the same time until the Loans, and all other
existing and future liabilities and obligations of Borrower to Lender, are
satisfied in full. The exercise of any one right or remedy shall not be deemed a
waiver or release of any other right or remedy, and Lender, upon the occurrence
of an Event of Default, may proceed against Borrower, and/or the Collateral, at
any time, under any agreement, with any available remedy and in any order.

SECTION 8.5. LIMITATION ON REMEDIES. Notwithstanding anything to the
contrary elsewhere in this Agreement, Lender shall proceed against the Tangible
Collateral only upon an Event of Default identified in Section 8.1 (a), (b),
(f), (g) or (o).

<PAGE>

ARTICLE IX

MISCELLANEOUS

SECTION 9.1. EXPENSES AND TAXES.

(a) Borrower agrees to pay, whether or not the Closing occurs,
a reasonable documentation preparation fee, together with actual audit fees and
all other out-of-pocket charges and expenses incurred by Lender in connection
with the negotiation, preparation, legal review and execution of each of the
Loan Documents, including but not limited to UCC and judgment lien searches and
UCC filings and fees for post-Closing UCC and judgment lien searches. In
addition, Borrower shall pay all such fees associated with any amendments to the
Loan Documents following Closing.

(b) Borrower also agrees to pay all out-of-pocket charges and
expenses incurred by Lender (including the fees and expenses of Lender's
counsel) in connection with the enforcement, protection or preservation of any
right or claim of Lender and the collection of any amounts due under the Loan
Documents. If Lender uses in-house counsel for any of these purposes (i.e., for
any task in connection with the enforcement, protection or preservation of any
right or claim of Lender and the collection of any amounts due under its Loan
Documents), Borrower further agrees that its Obligations under the Loan
Documents include reasonable charges for such work commensurate with the fees
that would otherwise be charged by outside legal counsel selected by Lender for
the work performed.

(c) Borrower shall pay all taxes (other than taxes based upon
or measured by Lender's income or revenues or any personal property tax), if
any, in connection with the issuance of the Note and the recording of the
security documents therefor. The obligations of Borrower under this clause (c)
shall survive the payment of Borrower's indebtedness under this Agreement and
the termination of this Agreement.

SECTION 9.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other
Loan Documents constitute the full and entire understanding and agreement among
the parties with regard to their subject matter and supersede all prior written
or oral agreements, understandings, representations and warranties made with
respect thereto. No amendment, supplement or modification of this Agreement nor
any waiver of any provision of this Agreement shall be made except in writing
executed by the party against whom enforcement is sought.

<PAGE>

exercise of such right, power or remedy or the exercise of any other right,
power or remedy. The remedies provided for in this Agreement are cumulative and
are not exclusive of any remedies that may be available to any party hereto at
law, in equity or otherwise.

SECTION 9.4. NOTICES. Any notice or other communication required or
permitted under this Agreement shall be in writing and personally delivered,
mailed by registered or certified mail (return receipt requested and postage
prepaid), sent by telecopier (with a confirming copy sent by regular mail), or
sent by prepaid overnight courier service, and addressed to the relevant party
at its address set forth below, or at such other address as such party may, by
written notice, designate as its address for purposes of notice under this
Agreement:

If to Lender, at:

HCFP Funding, Inc.
2 Wisconsin Circle, 4th floor
Chevy Chase, Maryland 20815
Attention: Ethan D. Leder, President
Telephone: (301) 961-1640
Telecopier: (301) 664-9860

If to Borrower, at:

PhyMatrix Corp.
110 Cedar Street, 1st floor
Wellesley, Massachusetts 02481
Attention: Mr. Fred Leathers, Chief Financial Officer
Telephone: (781) 416-5100
Telecopier: (781) 416-2776

With a copy to:

Nutter, McClennen & Fish, LLP
One International Place
Boston, Massachusetts 02110-2699
Attention: Paul R. Eklund, Esquire
Telephone: (617) 439-2000
Telecopier: (617) 973-9748

If mailed, notice shall be deemed to be given five (5) Business Days after being
sent, and if sent by personal delivery, telecopier, or prepaid courier, notice
shall be deemed to be given when delivered.

<PAGE>

term, covenant or condition shall be valid and enforced to the fullest extent
permitted by law. Upon determination that any such term is invalid, illegal or
unenforceable, Lender may, but is not obligated to, advance funds to Borrower
under this Agreement until the parties shall amend this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner.

SECTION 9.6. SUCCESSORS AND ASSIGNS. This Agreement, the Note, and the
other Loan Documents shall be binding upon and inure to the benefit of Borrower
and Lender and their respective successors and assigns. Notwithstanding the
foregoing, Borrower may not assign any of its rights or delegate any of its
obligations under this Agreement without the prior written consent of Lender,
which may be withheld in its sole discretion. Lender may sell, assign or
transfer any or all of its rights or obligations under this Agreement without
notice to or consent of Borrower, so long as the purchaser, assignee or
transferee is a financial institution or an entity engaged wholly or
substantially in the business of making commercial loans.

SECTION 9.7. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one instrument.

SECTION 9.8. INTERPRETATION. No provision of this Agreement or any
other Loan Document shall be interpreted or construed against any party because
that party or its legal representative drafted that provision. The titles of the
paragraphs of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement. Any pronoun used in this
Agreement shall be deemed to include singular and plural and masculine, feminine
and neuter gender as the case may be. The words "herein," "hereof," and
"hereunder" shall be deemed to refer to this entire Agreement, except as the
context otherwise requires.

SECTION 9.9. SURVIVAL OF TERMS. All covenants, agreements,
representations and warranties made in this Agreement, any other Loan Document,
and in any certificates and other instruments delivered in connection therewith
shall be considered to have been relied upon by Lender and shall survive the
making by Lender of the Loans contemplated in this Agreement and the execution
and delivery to Lender of the Note, and shall continue in full force and effect
until all liabilities and obligations of Borrower to Lender are satisfied in
full.

SECTION 9.10. TIME. Whenever Borrower is required to make any payment
or perform any act on a day that is not a Business Day, the payment may be made
or the act performed on the next Business Day. Time is of the essence in
Borrower's performance under this Agreement and all other Loan Documents.

SECTION 9.11. COMMISSIONS. If any claim for commission, brokerage fee
or charge is made on Lender by any broker, finder, or agent or other person,
Borrower will indemnify, defend, and hold Lender harmless from and against the
claim and will defend any action to recover on that claim, at Borrower's cost
and expense, including Lender's counsel fees. Borrower further agrees that until
any such claim or demand is adjudicated in Lender's favor, the amount demanded
will be deemed a liability of Borrower under this Agreement, secured by the
Collateral.

<PAGE>

SECTION 9.12. THIRD PARTIES. No rights are intended to be created under
this Agreement or under any other Loan Document for the benefit of any third
party donee, creditor, or incidental beneficiary of Borrower. Nothing contained
in this Agreement shall be construed as a delegation to Lender of Borrower's
duty of performance, including without limitation Borrower's duties under any
account or contract in which Lender has a security interest.

SECTION 9.13. DISCHARGE OF BORROWER'S OBLIGATIONS. Lender, in its sole
discretion, shall have the right at any time, and from time to time, without
prior notice to Borrower if Borrower fails to do so, to: (i) obtain insurance
covering any of the Collateral as required under this Agreement; (ii) pay for
the performance of any of Borrower's obligations under this Agreement; (iii)
discharge taxes, liens, security interests, or other encumbrances at any time
levied or placed on any of the Collateral in violation of this Agreement unless
Borrower is in good faith with due diligence by appropriate proceedings
contesting those items. Expenses and advances shall be added to the Loan, until
reimbursed to Lender and shall be secured by the Collateral. Any such payments
and advances by Lender shall not be construed as a waiver by Lender of an Event
of Default.

SECTION 9.14. INFORMATION TO PARTICIPANTS. Lender may divulge to any
participant it may obtain in the Loan, or any portion of the Loan, all
information, and furnish to such participant copies of reports, financial
statements, certificates, and documents obtained under any provision of this
Agreement or any other Loan Document, subject to Section 9.16.

SECTION 9.15. CONFIDENTIALITY. Lender will take reasonable efforts to
keep all financial information, and all information acquired as a result of any
inspection conducted in accordance with Section 6.7 (and any other information
provided to Lender under any Loan Document), confidential, provided that Lender
may communicate such information (i) in accordance with Borrower's written
authorization, to any Person in accordance with the customary practices of
financial institutions or entities engaged wholly or substantially in the
business of making commercial loans relating to routine trade inquiries, (ii) to
any regulatory authority having jurisdiction over Lender to the extent required
by applicable laws or regulations or by any subpoena or similar legal process,
(iii) to any other Person in connection with Lender's sale of any assignments of
the Obligations, provided that the recipient of such Obligations agrees in
writing delivered to Borrower to hold such information confidential in
accordance with the terms of this Agreement, (iv) to any other Person in
connection with the exercise of Lender's rights under this Agreement or any
other Loan Document, (v) to any Person to the extent required in any litigation
in which Lender is a party; PROVIDED, that to the extent permitted by applicable
law, rule or regulation or response to a subpoena, under or other legal process
or legislative body or committee or other governmental authority.
Notwithstanding the foregoing, information will not be deemed to be confidential
to the extent such information (w) was already lawfully in the possession of
Lender prior to the Closing Date, (x) is available in the public domain, (y)
becomes available in the public domain other than as a result of unauthorized
disclosure by Lender, or (z) is acquired from a Person not known by Lender to be
in breach of any confidentiality agreement with respect to such information.
Notwithstanding anything to the contrary, Borrower hereby consents to Lender's
discussions and communications with Borrower's independent public accountants
and agrees that such discussion or communication is without liability to either
Lender or Borrower's independent certified public accountants.

<PAGE>

SECTION 9.16. INDEMNITY. Borrower hereby agrees to indemnify and hold
harmless Lender, its partners, officers, agents and employees (collectively,
"Indemnitee") from and against any liability, loss, cost, expense, claim,
damage, suit, action or proceeding ever suffered or incurred by Lender
(including reasonable attorneys' fees and expenses) arising from Borrower's
failure to observe, perform or discharge any of its covenants, obligations,
agreements or duties under this Agreement, or from the breach of any of the
representations or warranties contained in Article IV. In addition, Borrower
shall defend Indemnitee against and save it harmless from all claims of any
Person with respect to the Collateral. Notwithstanding any contrary provision in
this Agreement, the obligation of Borrower under this Section 9.17 shall survive
the payment in full of the Obligations and the termination of this Agreement.

SECTION 9.17. APPOINTMENT OF AGENT UNDER THIS AGREEMENT.

(a) Each of the entities comprising Borrower (other than
PhyMatrix) hereby irrevocably appoints and constitutes PhyMatrix as its agent to
request and receive Revolving Credit Loans (and to otherwise act on behalf of
each such entity pursuant to this Agreement and the other Loan Documents) from
Lender in the name or on behalf of each such entity. Lender may disburse the
Revolving Credit Loans to the bank account of any one or more of such entities
without notice to any of the other entities comprising Borrower or any other
Person at any time obligated on or in respect of the Obligations.

(b) Each of the entities comprising Borrower (other than
PhyMatrix) hereby irrevocably appoints and constitutes PhyMatrix as its agent to
receive statements of account and all other notices from Lender with respect to
the Obligations or otherwise under or in connection with this Agreement and the
other Loan Documents.

(c) No purported termination of the appointment of PhyMatrix
as agent shall be effective without the prior written consent of Lender.

SECTION 9.18. FURTHER ASSURANCES. The parties agree that the Maximum
Loan Amount on this Agreement and the Affiliated Loan Agreements shall be
adjusted as the business needs of PMC change, subject to the exercise of
Lender's reasonable credit judgment and discretion.

SECTION 9.19. CHOICE OF LAW; CONSENT TO JURISDICTION. THIS
AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS AGREEMENT OR
THE NOTE IS COMMENCED BY LENDER IN THE STATE COURTS OF THE STATE OF MARYLAND OR
IN THE U.S. DISTRICT COURT FOR THE DISTRICT OF MARYLAND, BORROWER HEREBY
CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE
LAYING OF VENUE IN THE STATE OF MARYLAND. ANY PROCESS IN ANY SUCH ACTION SHALL
BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS
ADDRESS DESCRIBED IN SECTION 9.4.

<PAGE>

SECTION 9.20. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER HEREBY (A)
COVENANT AND AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY
A JURY, AND (B) WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY
SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY
IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY EACH PARTY AND THIS WAIVER IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. EACH PARTY IS HEREBY AUTHORIZED
AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF
EACH PARTY'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, BORROWER HEREBY
CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL)
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO BORROWER THAT LENDER WILL NOT SEEK
TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.

[SIGNATURES FOLLOW]

IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first written above.

LENDER:

HCFP FUNDING, INC.
a Delaware corporation

By: /s/ Jeffrey P. Hoffman
----------------------
Name: Jeffrey P. Hoffman
Title: Vice President

BORROWER:

PHYMATRIX CORP.
a Delaware corporation